Analysis: Why Rhode Island passed pension reform in 2011

A year ago, in the wake of the 2010 election, nobody in Rhode Island thought the state had just elected a political class prepared to take on one of the nation’s thorniest policy issues – pensions – and enact the most sweeping changes any state has made.

Yet on Thursday night, that’s exactly what happened – and it wasn’t even close, with 57 of 75 votes in favor in the House and 35 of 38 in the Senate. Put another way, lopsided majorities voted to cut retirees’ pension benefits in a union-dominated state where Democrats have controlled the legislature since the eve of World War II.

The bill, which Governor Chafee is expected to sign next week, will face court challenges. Its enactment is a bitter, life-changing event for retirees and workers who spent their lives expecting a retirement benefit they now won’t get in full. And taxpayers are only avoiding far higher pension costs in the future, not saving huge sums.

Make no mistake, though: the bill is an extraordinary – and unlikely – achievement for the three leaders most responsible for shepherding it through: Chafee, House Speaker Gordon Fox and, most of all, Treasurer Gina Raimondo. It seems unlikely an alternative trio – John Robitaille, Kerry King and Fox? – would have gotten it done.

It’s clear many people don’t know what to make of Chafee’s involvement with the pension overhaul. His name is often mentioned through gritted teeth: a Rhode Island Statewide Coalition statement Thursday night pointedly said the group’s leaders “salute the steely determination” of Raimondo, while they only “acknowledge” Chafee’s role.

That’s unfair to the governor. It’s true he takes no obvious pleasure in reducing public workers’ compensation, and there were times it appeared he might not be on board. But when push came to shove, Chafee stood with Raimondo. He told his proxies to vote for the Retirement Board changes that set the process in motion; he bucked the unions that elected him by backing the bill in full; and he worked behind closed doors to ensure a viable solution. His involvement was real.

More than one Smith Hill observer has described Speaker Fox as the unsung hero of the pension process. Even after Chafee linked arms with Raimondo, the question remained: Did he – and Senate President M. Teresa Paiva Weed – have the stomach for a politically perilous vote on pensions? Fox repeatedly showed the answer was yes, as did Paiva Weed in the end.

“He showed incredible leadership on this issue,” state Rep. Joy Hearn, D-Barrington, said just after the vote. “There’s not many that could have done what he did. It takes an incredible amount of courage and leadership.”

The House’s emphatic 57-15 vote in favor of the bill was a testament to the countless hours Fox spent cajoling members of his caucus to support the bill, and the compromises he helped craft on controversial issues like the COLA freeze and the judges’ plan. He was pivotal in keeping Paiva Weed and the Senate on board. And the ease with which he dispatched amendment after amendment on Thursday recalled Lyndon Johnson in his Senate heyday.

Finally, there’s Gina Raimondo.

The lion’s share of the credit for the pension overhaul will go – justly – to the treasurer. The political newcomer and former financier is already winning glowing national media coverage, making her the darling of anti-pension warriors from coast to coast.

What that misses, though, is the nuance of her approach to the issue. Raimondo didn’t push to scrap defined-benefit pensions because like many experts, she thinks defined-contribution accounts alone don’t provide “retirement security.” She shined a bright spotlight on the funding shortfall and used her considerable speaking skills to push it to the top of the state’s agenda. She won over Chafee, lawmakers, the business community and many members of the public with her ideas for solving the problem. And she came up with a complicated plan that just may do the job.

There are other individuals, groups and events that played an important role in paving the way for tonight’s vote: the finance committee chairmen, Rep. Helio Melo and Sen. Dan DaPonte; The Providence Journal, whose coverage added to the sense of crisis; Engage Rhode Island and its mysterious financial backers; and, unfortunately, Rhode Island’s interminable economic malaise, which has made the once unthinkable suddenly thinkable.

Nothing played a bigger role, though, than the numbers themselves. Indeed, Raimondo’s master stroke happened many months ago, when she ordered new estimates of the state’s pension liability and then got the Retirement Board to approve them. The jump in the liability from $4.9 billion to $7.3 billion, and the impending budget consequences of that change, are what gave the issue its sudden urgency.

Once those numbers were set in stone, lawmakers didn’t face the choice between a comfortable – if unsustainable – status quo and a risky vote for change. Instead, they faced two options, both unpalatable: finding a lot more money for the pension fund or trimming retirees’ and workers’ benefits. On Thursday, the vast majority of them chose the latter.

That also demonstrates the biggest mistake made by labor leaders. Their best bet would have been finding some way to stop the original Retirement Board vote, thus preventing an immediate budget crisis for the state and municipalities that pushed lawmakers to act. They then waited far too long before challenging Raimondo’s reputation as a fiscal truth-teller to change the perception at the end. And they never offered an alternative robust enough to beat hers back.

From the perspective of fiscal stability, the bill’s biggest failing is its lack of any significant fix for the 36 locally run pension plans. The debate isn’t finished about why Paiva Weed and Raimondo worked so hard to keep those out – though it’s hard to ignore their shared ties to the Laborers union – but regardless, it leaves a festering sore on the books of Rhode Island’s largest cities, one of which has already been pushed into bankruptcy.

This is a bittersweet moment for Rhode Island. The state has led the way, to the surprise of many here and elsewhere, in tackling an extraordinarily difficult issue. But doing so means the state is breaking a promise – and, in the eyes of at least one judge, a contract. That shouldn’t be done lightly, and it will have painful human consequences.

Rhode Islanders would do well to reflect not only on the present political leadership that brought about tonight’s successful vote, but also the past political leadership that made it necessary. After all, it would have been far better if the vote was never required in the first place. •

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

This post has been updated to reflect the revised final Senate vote tally of 35-2 with Sen. Moura’s inclusion.

(photo: Ted Nesi/WPRI)

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