FRONT PAGE CONTRIBUTOR
Time And Reality Are Rhode Island’s Deadly Enemies
Time waits for no one, no favours has he
Time waits for no one, and he won’t wait for me
If mathematics were as linear as the passage of time, Rhode Island would have a public pension inconvenience. This sadly does not hold true. Interest on borrowed money increases debt in an exponential fashion. The promises made to older working people need to be based on verifiable facts. If you promise them monies based upon a perpetual average return on investment of 8.25%, then you had already better have that return locked in when you make the promises. Rhode Island failed to meet this standard and is now on a road to pension failure.
The state of Rhode Island is currently making 2.4% on its pension investments. Given the current economic environment, someone should cut that pension administrator a bonus check. Sadly, magical thinking became state law in Rhode Island. Pension payouts were promised based upon an 8.25% rate of return. This leaves a differential of 6% that state law mandates the government of Rhode Island to scoop out of somebody’s pocket.
Once the impossible became a legal guarantee, it was only a matter of time and random probability before the mathematics reminded Rhode Island that Mr. Logic is no man’s drinking buddy. The New York Times delves into the extent to which Rhode Island is heading towards checkmate at the hands of reality.
Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo (Treasurer of Rhode Island) has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents.
One intelligent question to ask…How fast will the unfunded liabilities double? The New York Times gives us the mathematical data to make a good estimate.
Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent; the real number for the last decade is about 2.4 percent.
This leaves the state 5.85% short of a full bank account on an annual basis. They now pay 10% of the State Budget to fill public pension holes. Ceteris Paribus, they will pay out 19.78% (more or less 20%) in twelve more years. In twenty-four more years, that liability will jump to 40% of Rhode Island’s current budget.
Unless they’ve got a master-plan to take all those new jobs that Texas is getting right now, their revenue base won’t remain Ceteris Paribus. It will severely decline. When I point out the exponential nature in which Rhode Island is whirling down the toilet of fiscal ignorance, I make a mistake. My projections are entirely too optimistic and nice to current Governor, Lincoln Chafee.
What will be done? Nothing. Look at the time-frame on this. Chafee won’t be governor twelve years hence. He gets a lot of his money from the Providence SEIU. It’s easier to kick the can on this one. The spring can withstand a little more tension until it can’t anymore. Chafee’s politically expedient answer is to praise Occupy Wall Street. The Banksters should just give Rhode Island 8.25%.
This chaps my butt all the way from Providence to Huntsville, Al. I’m not personally hurt by Rhode Island’s particular negligence in this matter. I am hurt by the attitude it represents. I’m promised a lot of things like Social Security, Medicare, The TSP, what have you. Are they really Ponzi-Schemes?
Are they generational transfer payments that will stop transferring long before it’s my turn to dip my beak in the trough? It depresses me to no end the amount of grief Governor Perry has taken for putting these questions on the table. Meanwhile, for Rhode Island*, that ticking sound you hear in the background could be your pension fixing to blow.
* – and for anyone else counting on a government pension.