ROBERT SIEGEL, host:
You're listening to ALL THINGS CONSIDERED from NPR News.
This week, we're looking at the difficulty many states will have keeping their pension promises. Yesterday, we heard about generous benefits that California has extended to many of its employees. But it's not just state governments that have problems. Today, we turn to the small city of Cranston, Rhode Island, now in a bind because it, too, has promised more than it can afford.
And as NPR's Jim Zarroli reports, the bill is coming due.
Mayor ALLAN FUNG (Cranston, Rhode Island): Very big train corridor.
JIM ZARROLI: Allan Fung steps gingerly through the weedy, trash-strewn ground around the railroad tracks that bisect Cranston, the city where he serves as mayor. Now in his first term, Fung dreams of building a commuter rail station here to link Cranston with Providence and Boston.
Mayor FUNG: I see this as a great opportunity to revitalize and push economic development in a part of Cranston that sorely needs it.
ZARROLI: But with an unemployment rate of nearly 13 percent, Cranston is pretty much broke these days. And one big reason money is tight is a huge, unfunded pension liability equal to more than twice the city's annual budget.
Mayor FUNG: Right now, the unfunded liability is well over $240 million. So it's a big obligation. And it's basically a ticking time bomb for the city of Cranston, that we are trying to get our handle on.
ZARROLI: The problem for the city is this: For many years, Cranston operated a closed pension fund for its police officers and firefighters. Every two weeks, the city took money out of their paychecks. The money was supposed to go into a fund and get invested so there'd be money to pay their pensions. Over time, more than 500 people became part of the fund. And a lot of them have retired -people like 50-year-old firefighter John DeGenova.
Mr. JOHN DEGENOVA (Retired Firefighter): You know, I was pushing 50 and to be honest with you, it just wasn't as physically easy for me anymore, you know. I mean, in a lot of career fields, you're still a young man at 50. In that game, you're not.
ZARROLI: DeGenova sits at a small kitchen table overlooking the backyard of his Cranston home, where he's now taken to gardening. It's a pretty comfortable existence. He and his wife get a pension equal to 70 percent of his salary, with regular raises. The promise of a good pension was one of the things that drew DeGenova to firefighting.
Mr. DEGENOVA: People I know who made a lot more money than me and, you know, well, you know, what are you doing? Look at you, you know, you're working for the city, you know, kind of looking down their nose. But I had the security. And you know, that was always very important to me.
ZARROLI: But over time, pensions promised to people like DeGenova have turned into an incredible drain on the city's finances. Retirement costs for police and firefighters now suck up 20 percent of Cranston's budget, making it a lot harder to pay for things the city needs.
How this happened is a testament to political shortsightedness. Former Cranston Mayor Stephen Laffey is a big critic of the way the city has been run over the years. He says for a long time, the city bought peace with its unions by promising them overly-generous retirement benefits. Police and firefighters are allowed to retire after 20 years with half their salaries.
Mr. STEPHEN LAFFEY (Former Mayor, Cranston, Rhode Island): I had to sign legally - and I didn't want to - people who would retire at 39 or 40 to get free health insurance for the rest of their lives, for their whole families, to get a minimum 3 percent raise forever, to get a 5 percent extra raise when they turned 55 - called the birthday bonus.
ZARROLI: And Laffey says city officials did something even worse. They would take pension contributions from workers only, instead of investing the money, they spent it on things like snow removal and road repair and employee salaries.
Paul Valletta, who heads the firefighters union, says his local complained long and hard about what was happening. It even took the city to court to try to get it to stop.
Mr. PAUL VALLETTA: We would always say, you know, something has to be done here. But they were going on the way they always went on, using that money for other purposes. You know, it was politically better for them. They didn't have to raise taxes, they could use that money for other things, things that enhanced their political careers. But they didn't put it where it was supposed to go.
ZARROLI: Because Cranston didn't set aside enough money, it has to pay most of its pension costs out of operating funds. Mayor Fung says Cranston can no longer afford to sweep the problem under the rug.
Mr. FUNG: A lot of times, it's difficult to make change unless we're at a crisis stage. And unfortunately in Rhode Island, and even in Cranston, we are at that crisis stage.
ZARROLI: Cranston has now closed off its pension system, meaning newly hired police and firefighters, and city employees in general, now pay into the Rhode Island pension plan. But Cranston will still be on the hook for years to come. Meanwhile, the state's pension system has troubles of its own. The state failed to make adequate payments into its pension plan for many years and today, it's underfunded by more than a third.
Jim Zarroli, NPR News.