Rhode Island Pension Reforms a Model for New Mexico

The opportunity to get something for nearly nothing is rare indeed. It is even rarer when one is talking about government, an entity that known more for turning something into nothing than the other way around.

But there was recently some good news on the government efficiency front in this country. Not in Washington where the monopolistic federal monolith continues to grow unabated, but at the state level where Americans can vote with their feet, in search of economic freedom and sound economic policies.

The glimmer of hope comes from Rhode Island, the smallest state in the nation and a state controlled by relatively liberal Democrats at the legislative level and a moderate governor who labels himself “Independent.” Politically, we’re not talking about Texas here. Nor are we talking about Wisconsin where Gov. Scott Walker took the government unions on directly and demanded concessions, thus generating a national debate that is still under way. But we are talking about a state, Rhode Island, which had the steepest population decline last year, a factor that undoubtedly spurred legislative action.

Rhode Island, perhaps because its leaders were free of the Republican stereotype of being “anti-labor,” successfully tackled the thorny issue of government pensions and did so in a way that has been below the radar screen and that has not generated the massive outcry and public rallies that were seen elsewhere.

Rhode Island, like New Mexico and so many other states, had let its government employee pension system grow out of control over the years. For political reasons, funding has not kept up (and was never going to) with over-generous promises for the future. According to the Pew Center on the States, Rhode Island’s unfunded pension liability had grown to $4.7 billion, with only 59 percent of its system funded.

What exactly happened in Rhode Island? In general, by making hard, politically-unpopular decisions now, Rhode Island has made state government more sustainable and able to provide the services that its citizens rely on for a far more reasonable cost.

Specifically, policymakers suspended annual 3 percent cost-of-living increases until funds become solvent and voted to raise the retirement age for most workers to 67 from 62. Most significantly, they shifted all state workers to a hybrid pension plan that includes a defined-contribution component and a small annuity.

Unions balked, as they have here in New Mexico over much smaller proposed changes. The difference is that Rhode Island’s liberal Democrats, realizing that if left un-reformed, government pensions would slowly crowd-out other spending on education, transportation, Medicaid, and the like, voted for the changes anyway. Despite threats of lawsuits, 77 of the state’s 94 Democrats in Rhode Island supported the changes.

New Mexico’s problem, while not as Rhode Island’s in percentage terms (76 percent of our system is funded), is bigger in aggregate terms and worsening. According to the same report, New Mexico was one of 10 states to drop below 80% pension funding in 2009 and our total unfunded pension liability was $7 billion.

Unfortunately, to date, New Mexico legislators have not even taken the modest step of changing plans for future workers to the 401K-style plans available in the private sector. These plans are actually popular with many young workers as, unlike pensions, they own and control their own money rather than relying on politicians to make sure that adequate funds are put aside.

Rhode Island’s is not the only reform model in terms of specific policies, but it is a model for New Mexico in terms of political will and desire to preserve itself for future generations.

As the Legislature meets in Santa Fe, the discussion of how to reform New Mexico’s pension system must begin in earnest and must cross party lines.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.