Public unions and pension reform don’t mix. Rhode Island is a heavily Democratic and strong union state with big pension problems.
Yet in 2012, Democratic state treasurer Gina Raimondo engineered a major overhaul of the state’s public-employee pensions, in the teeth of union opposition, and last week she managed to win the state’s governorship. This remarkable feat has important lessons for other states where pensions are gobbling up ever larger slices of their budgets.
Public-employee pension and health-care costs are among the biggest challenges facing states, and Rhode Island’s pension problems were especially acute. The state’s plans were only 49 percent funded in 2010, according to the Pew Center on the States, well below the minimum 75 percent–funded standard for healthy plans. Rhode Island’s liability per citizen was widely considered the worst in the nation. Its legislature had tinkered with the problem, enacting marginal reforms in almost every legislative session between 2004 and 2010, but there was little improvement.
Raimondo was inspired to run for state treasurer precisely because she saw how pension costs were crowding out other public priorities. She was particularly incensed about cuts to library and bus services.
Yet when Raimondo arrived in office in January 2011, the political landscape was unfavorable to a major pension overhaul. Nearly 17 percent of workers in the Ocean State belong to unions — the highest rate in New England and the fifth-highest in the country. Some 62 percent of Rhode Island’s public employees are unionized and are regularly among the state’s biggest political spenders.
The Ocean State’s partisan hue is also deep blue. While it has occasionally elected Republican senators and governors (often named Chafee), its entire congressional delegation has been Democratic since 2006, with its two House seats controlled by Democrats since the mid 1990s. In the state assembly, Democrats currently control 69 of 75 seats. In the state senate, they control 32 of 38 seats. Former Republican Lincoln Chafee — who ran for governor in 2010 as an independent and was endorsed by the state’s public-sector unions — declared during his campaign that the pension system could be fixed without benefit cuts for current workers or retirees.
Nonetheless, as state treasurer, Raimondo managed to persuade the legislature to pass a package of reforms cutting benefits across the board. Her plan delayed retirement, suspended pension cost-of-living increases, and offered retirement programs more like 401(k) plans than traditional defined-benefit plans.
To overcome the fierce opposition of public-sector unions and their Democratic allies in the state legislature, Raimondo launched a “Truth in Numbers” campaign with the slogan “This is math, not politics.”
And the math was devastating. She noted that in 1960, when life expectancy was 70 years, a Rhode Island public employee could retire at 60 with a pension equal to about 50 percent of his salary with no cost-of-living adjustment (COLA). By 1990, workers were living longer, the retirement age had been dropped to 50, the pension increased to 80 percent of final salary, and an annual COLA added. Over the course of 2011, Raimondo took her case public, speaking to about 50 groups all over the state.
To seal the deal, Raimondo leveraged her experience as a venture capitalist and her status as an outsider to state politics. Ultimately, the Rhode Island Retirement Security Act was enacted in the fall of 2011, with bipartisan support in both chambers (57–15 in the house and 35–2 in the senate, with 77 of 94 Democrats voting in favor).
Rhode Island’s public-sector unions were outraged and are, not surprisingly, challenging the measure in court. Many observers thought that they would derail Raimondo’s bid for the governorship, too. Predictably, the unions backed her opponents in the Democratic primary. The unions were, however, split between two alternatives: Providence mayor Angel Taveras and Clay Pell, the 32-year old scion of former U.S. senator Claiborne Pell. Neither was an ideal candidate from the unions’ point of view: Traveras had run afoul of the state’s teachers’ unions after a dispute in Providence and had supported a milder version of pension reform. Pell was young and inexperienced. The three-way race allowed Raimondo to mobilize elements of the business community and some private-sector unions to divide and conquer her opposition. She won the nomination by a comfortable, twelve-point margin.
In the general election, she faced Cranston’s Republican mayor Allan Fung and Moderate-party candidate Robert Healey. In another three-way contest, Raimondo captured less than a majority of all voters (40 percent of the vote, compared with 37 percent for Fung), eking out a victory by just 12,000 votes. The unions sat on their hands. Neither the AFL-CIO nor the NEA of Rhode Island endorsed her, which reduced Democratic turnout. Healey’s strong showing probably also sapped support from Fung, whom polls showed to be ahead of Raimondo a couple months before Election Day in a state where Democrats enjoy a 4-to-1 registration advantage.
A few features of Raimondo’s experience are worth highlighting. To get pension reform done in blue states, an outsider with business acumen can depoliticize the issue. As a Yale-trained lawyer and Rhodes Scholar with experience running a hedge fund and with little political baggage, Raimondo’s message about the pension system’s unsustainability helped drive reform.
If Raimondo had lost, the cause of pension reform would be in a substantially worse place than today — the victory is a useful symbol. But the close margin of her victory suggests that Democrats still face a serious political conundrum. Public-employee unions are genuinely powerful; Democrats rely on their money and manpower. But state and local politicians, especially in Democratic-held areas, are now confronted with fiscal problems that can’t be kicked down the road forever.
How Democrats manage this tension at the heart of their coalition has implications for the fiscal health of states and cities around the country.
— Daniel DiSalvo is a senior fellow at the Manhattan Institute and an assistant professor of political science in the Colin Powell School at the City College of New York–CUNY. His next book, Government against Itself: Public Union Power and Its Consequences, will be published in January by Oxford University Press.