Time And Reality Are Rhode Island’s Deadly Enemies

The Passing of Every 12 Years Doubles Their Unfunded Pension Liabilities.

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.

• izoneguy

Rhode Island: Athens of America?

The fifty year old teacher, fireman or police officer may have been naive to believe his or her union leaders, the politicians and the journalists who all said there was nothing to worry about ? but most of those workers cannot be called ?greedy? or ?selfish?. They are victims of a complex, multi-player Ponzi scheme and have been lied to by a lot of people for a long time. They also face some serious financial costs. Not only are their pensions likely to be less generous and solid than they were led to expect; they may well face layoffs and wage freezes as states struggle to cope with legacy costs.

Ponzi scheme? Where have I heard that before?

• Repair_Man_Jack

Of course, any honest discussion of that got shut down. Some days I keep thinking we ask for it until we get it.

• papabear

Romney takes the lion share of the blame – he immediately started the pander bear routine. However, Perry made the accusation before he was ready to argue it.

• earlgrey

People will try to pin this on Bush because of the “CRISIS” we had in 2008, but I remember reading years ago that state and municipal pensions were a ticking time bomb. They locked in generous returns from the dot.com boom for their pensioners not bothering to acknowledge that those were unrealistic numbers.

• Raven

Their pensions blew up about 6 or 8 years ago and were nationalized. I think RI may be counting on the same being done for them.

• izoneguy

Illinois is right behind Rhode Island

Two lobbyists with no prior teaching experience were allowed to count their years as union employees toward a state teacher pension once they served a single day of subbing in 2007, a Tribune/WGN-TV investigation has found.

Preckwinkle’s one day of subbing qualified him to become a participant in the state teachers pension fund, allowing him to pick up 16 years of previous union work and nearly five more years since he joined. He’s 59, and at age 60 he’ll be eligible for a state pension based on the four-highest consecutive years of his last 10 years of work.

His paycheck fluctuates as a union lobbyist, but pension records show his earnings in the last school year were at least \$245,000. Based on his salary history so far, he could earn a pension of about \$108,000 a year, more than double what the average teacher receives.

His pay for one day as a substitute was \$93, according to records of the Illinois Teachers Retirement System.

Over the course of their lifetimes, both men stand to receive more than a million dollars each from a state pension fund that has less than half of the assets it needs to cover promises made to tens of thousands of public school teachers. With billions of dollars in unfunded liabilities, the Illinois Teachers’ Retirement System, which serves public school teachers outside of Chicago, is one of several pension plans that are in debt as state government reels in a fiscal crisis.

• acat

Heh. Illinois is gaining speed as more and more of our productive citizens and their job-creating moxie relocate across the border to Indiana or Wisconsin or out of the snow belt to Texas.

• charlesranderson

The Democrat investigation into the cause of financial collapse has claimed it was caused by the financial companies and has deflected attention from all government responsibility. The “results” are now being used as a justification for lawsuits against the banks and financial institutions for the recovery of lost income by state and local government underfunded pension funds. These lawsuit awards added to the already precarious state of many banks, will require Dodd-Frank “financial reform” to keep the too big to fail banks from failing. As a result, money collected from Americans across the country as banking fees will be used to fill in substantial parts of the funding gap in the foolishly designed state and local government pension plans. This cost will be levied on the people of many states and localities which were more responsible, meaning largely more Republican dominated governments. It is a very cunning bailout with payouts to trial lawyers, government union workers, Democrat states and local governments, and teachers. Note that all of them are staunch Democrat supporters.