Providence Sets Deal to Curb Pensions, Prevent Bankruptcy

Providence Mayor Angel Taveras reached a tentative accord with union leaders and retirees that cuts pensions for workers including police and firefighters and prevents bankruptcy for the Rhode Island capital.

The agreement is the latest to scale back public-worker benefits in states and cities from California to Maine seeking to curb pensions as costs have ballooned and investment returns have soured even as retirees live longer. Providence needs almost $1 billion to fulfill its contract promises after failing to make required contributions to its retirement system.

“We believe that this is the deal that will save the pension system and save the city of Providence,” Taveras, a Democrat elected in 2010, said by telephone yesterday. “We obviously think that this is a good deal and are cautiously optimistic that it will be approved.”

The mayor of the smallest U.S. state’s biggest city has pushed for concessions from municipal unions and greater contributions from nonprofit organizations such as Brown University as he seeks to stave off insolvency. Earlier this month, Brown, the tax-exempt Ivy League school, agreed to increase its payments in lieu of property taxes.

“Providence did the right thing and hopefully there is a precedent here,” Governor Lincoln Chafee, an independent who signed a law that curbs the state’s pension costs, said yesterday by telephone.

Follows Earlier Mandate

The agreement was reached a month after Taveras signed an ordinance mandating similar changes, prompting threats of lawsuits from unions and retirees. Opponents said the cuts would break labor contracts.

The accord needs to be formally approved by union members and retired workers as well as the City Council, the mayor said.

Under the agreement, the city would suspend annual cost-of-living adjustments for current and future retirees for the next decade, Taveras said in a statement. It would permanently end 5 percent and 6 percent annual increases given to about 600 former firefighters and police, and cap all future pensions at 1.5 times the state’s median annual household income, or almost $82,400, he said.

“This, I think, if approved, will take bankruptcy and push it out to sea and hopefully we’ll never see that again,” Taveras said by telephone. “But we still have more to do.”

Six-Figure Pensions

There are more than two dozen former public safety workers collecting pensions of more than $100,000 this year, including Gilbert McLaughlin, a fire chief who retired in 1991 at a salary of $63,510, who gets the most, at $196,813, according to the city. With a 6 percent cost-of-living adjustment, McLaughlin was on track to get $700,000 a year if he lived to 100.

Lawmakers in Rhode Island, with the second-highest jobless rate in the U.S. in April at 11.2 percent, passed a similar overhaul of the state pension system last year. The changes, backed by Chafee, suspended cost-of-living increases and raised the full retirement age for government workers and teachers. The governor has pushed a bill to help other cities and towns in the state make similar changes.

“The Legislature is still reluctant to take on municipal issues so I’m not that optimistic as they wrap up their session we’re going to get that package passed the way I want it,” Chafee said yesterday.

Retiree benefits have been in the spotlight since August when Central Falls, the state’s smallest city, sought bankruptcy protection after being overwhelmed by pension obligations.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE