August 9, 2009 Westerly Sun

The Privileged Working Class

Unemployment is at a 25 year high. Rhode Island was among the first in the recession and economists predict we will be among the last ones out. During these tough economic times public sector contracts continue to pay double-digit raises and provide benefits that will bankrupt our towns in the coming decades. The recently signed Hopkinton police contract is a perfect example.

The HPD contract, like most other public sector contracts, rewards seniority rather than performance. While the yearly “raises” have been kept low, the underlying “Step” increases combine to make a real “raise” as high as 16% per year - this at a time when we have asked every other employee in Hopkinton to accept a 2% raise.

But the most egregious item in the new contract, which was also passed in the previous three contracts, is the pension.

People that do not work for the state, or town, normally receive pensions that define how much money will be deposited into an account for the employee to draw from during retirement. These are called defined contribution plans.

Public sector pensions are defined benefit plans and they pay out more money for longer periods of time than defined contributions plans. The difference between the average private sector plan and the Hopkinton Police Department’s plan is shocking.

A Hopkinton police officer may retire after only 20 years (as young as 44) and will receive a percentage of their salary increasing at a rate of 3% compounded annually. As Einstein said compound interest is “the most powerful force in the universe.”

As an example, an officer leaving the force after 20 years, with a $70,000 salary, would receive $1,665,139 over the next thirty years. The amount paid by the town could be even more as people continue to live longer.

In a defined contribution plan, using the same employee terms, the maximum amount the town would be responsible for is $80,830, half of the accumulated $161,660 retirement pool. I know we all appreciate our police department, but giving them a pension that pays 10 times that of the private sector is too much.

There was a day when these employees received low salaries so the pensions balanced the deal. Today, the average Hopkinton police officer makes nearly $70,000 while the average Hopkinton income is closer to $47,000.

The Westerly Sun reported the Hopkinton council’s defense of the contract on two points: (1) they claimed “not to alter police pensions because of future pension reforms the state may make,” and, (2) that the town couldn’t change the pension because they “didn’t know what (they) wanted to trade off for something that huge.”

First of all, the council has more faith in Smith Hill than I do. The lawsuits filed by the unions in opposition to the current moderate reforms do not bode well for future more significant reforms.

Secondly, regarding the question of what we have that is “huge” enough to exchange for true pension reform – I can save the council time and say that we don’t have anything. Just because councils of the past made outrageous mistakes doesn’t mean we have to be bound by them.

There are currently 18 people eligible for, or already receiving, the HPD pension. Using the figure above as an average, the town of Hopkinton could reduce its liability by over $27 million by simply ending the current program and providing a pension equivalent to those provided in the private market. Why are we mortgaging our children’s future for a select group of employees?

Town councils and school committees can continue to nibble at the edges of contract reform, but drastic measures are needed. It is time to treat public sector employees the same as private sector employees – no better, no worse.

Bill Felkner is the president of the Ocean State Policy Research Institute and a member of the Hopkinton Town Council