01:35 AM EDT on Friday, June 24, 2005

BY KATHERINE GREGG
Journal State House Bureau

Attempting to soften the blow of proposed pension cuts headed for a crucial legislative vote Monday, leaders of the state's public employee unions took the unusual step yesterday of proposing what they dubbed a "fairer" pension-reform package.

After successfully blocking the efforts of two governors, over 10 years, to rein in the spiraling cost of state employee and public-school teacher pensions, the glum-faced union leaders went public with a plea for pension savings on their own terms.

The proposals they rolled out at a State House news conference would tie new restrictions on pension eligibility for new and unvested employees to the prospect of reduced employee contributions, starting July 1, 2006.

Balking at any substantive curbs on the 3-percent annual cost-of-living increases state pensioners get now, they suggested that the state make up the difference between the $30 million or so in savings they propose -- and the $44 million the lawmakers are counting on -- by "refinancing" pension-fund debt.

"These are tough decisions for us. There are a lot of folks who expected we would stand here and just say no," said Robert A. Walsh, the executive director of the National Education Association of Rhode Island and designated spokesman for the union coalition known as WorkingRI.

Instead, Walsh said: "We are putting millions of dollars of savings on the table. We think it's fair," and "I am very optimistic that the legislature will look at these again."

When asked, however, the likelihood of any major changes in the pension-reform package that cleared the House Finance Committee just before midnight Tuesday, Democratic House Speaker William J. Murphy said: "I'll take a look at it . . . [but] I think what we came out with was a very good deal for the citizens of Rhode Island."

A spokesman for Republican Governor Carcieri said: "The union leaders' proposal appears to be a cynical attempt to head off real reform.

"The governor has been working to reform the state pension system for two-and-a-half years. He has had a comprehensive pension-reform proposal on the table since January. The union leadership has resisted the governor's efforts every step of the way," spokesman Jeff Neal said

"Now, at the eleventh hour, after the governor and the General Assembly appear to have reached agreement on this issue, the union leadership has come up with a half-hearted proposal that doesn't do nearly enough to solve the state's pension crisis.

"If the union leaders were serious," Neal said that they would have come forward months sooner. "Instead, they waited until the very last minute,when they realized that their efforts to crush the reform movement had failed."

General Treasurer Paul Tavares, a Democrat, keyed his objections to the unions' suggestion that the state string out, over a longer period of time -- in the same way a homeowner refinances a mortgage -- the payments it needs to make each year to the state retirement fund to cover about $8 billion in pension obligations to state workers and teachers.

The notion: pay less now even if it costs millions more over the longer payment period.

The state has about 25 years left on the last pension refinancing by the state Retirement Board in 2001. Doing so again now, when "the system has a significant unfunded liability that is growing," would be "counterproductive to the system's fiscal health," Tavares said yesterday.

Walsh said that "under normal circumstances" the unions themselves would oppose refinancing the pension system "simply to reduce employer contributions." But "these are not usual circumstances," he said, because the benefit structure is being revamped in a way that will make "higher demands" on new employees who did not benefit from past decisions that contributed to the current financial pinch.

"An unwillingness to refinance the system is the equivalent of splitting the dinner check with someone . . . who arrived today for yesterday's meal that they didn't even participate in. It's not fair," he said.

More specifically, the unions are offering to meet the governor and legislative budget writers halfway on pension-eligibility changes they rebuffed during a months-long pension-reform study last year.

Currently, state employees and teachers can retire at any age after putting in 28 years, or at age 60 after 10 years' work.

One main feature of the pension-savings proposal to be voted Monday in the House is the imposition, for the first time since 1984, of a minimum retirement age. In future years, a worker would have to be 59, with 29 years worked to collect a pension, or age 65 with 10 years worked.

The pension changes would apply only to new hires and the estimated 4,350 current state workers and 7,000 teachers with less than than the 10 years in necessary to be vested in the system.

The unions' proposal would stagger the minimum retirement age depending on where the workers are now: after 28 years of work, a retiree who currently has at least 5 years in could retire at age 57; those with 5 to 10 years, at age 58; and new employees at age 59.

The Assembly plan would also reduce the pension-dollar value of each year of work in such a way that retirees would max out at 75 percent of salary after 38 years, instead of the current 80 percent after 35 years. The proposed union compromise would allow a retiree to max out at 80 percent, after 38 years.

In exchange for these and other minor concessions, the unions want the legislature to reduce by one percentage point, on July 1, 2006, the pension-contributions of affected workers, and commit to future reductions. State workers now pay 8.75 percent of their salaries; teachers, 9.5 percent.

Asked why union leaders waited until now to air their proposal, Walsh said: "In hindsight, it might have been wiser to come out with these proposals earlier." But he said the unions were "optimistic" that they would see only what they considered "responsible" revisions until the recent discovery of a $25-million accounting error forced the lawmakers to dig deeper for savings.

Asked whether the unions thught the lawmakers let them down, he said: "No . . . because there is no approved budget on the House and Senate floor and signed by the governor yet. I reserve the opportunity to say that I feel let down at some point in the future, but I am still an optimist today."

If yesterday's budget briefing for lawmakers is an indicator, House members appear content with the $6.3-billion tax-and-spending and pension-cutting plan headed for a vote. About 20 of the chamber's 75 members showed up for the briefing, which generated only a few questions.

Gary S. Sasse, executive director of the Rhode Island Public Expenditure Council, said a 6.5-percent increase in spending "is hardly a fiscally conservative budget" in a year of anticipated 2.5-percent inflation, and 4.7-percent personal-income growth.

"The state's budget is growing faster than the economy," Sasse said.

With reports from Scott Mayerowitz of the State House bureau.

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