By Michael McDonald
Bloomberg News
It has been more than 20 years since Gilbert McLaughlin ran the fire department in Providence, Rhode Island. Yet the former chief stands to be biggest loser as the capital of the smallest U.S. state flirts with insolvency.
McLaughlin, 75, is the highest paid of Providence’s 3,000 retired workers, collecting a $196,813 pension this year, the result of yearly 6 percent cost-of-living increases the city once bestowed on firefighters and police. Lawmakers, facing a $1 billion deficit and squeezed for cash, ended the automatic raises and capped annual payouts. Now retirees such as Gillie, as he is known, won’t see their pay outs double every 12 years.
“No one ever did the math on this,” Paul Doughty, head of the firefighters union, said in an interview in his office above the bar at the Firefighters Memorial Hall in Providence. “I don’t think anyone had any idea that if Gillie lived to 100, he’d be making $700,000.”
While a Providence official in 1989 warned such giveaways could one day bankrupt the city, the arrangement bought peace with labor unions, a compromise made in town halls and state capitals across the country after stock market gains fattened pension funds. Now lawmakers are trying to rein in benefits. Since 2009, more than 40 states have lifted retirement ages, cut automatic raises, or increased employee contributions, typically targeting new workers to avoid conflicts with laws or contracts.
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