In 2009, Gina Raimondo was working in the private sector in Rhode Island and raising a family. She had been concerned about state government finances for some time. Then one day, incited by a news article, she decided to do something about it. She ran for Treasurer of Rhode Island and won the 2010 election despite focusing on state pension systems—the “third rail” of state politics.
Many Rhode Islanders viewed her messages as reasonable ways to deal with a difficult problem. Raimondo led legislators in enacting major pension reforms.
On December 5, Raimondo discussed those reforms at a breakfast meeting with Chicago-area business, government, and academic leaders. The early morning meeting, hosted by the Union League Club of Chicago and the Institute for Truth in Accounting, attracted an overflow audience of more than 100 people.
Rhode Island’s finances had been in bad shape, and the Illinois audience was interested in learning what she did and how she did it. With an unfunded pension liability of more than $90 billion, and more than $8 billion owed to state vendors, Illinois has one of the nation’s worst fiscal situations.
Raimondo joked that whenever she felt especially discouraged about Rhode Island’s problems, looking at Illinois always made her feel better. Estimates from the Institute for Truth in Accounting show Illinois’ taxpayer burden is among the worst in the nation, more than twice as high as Rhode Island’s.
Raimondo said her pursuit of fact-based inquiry played a critical role in her success—first, in getting elected, and second, in gaining the confidence of state legislators and the public during policy development.
Raimondo refrained from providing specific reform proposals during her campaign. She was clear about her concern regarding the state’s pension plans, however, and focused her messages on the need to educate the public about the true depth and scope of the problems. Pressed for a campaign pledge not to change benefits in teacher pension plans, Raimondo refused. She lost the teachers union endorsement but won the election.
In June 2011 Raimondo’s office produced “Truth in Numbers ,” a report that received positive responses and significant press coverage. She said the report had four key objectives—estimating the current price tag for future obligations arising from past public services, identifying the main factors in the state’s structural pension deficit, understanding the implications of letting things stay as they were, and proposing a framework for solutions.
Foundation for Communication
Raimondo, her staff, and a private-sector advocacy initiative used the Truth in Numbers report to lay a foundation for communication to build broad support for a shared solution. She stressed her goal was retirement security for public workers, and for public benefit.
There were times, however, when push came to shove. Asked by one Democratic lawmaker why he should support the initiative given the likely loss of union votes in his district, Raimondo answered if he didn’t support the plan, she would be in his district campaigning against him.
That story prompted someone from the audience to ask how many lawmakers who supported the reforms lost in the 2012 election. “Nobody,” was Raimondo’s answer.
Three Major Elements
Rhode Island’s pension reforms have three major elements—development of a mixed defined-benefit and defined contribution plan that shares investment risk with workers and retirees; suspension and then moderation of cost-of-living adjustments; and a higher retirement age.
Some in the audience doubted Rhode Island has fixed its fiscal situation, including Janet Eisenberg, a benefits specialist in the Chicago area. She asked whether Rhode Island and other state governments need to do more, specifically mentioning the practice of many government pension plans of using much higher discount rates on investments than those used in the private sector. The higher the discount rate, the greater the expected return on investments, and the less money pension funds say they need to stay solvent.
Raimondo seemed to agree that discount rates in government plans are unrealistically high given the “volatile and uncertain world we live in today,” but she would not speculate on what Rhode Island’s funded ratio would be if the pensions used lower, more realistic assumptions.
William Bergman (email@example.com ) is an economist who writes from Chicago.