ACTING BOLDLY "We said, 'Let's fix it now,' " Raimondo says. [Photo by Richard McCaffrey]
In December of 2012, Rhode Island General Treasurer Gina Raimondo appeared on PBS affiliate WTTW’s nighttime talk show, Chicago Tonight. She was in town to speak to the Chicago Union League the following day, the show’s silver-haired host explained, and, since Rhode Island and Illinois had been in a “race to the bottom in funding pensions” (Illinois had the largest unfunded liability, by percentage; Rhode Island had the highest, per capita), the station invited her to talk about Rhode Island’s landmark 2011 pension reform law, of which she was the architect.
Raimondo proceeded to first describe the extent of the problem she inherited when she stepped into office: an approximately 48 percent-funded system; “skyrocketing” amounts of state tax revenue being routed towards pensions annually; and the prospect that, under a certain set of actuarial assumptions, the fund would be bled dry in 20 to 25 years. She then enumerated features of the successful bill — increasing the retirement age to match the national Social Security-eligible age and suspending pensioners’ cost-of-living adjustments (COLAs) until the system becomes healthier, for example — which she said allowed her to be able to “honestly tell public employees, ‘Your pension’s secure. Your retirement’s secure,’ ” once the law passed.
“In Rhode Island, would you say that these steps have basically solved the pension issue?” the host asked at one point. “Yes. I would say they have solved the pension issue,” Raimondo replied.
The Chicago Tonight appearance was typical of what reporters back home at the time dubbed “Raimondomania”: the series of high-profile interviews and appearances by the treasurer following the November 2011 passage of the Rhode Island Retirement Security Act. Other examples included glowing articles in Time, The New York Times, The Wall Street Journal, Institutional Investor, The Washington Post; an “Urban Innovator Award” from the Manhattan Institute; a “Brave Thinkers 2012” distinction from The Atlantic; and a 12-page report titled “Gina Raimondo’s Shining Example — Pension Reform in Rhode Island,” published by the California-based yourpublicmoney.com.
But, then this fall, something changed — at the very least, in the tone of the national conversation about the Smithfield-raised Rhodes Scholar. In September, Rolling Stone published a lengthy article by star writer Matt Taibbi headlined, “Looting the Pension Funds: All Across America, Wall Street Is Grabbing Money Meant for Public Workers” which described Raimondo’s role in making Rhode Island a “test case for the rest of the country, ” by trimming benefits for retirees and ramping up pension-fund investment in high-cost hedge funds. “It’s a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians,” Taibbi wrote.
Weeks later, Forbes contributor and former Securities and Exchange Commission (SEC) attorney, Edward Siedle released a 106-page report — for which he was paid $20,000 by the Rhody chapter of the American Federation of State, County and Municipal Employees (AFSCME) — called “Rhode Island Public Pension Reform: Wall Street’s License to Steal,” that described “staggering” pension-fund investment fees and a “sinister” lack of transparency for the state’s hedge fund investments under Raimondo’s stewardship. Echoing and amplifying Taibbi’s message, Siedle wrote, “The Treasurer has emerged as the leading national advocate of a disingenuous form of public pension ‘reform’ which involves slashing worker’s benefits and thwarting public access to information regarding the riskiest of pension investments while, in secret, dramatically increasing the risks to retirement plans and the fees they pay to Wall Street.”
Unsurprisingly, Raimondo’s office fired back strongly at Siedle’s “political propaganda piece” for its “hypocrisy,” “red herrings intended to undermine pension reform” and “the false accusation that the Treasurer is using her position to enrich herself or that the state pension fund is not well-managed.” But the report was nevertheless cited in subsequent Raimondo critiques from independent news outlets like The New York Times and Salon.com. And on Friday morning, October 25, when the Phoenix sat down with Raimondo for an interview in her office at the State House, rifuture.com’s Bob Plain posted a succinct — if hyperbolic — assessment of the Treasurer’s recent fortunes: “Raimondomania has turned into Raimondomageddon.”
We began by asking the treasurer about rampant speculation that she will enter the 2014 gubernatorial race, to which she responded that she’ll make that call by the end of the year. “It’s obviously a huge life decision,” she said.
What follows are edited and condensed excerpts from the rest of our conversation.
DESPITE THE FACT THAT YOU HAVEN’T DECLARED YOUR CANDIDACY, WE’VE HEARD THAT YOU’VE RAISED OVER $2 MILLION IN CAMPAIGN CONTRIBUTIONS AND THAT PEOPLE LIKE CHICAGO MAYOR RAHM EMANUEL AND NEW YORK CITY MAYOR MICHAEL BLOOMBERG HAVE THROWN FUNDRAISERS FOR YOU. WHY ARE ALL OF THESE PEOPLE, PARTICULARLY PEOPLE FROM OUT OF STATE — Helping me raise money?
