Gina Raimondo’s Pension Reform Draws Cheers and Jeers
Rhode Island governor shies away from quick fixes
It’s true that Gina Raimondo is the first female governor of the state of Rhode Island, but that’s not what she’s most known for.
What landed Raimondo on Fortune’s list of the world’s 50 greatest leaders — which also includes Pope Francis and Amazon’s Jeff Bezos — is the same as what left many retirees in her state fearful for their futures: an overhaul of the state’s pension system.
In 2010, just before Raimondo was elected state treasurer, Rhode Island’s struggling pension fund was on track to run out of assets, according to a state report. As the amount of taxpayer money funding the pension system doubled from 2003 to 2010, Raimondo said she grew tired of reading about libraries being closed and bus service being curtailed as a result.
“Fixing the pension system was one of the biggest problems Rhode Island faced,” Raimondo, 44, said in an interview. “A big part of the reason we were not having enough money for public buses and playgrounds and libraries and after-school sports is because the pension liability was gobbling up an increasingly large percent of the budget.”
The problem had been building for years and the tweaks other politicians implemented had done little for a long-term fix, according to Maureen Moakley, a political science professor at the University of Rhode Island.
“Everyone knew that the pension was a real problem but no one was willing to really step up to the plate and attempt to tackle it,” she said. “The can always was getting kicked down the road.”
Under Raimondo’s plan, retirees would lose their annual cost-of-living increases while current employees would be moved to a hybrid pension system incorporating 401(k)s. The state passed the groundbreaking pension reforms in 2011.
The pension is still underfunded — at 59 percent of its obligations for teachers and 57 percent of its obligations for other state employees. That’s up from 49 percent for both groups in 2010, according to the Employees Retirement System of Rhode Island. At the current rate, the pension won’t be 80 percent funded until after 2030, at which point the retirees’ regular cost-of-living increase will return, according to the state treasurer’s office.
Raimondo, who served as treasurer through 2014 when she was elected governor, said she understood why people wouldn’t like the plan. But in public meetings, she argued that avoiding the difficult cuts now would lead to bigger problems later.
Her willingness to meet with as many people as she could made Rhode Island’s pension reform different from other states, said Anthony Randazzo, a research director at the libertarian Reason Foundation.
“To go around that state and have town hall meetings and meeting with all the appropriate stakeholders to not only hear what people had to say about pension reform in the state but also to provide education, that is actually not common,” he said.
But not everyone felt they were heard. A loose-knit coalition of retired Rhode Island public employees sued the state after the bill passed. The groups reached a settlement last year.
Now, some retired employees have hired a former Securities and Exchange Commission attorney to ask the SEC, the Justice Department and the FBI to look into the pensions that were invested in hedge funds.
Investing part of a pension in hedge funds is not itself a bad thing, Randazzo said. The potential issue is how close Raimondo, a former venture capital manager, is to fund owners.
During her runs for treasurer and governor, she received $147,000 in campaign contributions from the securities and investment industry, according to the National Institute on Money and State Politics.
Raimondo said investing more pensions in hedge funds was meant to mitigate the risk of investing in the stock market. Rhode Island’s pension fund suffered a $2 billion hit in the crash of 2008, according to The Providence Journal.
But that explanation hasn’t satisfied retirees like Diane Bucci, the legislative committee chair for the Rhode Island Retired Teachers Association.
“If you’re connected with billionaires, how do you look at a pension fund?” she said. “Do you look at people on a fixed income? Or do you look at your friends who can make money from investments?”
Raimondo was a founding employee and senior vice president at a Massachusetts venture capital firm, Village Ventures, after clerking for U.S. District Judge Kimba Wood. She later co-founded another VC firm, Point Judith Capital in Providence, where she grew up, the youngest of three children.
After graduating from Harvard in economics, she earned a doctorate in sociology from Oxford University after winning a Rhodes Scholarship. She later earned a law degree from Yale.
Despite the lingering controversy over pension funds and their investment strategy, Raimondo hasn’t shied away from other tough issues, teaming up with legislators she’s formed relationships with, said state Rep. Joseph McNamara, who also serves as chairman of the Rhode Island Democratic Party.
In February, she signed legislation imposing a toll on large trucks driving through the state as part of a bigger plan to pay for infrastructure repairs. Last year, she worked with the legislature to restructure state Medicaid, trimming millions in costs.
“Her hallmark has been stepping up and presenting the case and insisting that if we don’t make the difficult decisions now, things are only going to get worse,” McNamara said.