The Rhode Island Treasurer assured pension members and retirees Monday that state retirement funds will not be tapped by the state government, which just secured up to $300 million in debt to address the coronavirus pandemic.
Last week, the state took on an historically unprecedented emergency line of credit as the state’s coffers dried up in responding to the public health crisis. The additional cash infusion allows Rhode Island to meet its financial obligations until July, when the state is expecting an influx of income tax revenues.
The measure reflects the challenging fiscal decisions facing US lawmakers who are addressing the COVID-19 fallout with constrained balance sheets, which is adding pressure to state pension funds. But Treasurer Seth Magaziner said the retirement systems will remain intact.
“Under no circumstances will state pension funds be used to plug budget holes, as was done during the credit union crisis of the 1990s,” Magaziner penned in The Providence Journal. “Retirees in the pension system can rest assured that their benefits will continue to arrive on time in their full amounts.”
The state treasurer sought to reassure Rhode Island municipal and state workers and retirees, who have seen pension funds raided and funded ratios falter after previous economic crises. In the 1990s, the state dipped into the retirement system after hundreds of thousands of Rhode Islanders lost access to their bank funds—about $1.7 billion in deposits.
After a bank president in Providence was found to have embezzled $13 million from his own firm, the state’s banking system failed. Dozens of banks and credit unions closed, businesses failed, and many state residents did not see their own money for more than a year.
The system’s funded ratios similarly never fully recovered from the Great Recession. By June, two of the state’s pension plans for state employees and teachers were funded at 53% and 55%, respectively. In February, the entire state pension system was valued at $8.5 billion.
Years from now, the lowered funded ratios will likely result in increased contributions for employers, according to a spokesperson for the state Treasury.
But the $300 million credit line helps the state government handle immediate concerns in the time of the coronavirus, as unemployment spikes. In the past few weeks, some 70,000 Rhode Islanders have lost their jobs, about 12% of the roughly 600,000 adults counted in the state workforce.
The pandemic has ensured that business operations—such as the state’s casinos that generate roughly $25 million in tax revenue—have come to a halt.