11:02 AM EDT on Thursday, June 23, 2005

BY SCOTT MAYEROWITZ
Journal State House Bureau

PROVIDENCE -- It has been a good week for Governor Carcieri.

After two years of budget battles between the mostly Democratic General Assembly and the Republican governor, Carcieri appears to have at last gotten just about everything he wants.

Lawmakers unveiled their version of the state's new $6.3-billion tax-and-spending plan Tuesday night and it included two of Carcieri's major wishes: an overhaul of the state's pension system and some tax relief.

"You never get everything. . . . but end of the day, on balance, I think it's pretty reasonable at this stage," an optimistic Carcieri said yesterday.

House Speaker William J. Murphy, D-West Warwick, called the budget "responsible" and noted that "pension reform" has been a House priority all year long.

Brown University political science Prof. Darrell M. West said Carcieri "has done very well."

"Democrats have been saying this is a do-nothing governor but he has real legislative achievements now," West said.

So why was Carcieri brought into the budget negotiations?

"It's very simple, they didn't have the votes," West said.

Forty-five Democrats elected Murphy speaker. If Carcieri backs the budget, Murphy could pick up some or all of the 15 House Republicans, giving him more than the 50 votes required to pass the budget.

Murphy dismissed that appraisal.

"I think that the governor realized that it's not . . . an election year," he said.

As for needing votes, Murphy said, "That's been the chirping from the same people who told you in November, December and January that I did not have the votes to be speaker."

Regardless, the budget -- including a reduction in the car tax and major changes to the state's pension system -- was unanimously passed by the House Finance Committee on Tuesday night, minutes before midnight. The measure is scheduled for a full House vote Monday and then heads to the Senate.

THE CENTERPIECE and most-debated part of the budget is what lawmakers and Carcieri have called "pension reform."

Most of the changes adopted by lawmakers were proposed by either Carcieri or General Treasurer Paul J. Tavares, a Democrat.

The pension changes would only apply to new hires and current employees with fewer than the 10 years of service necessary to be vested in the system.

The changes would affect about 4,350 state workers and 7,000 teachers and are expected to save the state and local communities about $44 million in the budget year starting July 1.

The pension overhaul institutes a minimum retirement age for the first time since 1984.

Under the current system, state employees and teachers can retire at any age as long as they have 28 years of service. Otherwise, they can retire at age 60, with at least 10 years of work.

The lawmakers' proposal requires workers to be at least 59 and have at least 29 years of service, or to have at least 10 years of service at age 65.

The Assembly also adopted a suggestion by Tavares: allowing workers to retire at age 55 with only 20 years of service, in exchange for a reduced benefit.

State employees now stop accumulating credit toward their pension after 35 years, maxing the system out at 80 percent of their salary. Lawmakers reduced the value of each year of service, capping the system at 75 percent after 38 years.

The other major change involves cost-of-living adjustments -- increases that retirees get each year.

Currently, retirees start getting a 3-percent annual compounded cost-of-living increase the third January after they retire.

The legislature plans to tie the cost-of-living allowances to the prior year's Consumer Price Index, a measure of inflation. Benefits would increase annually according to the CPI, or at 3 percent, whichever is lower. The compounded raises would not start until the third anniversary of retirement.

Lawmakers also struck a provision, called the Social Security supplement, that allows retirees to take a larger pension upfront, until they turn 62 and start collecting Social Security, in exchange for a slightly reduced benefit at a later date.

The Assembly also plans to review the pensions of other state employees not included here, such as troopers, judges, correctional officers and employees at quasipublic agencies.

NOTHING WITH the Assembly is set is stone until the final votes are cast -- something the state's labor unions are counting on.

"It's neither fair nor equitable," Marcia Reback, president of the Rhode Island Federation of Teachers and Health Professionals said of the changes.

Other union leaders had similar responses or refused to comment.

George H. Nee, secretary/treasurer of the state AFL-CIO, wouldn't discuss the pension package yesterday afternoon as he waited outside Speaker Murphy's office, saying the unions would respond at their own news conference today.

There they will unveil suggestions "to correct the potential injustice" the Assembly's plan would bring.

Moments after the House Finance Committee approved the changes Tuesday night, House Majority Leader Gordon D. Fox, D-Providence, said there might be more modifications.

Specifically, he said there could be a future reduction in the 8.75 percent of pre-tax salary state workers, and 9.5 percent local teachers contribute to their pensions. Language might be added, Fox said, that if in some future year the pension system is better funded -- say 80 percent of actuarial value -- then new and non-vested workers could see a quarter-percent decline in their contributions.

"At some point," Fox said, "you've got to balance the fact that employees are going to shoulder the lion's share of this."

With reports from Liz Anderson and Katherine Gregg

Digital Extra: Browse all 29 articles of the proposed state budget for fiscal year 2006, as approved by the House Finance Committee, at:

http://projo.com/2006budget

* Average of three highest years’ salary

SOURCE: Journal calculations based on proposed legislation