EXACTLY. What we did around pension reform — I mean, it captured the national attention. There’s three trillion dollars of unfunded pension debt around the country. It’s a huge national problem and we are one of the few states that has actually addressed that problem. And it’s a really tough issue politically, and most people thought we would not be successful.
When I started to talk about it, they were like, “She’s a rookie,” “She doesn’t know what she’s talking about,” “It’s never going to happen.” And then it did happen and, after it happened, a lot of people reached out to me and said, “Great job. Great leadership.” And [with] both the mayor of Chicago and the mayor of New York City, that’s how I started to get to know them, in discussions [of] the work we did around pension. And then they said, “We want to support you.”
BUT CAN WE LABEL PENSION REFORM A “SUCCESS” AT THIS POINT? OR DO WE HAVE TO WAIT A CERTAIN AMOUNT OF TIME TO REALLY MEASURE THAT? When I took office, the pension system was really in a state of crisis. It was one of the most underfunded in the country, and if we hadn’t taken action, you would have seen probably several cities or towns go bankrupt. So we avoided that crisis.
When the General Assembly passed the bill, in fact, it did cut the unfunded liability almost in half. It saved Rhode Islanders $4 billion over the next 20 years [and] that year alone, the year it passed — that next fiscal year — it saved cities and towns $100 million and saved the state over $200 million. So. . . it’s working insofar as the system is healthier, better funded, [offering a] much higher probability pensions will be paid, and Providence didn’t go bankrupt and Woonsocket didn’t go bankrupt.
Central Falls is the example [for that kind of bankruptcy] we have in Rhode Island. That’s the one closest to home. Basically, when they went bankrupt, it [was] horrible. . . brutal. Because you’re forced to make extremely painful cuts. And one of the cuts that they had to make in Central Falls is they went to people who were already retired — literally 70-, 80-year-old little old ladies — and cut their pension checks in half. So instead of them making, I don’t know, $30,000 a year on a pension, now they had to live on $15,000. And if you’re reading the stories about Detroit, it’s so sad. People waiting an hour for 911 to respond. Streetlights going off. And so what we tried to do here was . . . if we didn’t act swiftly and boldly, that would have been us. And so we said, “Let’s fix it now.”
THERE ARE A LOT OF DIFFERENT COMPONENTS TO THEROLLING STONE STORY, THE SIEDLE REPORT, AND OTHER ARTICLES, AND IT’S UNFAIR TO SIMPLY LUMP THEM ALL INTO ONE “RAIMONDO CRITICISM” CATEGORY. BUT I DO THINK SOME PEOPLE HEAR A KIND OF MOUNTING NEGATIVE BUZZ. IS IT POSSIBLE TO RESPOND TO THOSE ARTICLES, AS A GROUP? I think we’ve got to see them for what they are and what they aren’t. The Siedle piece — that is a paid-for political attack. He calls it a so-called “forensic report”; it is no such thing. It is a piece of political propaganda. Special interests paid him tens of thousands of dollars. It’s a personal smear campaign against me.
DOES THAT MEAN IT’S TOTALLY ABSENT OF ANY VALID CRITICISM? Well, I’m just saying: it is what it is. There are, in contrast, some legitimate questions and discussions around our investment strategy, which we can talk about, but that’s not what his report is. His report is filled with innuendo, mischaracterization, misstatement of facts.
SO LET’S TALK ABOUT GRETCHEN MORGENSON’SNEW YORK TIMES ARTICLE. SHE WRITES, “FANS OF ALTERNATIVE INVESTMENTS [LIKE HEDGE FUNDS] ARGUE THAT THEY CAN GENERATE HIGHER RETURNS. BUT THE INCREASED RISKS, HIGHER FEES, AND LACK OF TRANSPARENCY ASSOCIATED WITH SUCH INVESTMENTS MAKE THEM PROBLEMATIC.” So, to a certain extent I agree with her. The fees are high, no doubt about it. I think they’re too high, and I’ve said that. And I hate paying fees. I grew up in a household where we were allowed one lunch bag; it had to get through the week. My mother would buy a whole chicken and cut it up into pieces to save money instead of buying chicken parts. I’m cheap. That’s how I grew up. I hate paying fees.
And, by the way, a lot of these hedge fund managers. . . they make way too much money, and, I believe they should be paying much higher taxes. Having said that, they provide a product that we can’t buy anywhere else. And we’re managing a pension system that’s really underfunded and we’re very worried about protecting us on the downside — not so much the upside, but the downside. So we’ve decided — “we,” being the investment commission — that they’re the best products available to us right now to do the job we need them to do. And therefore we’re willing to pay the fees.