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As we head into the first few weeks of fall, Rhode Islanders aren’t the only ones with pension reform on the brain. At a recent session during the Policy Innovators in Education Network conference, stakeholders from the business and education communities talked about why the unsustainable pension costs across the country are something everyone in education should care about.
The unfunded liability for Rhode Island’s state pension fund is around $7 billion, or roughly $7,000 per resident. Because public school teachers are included in the state funded pension system, this liability directly affects public education in our state. The unfunded liability for public school teachers alone is $4.1 billion, representing a large portion of our education spending in the state. It is estimated by the RI Department of Education that teacher pension costs will increase 60% between FY 2012 and FY 2013. This fiscal year, roughly $204.1 million from education funds will be spent on pension costs – next year that number rises to $327.2 million.
There are several underlying causes behind the pension challenge, as pointed out by the PIE Network pension reform panelists Chris Tessone from the Thomas B. Fordham Institute, Raegan Miller from Center for American Progress and Linda Noonan from the Massachusetts Business Alliance for Education. Many states, for example, have had overly optimistic expectations about the rate of return for pension funds, sometimes reporting rates as high as 8 or 9 percent. But because of the economic downturn, the market has been delivering much lower rates—in some cases, only two to four percent. In Rhode Island, these incorrect projections, combined with increasing benefits for state employees without increasing contributions from the state,. played a big role in where we are today.
Luckily, Rhode Island voters elected a competent and driven leader in General Treasurer Gina Raimondo in 2010 and she has demonstrated commitment to real reform. With the Treasurer and Governor Chafee working with the legislature, the General Assembly will introduce and vote on a sustainable solution for the pension system once and for all. Stay tuned!