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On August 24, 2010, the state of Rhode Island received some outstanding news. Its yearlong, bipartisan effort to develop new policies to spur educational improvement was about to pay off. The state, along with eight others and the District of Columbia, was named a winner of the U.S. Department of Education's Race to the Top grant competition. The reward: $75 million in new education funds, the largest single competitive federal grant ever to flow to the tiny coastal state.
But while state leaders celebrated their hard-won victory, a growing, and mostly hidden, financial hole was already sucking away the entire award and more. The state's required pension contributions, the second-fastest growing line-item in its budget, had doubled from 2003 to 2010, from $139 million to $302 million. And by 2013, when the federal funds are supposed to be hard at work transforming the state's schools, required pension contributions are expected to double again, to $615 million. The numbers are staggering: the Pew Center on the States puts Rhode Island's unfunded pension liability at $4,479 for each of the state's residents. And State Treasurer Gina Raimondo has cited more recent estimates of twice that much.
These alarming statistics have led to an unprecedented effort to reform the state's pension plan. Confronting this fiscal nightmare is the right thing to do. Not only is the current system a financial back-breaker, it can also work to prevent the state from recruiting, retaining, and adequately compensating the high-quality teachers and principals that are critical to its educational and economic success. The current pension system is far from equitable: it highly rewards some teachers, penalizes others, and pushes some good teachers into premature retirement. It also allows teachers with similar years of experience to receive vastly different benefits. These facts, along with the budget crisis, should be more than enough to galvanize state leaders. Right now, they have an opportunity to solve a financial crisis in a way that also advances the state's ambitious, and essential, educational goals.
This brief answers the following key questions about Rhode Island's pension system and possible reforms:
- Why is pension reform urgent?
- What caused the pension crisis?
- How does Rhode Island’s pension system work?
- How does the current system treat similar teachers differently?
- What is the current reform proposal?
- What are the legal implications of pension reform?
- What should policymakers do?
The Eli and Edythe Broad Foundation provided funding for this brief. The findings and conclusions are those of the authors alone and do not necessarily represent the opinions of the foundation.
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