Fair Compensation

November 07, 2011 By Phil Welles

Lessons in Liability: What Ohio Can Learn From Rhode Island

Ohio has a major vote coming up. The citizens of the state have to decide whether or not to pass controversial legislation, Senate Bill 5, into law. Recent polling would suggest that the bill is headed to defeat, but many in the state are still probably in favor of some sort of legislation curbing public sector spending.

It seems as though many are skeptical that change needs to happen in Ohio. You hear talk of union-busting, or that the legislation is too overreaching. The issue is being viewed as a political issue – not one rooted in fiscal responsibility.

Enter Rhode Island.

The smallest state in the country has a huge problem.

One RI town, Central Falls, has already declared bankruptcy, and others may not be far behind. The New York Times recently ran an extensive piece on the financial problems befalling Rhode Island. Essentially the problem comes down to unfunded pension liabilities.

At the present rate most cities in the state will not be able to pay for the costs of current retired Rhode Islanders, not to mention future retirees. The state continually ignored warning signs about future economic conditions, and now may have to cut into current retirees’ pensions to keep the entire state from insolvency.

What does this have to do with Ohio? Back in June, the New York Times reported on unfunded pension liabilities on states in the US and their potential impact on taxpayers. It is recommended that states hold at least 80% of the funds needed for future obligations. Ohio, short $23.9 Billion of that 80%, has the second largest liability in the country.

However, concern arises when you compare Ohio and Rhode Island in regards to liability and state population ratios. Take the liability in Ohio, and divide it by population and you come up with approximately $2,070 in liability per person. When you apply this same calculation to Rhode Island, you end up with approximately $2,279 in liability per person.

These two numbers are distressingly close.

Many factors go into not being able to meet pension requirements. With such a small population, it may be harder for Rhode Island to generate revenue the way a larger state like Ohio can.

Nevertheless it highlights a disturbing possibility. If Ohio cannot get its pension system under control, it’s not hard to see a similar catastrophe like we’re seeing in Rhode Island happen in Ohio. Some studies suggest that there’s as much as 40% gap in retirement compensation between public and private sector employees in the state.

With Ohio currently in the throes of a public sector compensation debate, there’s no better time than now to act before it’s too late. The debate is sure to last long past the vote on SB5. Let us know what you think about the problem, and how you think Ohio should address it.

• Pensions

• Unfunded Liablities

• public unions

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