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Rhode Island Pension Legal Stance Divides Gov., Treasurer

As Rhode Island heads to court Friday to defend its landmark pension overhaul law against a challenge from public sector unions, its public officials have emerged with different takes over what to do about it.

Gov. Lincoln Chafee said Wednesday that the state should explore “reasonable settlement options,” a move that labor leaders in the Ocean State applauded.

General Treasurer Gina Raimondo, by contrast, wants Rhode Island to stand firm. “We should litigate that case forcefully. The law is on our side and we have a very good case,” Raimondo said in New York Wednesday night while accepting the Freda Johnson Award honoring trailblazing women issuers at The Bond Buyer’s annual awards banquet.

The state in November 2011 passed the Rhode Island Retirement Security Act , which Raimondo championed and Chafee signed. It took effect on July 1.

The far-reaching measure created a hybrid plan merging conventional public defined-benefit pension plans with 401(k)-style plans. It also included a suspension of cost-of-living adjustment increases for retirees and raises the retirement age for employees not yet eligible for retirement.

Officials estimated the new law would enable Rhode Island to trim its $7 billion unfunded pension liability by roughly $3 billion over 20 years. They also say the move will save cities and towns $1 billion over the next two decades. Five public-sector unions are challenging the law.

The legal dispute is before Rhode Island Superior Court, where the lineup includes über-lawyer David Boies of Boies, Schiller & Flexner LLP, on behalf of the state, and Judge Sarah Taft-Carter.

Boies, who according to media reports is charging Rhode Island a nominal fee, represented Vice President Al Gore in the 2000 presidential dispute and served as special trial counsel for the U.S. Department of Justice in its antitrust suit against Microsoft Corp. He is expected to appear in court on Friday to challenge Taft-Carter’s impartiality. According to WPRI.com, Attorney General Peter Kilmartin has his own legal team in place as well.

Taft-Carter said last month she would not recuse herself from the case, even though her son is a state trooper, and her mother collects a benefit from her late husband, former Cranston Mayor James Taft. The judge said her family’s financial interest not significant enough to affect her neutrality.

Bond rating agencies praised Rhode Island for passing the new law. Moody’s Investors Service rates the state’s general obligation bonds Aa2, while Fitch Ratings and Standard & Poor’s assign AA.

Central Falls was able to cut pension benefits by up to 55% during its 13-month stay in bankruptcy court. After its exit from Chapter 9 in September, Moody’s and Standard & Poor’s raised their GO ratings of the city to B2 and BB, respectively.

Chafee and Raimondo met last month to discuss their differences. “Our conversation on current events was lively,” Chafee said in a follow-up letter.

“It is common practice for settlement discussions to be held while litigation is proceeding,” Chafee added. “All litigation has chances of success and failure and it would be beneficial to our economic standing to have the major court cases associated with pension reform resolved amicably.”

In an interview with The Bond Buyer at the state capitol in Providence in August, Chafee admitted a defeat could cost Rhode Island “hundreds of millions” of dollars.

Raimondo issued a statement Wednesday urging the legal battle play out. “We now must let this process unfold in an orderly and transparent way. It is not the time for closed-door meetings,” she said.

According to Raimondo, the votes, 52 to 15 in the House and 36 to 2 in the Senate, reflected strong Rhode Island sentiment for pension overhaul. “It wasn’t like there was division and they barely passed it,” she said at The Bond Buyer banquet.

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