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Gina Raimondo, Rhode Island’s treasurer, listens to Ernest Gibbons, a retired employee of the University of Rhode Island, after a meeting on pension reform in Newport, R.I.. (STEW MILNE/NYT)
Gina Raimondo, Rhode Island’s treasurer, listens to Ernest Gibbons, a retired employee of the University of Rhode Island, after a meeting on pension reform in Newport, R.I.. (STEW MILNE/NYT)

Book Excerpt

How the Rhode Island treasurer slayed her state pension dragon Add to ...

To win support for her ambitious plan, she had to enlist Governor Lincoln Chafee, a one-time Republican who was voted into office after he ran as an independent. Chafee, 58 at the time, agreed the pension crisis was strangling the state, but he had opposed cutting the benefits on the campaign trail. His solution was to delay the crisis by stretching out or amortizing payments on the $7-billion funding shortfall over thirty years.

To Raimondo, the Governor’s stand exemplified the type of political stalling tactic that had allowed the pension contagion to spread. If Chafee didn’t back away from his plan, Raimondo, a rugby player, warned she was prepared to go to war. “I said, ‘Governor, I understand you’re going to advocate for amortization and I just want you to know if you do that, I’ll be vocally opposed,’ ” Raimondo recalled in an interview. To his credit, she says, Chafee listened.

The next step was to convince Rhode Island’s voters. This meant telling working and retired state employees their pensions had to shrink – bad news that no politician wants to share with his or her constituency. If she was going to win support from her state, the treasurer decided, she had to strip away the emotions by focusing on the math. Explain the numbers and reasonable people could not disagree that the state was being strangled by its pension debts. Mathematically, she would tell local reporters, it was “impossible” to fix the traditional pension regime. Redesigning Rhode Island’s retirement system, she said, “was an everybody issue.” Everyone – taxpayers, workers, and retirees – were all in the same boat: they would suffer income cuts or tax increases if the system was not redesigned.

In May 2011, four months after she took office, Raimondo issued a startlingly frank pension manifesto. Titled Truth in Numbers, the 16-page report was a bleak chronicle of how pension mismanagement had bequeathed taxpayers a pension mortgage that could no longer be paid, while leaving retirees with a shaky retirement home that was on the verge of collapsing. The report did not flinch from the sacrifices that Raimondo believed were necessary to salvage what was left of the state’s pension savings.

She wanted Rhode Island to borrow from the Dutch pension model and suspend cost-of-living allowances paid to 21,000 retired state employees until the underfunded plan was largely replenished. Future pension benefits should be calculated from a salary base that was drawn from workers’ average career income rather than the more costly base of their final income years. State employees would no longer be able to retire in their 40s and 50s; the retirement age needed to be shifted to 67.

The report explained the advantages of creating a new hybrid pension model that would roll workers’ accrued defined pension benefits together with a new defined contribution plan. The state would honour the defined benefits that workers had already accumulated during their career, but going forward it would only commit to paying fixed contributions to a hybrid pension that combined old defined benefit savings with the new defined contribution plan. The days of fully guaranteed pension benefits in Rhode Island were coming to an end.

Raimondo’s pension solution ranks as the most radical in recent North American history. “Sugar coating only hurts people,” Raimondo said. “This problem won’t go away until you fix it. The longer you wait, the harder it will be to fix.”

Faced with union opposition, Raimondo took her reform pitch on the road, visiting more than 100 community centres, town halls, immigrant clubs, and schools during the summer and fall of 2011 to tell crowds of disgruntled workers and retirees why they had to accept smaller pension benefits.

At most meetings, retirees, workers and labour leaders angrily denounced the state for breaking pension contracts employees had faithfully honoured with regular pension contributions. When workers shouted her reform was “immoral,” she retorted it was immoral to cut vital school and transportation services. She had so thoroughly researched local property tax rates in Rhode Island municipalities that she was able to tell any retiree who opposed pension cuts how much their taxes would increase in the next year if the benefits were not scaled back. Few could dispute her math, and even union opponents such as Robert Walsh, executive director of the National Education Association, the state teachers union, marvelled to reporters that she was “fearless.”

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