When Bill Clinton spoke at the Democratic National Convention in September, he gave the party faithful an arithmetic lesson and stole the show. The former president poured scorn on the proposed plan of Republican presidential candidate Mitt Romney to both cut taxes by $5 trillion over ten years and reduce the federal budget deficit, exclaiming, The numbers just dont add up!
Gina Raimondo knew what he meant. The Rhode Island treasurer, a venture-capitalist-turned-political-rising-star, was listening as a convention delegate and understood tough fiscal math. When she took office in January 2011 she had won a commanding electoral victory after campaigning for fiscal and pension reform her tiny state was struggling under a huge debt burden and ballooning pension liabilities. The $7.4 billion state retirement plan was only 50 percent funded and on course to run out of money as early as 2019. For decades Rhode Island officials had fitfully tried to reform the system, with little success, as workers and retirees fought to keep hard-won benefits that the state could no longer afford.
With focus and determination, a sure command of finance and a gift for forging consensus, Raimondo took up the challenge. She produced a blunt, hard-hitting report titled Truth in Numbers: The Security and Sustainability of Rhode Islands Retirement System that made a stark case for pension overhaul: Without drastic measures to rein in costs, the report asserted, the states retirement liabilities would devastate a wide range of government programs and ultimately bankrupt the pension plan itself, to the detriment of retirees.
Pension reform was not an easy sell in a state with a Democratic-controlled legislature and strong unions. But Raimondo traveled across Rhode Island, arguing her case with voters, legislators and union representatives in a series of town-hall-style meetings. Her campaign received a powerful boost in the summer of 2011 when Central Falls, a small city just north of Providence, became the first-ever Rhode Island municipality to file for bankruptcy, almost entirely because of its pension burden. The treasurers efforts secured a dramatic triumph when in November 2011 the states legislature passed a major pension bill by a wide margin and the reforms were signed into law by Governor Lincoln Chafee, a Republican-turned-independent and son of a longtime U.S. senator.
I just could not live with myself for not fixing the retirement system, knowing at some point in time the well would run dry and someone would be told they dont have a pension, the slight and personable Raimondo tells Institutional Investor in an interview at her office at the state capitol. Once people started to grapple with the consequences of not fixing the problem, they started advocating for change.
The Rhode Island Retirement Security Act of 2011 increased the minimum retirement age for most employees not already eligible to retire, suspended cost-of-living adjustments for retirees and moved all public workers except public safety officers who pay into Social Security and judges to a hybrid defined benefitdefined contribution system. Even more significant, the new law rewrote the rules for everyone, including fully vested employees and current retirees, not just 20- and 30-something workers. That achievement, the first by any state, has a meaningful impact on the funding gap and promises to ease some of the generational tensions that hamper many pension reform attempts. Government officials in other cash-strapped states have taken notice, as have labor advocates. All are closely following a lawsuit filed by public sector unions to block the Rhode Island law. High-profile litigator David Boies is aiding the states defense.
It is just a mathematical fact that if you have a pension reform that only impacts new employees, young employees or people who arent vested, its simply unfair, says Raimondo, 41. It is intentionally pushing the debt onto the backs of our youngest and newest workers.
The treasurers legislative achievement has translated into considerable political capital: Along with Angel Taveras, the mayor of Providence, she now ranks as one of the two most popular politicians in the state. Many see the quietly ambitious Raimondo as a prime prospect for higher office.
In tackling Rhode Islands pension woes, Raimondo joins a new generation of politicians and policymakers, both Democratic and Republican, who are trying to solve deep-seated fiscal and economic problems in their cities and states. At a time when partisan wrangling is wreaking havoc in many state capitals and politicians in Washington are engaging in a game of chicken over the so-called fiscal cliff, Raimondo and her cohorts take a pragmatic approach and seek to respect the views of all stakeholders. In Newark, New Jersey, for example, Democratic Mayor Cory Booker worked with Republican Governor Chris Christie to forge a deal with the citys teachers union that includes a pay-for-performance component. In California the Republican mayor of San Diego, a former police chief, and the Democratic mayor of San Jose led calls for referendums on cutting pension benefits in their cities; both passed by wide margins.