The Democrat Who Took on the Unions

By ALLYSIA FINLEY

Providence, R.I.

So this is Gina Raimondo? The state treasurer who single-handedly overhauled Rhode Island’s pension system and has unions screaming bloody murder? I had imagined her a bit, well, bigger. If not larger than life like New Jersey Gov. Chris Christie, then at least life-size. Ms. Raimondo couldn’t be much taller than five feet, which may have caused some to underestimate her. That isn’t the only thing that may have surprised people.

The former venture capitalist is a Democrat, which means that she believes in government as a force for good. But “a government that doesn’t work is in no one’s interest,” she says. “Budgets that don’t balance, public programs that aren’t funded, pension funds that are running out of money, schools that aren’t funded—How does that help anyone? I don’t really care if you’re a Republican or Democrat or you want to fight about the size of government. How about a government that just works? Put your tax dollar in and get a return out the other end.”

Yes, that would be nice. Unfortunately, public pensions all over the country are gobbling up more and more taxpayer money and producing nothing in return but huge deficits. It’s not even certain whether employees in their 20s and 30s will retire with a pension, since many state and municipal pension systems are projected to run dry in the next two to three decades.

That included Rhode Island’s system until last year, when Ms. Raimondo drove perhaps the boldest pension reform of the last decade through the state’s Democratic-controlled General Assembly. The new law shifts all workers from defined-benefit pensions into hybrid plans, which include a modest annuity and a defined-contribution component. It also increases the retirement age to 67 from 62 for all workers and suspends cost-of-living adjustments for retirees until the pension system, which is only about 50% funded, reaches a more healthy state.

Several states have increased the retirement age or created a new tier of benefits for future workers, but reforms that only affect not-yet-hired employees don’t save much money. A lot of “people say we’ve done pension reform when all they’ve done is tweaked something,” Ms. Raimondo points out. “This problem will not go away, and I don’t know what people are thinking. By the nature of the problem, it gets bigger and harder the longer you wait.”

The problem was particularly acute in Rhode Island since there are more retirees collecting pensions than workers paying into the system. Plus, as Ms. Raimondo says, “it’s a small state with not a lot of growth, an expensive cost structure in government, and it’s not a good combination.” Making the state even more expensive by raising taxes would have caused many Rhode Islanders to leave. When the now-bankrupt town of Central Falls raised property taxes to finance worker pensions, many residents fled, sending the city into a tailspin.

Because there has been little legislative or public support for raising taxes, the Ocean State has been cutting public services to pay its pension bills. A few years ago Ms. Raimondo read “an article in the paper about libraries closing and public bus service being cut nights, weekends and holidays, and I just thought it doesn’t have to be this way.” The story made her consider a bid for treasurer.

In the last 15 years, Ms. Raimondo, who is 40 and the mother of two children, has helped found two venture-capital firms, Village Ventures and Point Judith Capital. She was a Rhodes Scholar at Oxford and has a bachelor’s in economics from Harvard and law degree from Yale. Still, serving as treasurer of the smallest state in the country probably wouldn’t be the next career step for someone with such impressive credentials and ambition.

Ms. Raimondo campaigned principally on her biography—her experiences growing up in the state and her decision to return and establish its only venture-capital firm. Her Republican opponent, Kerry King, laid out a pension-reform plan and ran against what he once called “the conspiracy that exists today between the public-sector unions and the General Assembly.” Not surprisingly, the Rhode Island Laborers’ District Council endorsed Ms. Raimondo, and she won 62% of the vote.

Soon after she set to work on fixing the state’s pension system, flouting the advice of her Democratic colleagues. “Candidly, most people in my political circle told me not to do it because it is politically challenging and it’s kind of the third rail,” she says. “So most political advice I got was: ‘Don’t own the issue. Stay away from the issue. Put it on somebody else.'”

Her progressive peers seem to have underestimated her political savvy—and the public’s demand for change. In April, she convinced the state pension board to cut the discount rate by which the state calculates its pension liability to 7.5% from 8.25%. She claimed that 7.5% was a more honest number since the actual investment return rate over the last decade was 2.28%.

“I could have cranked up our discount rate to 10% and dropped our unfunded liability by half—except in 10 years someone wouldn’t get a pension check,” she says. “You saw that in Central Falls.”

Ms. Raimondo spent most of last year crisscrossing the state, educating people about the magnitude of the problem. “I would talk to social workers or social-service agencies who, when I started to talk about pensions, would ask ‘Why should I care about pensions?’ And I said, ‘Because if you don’t, your whatever it is, homeless shelter, is going to lose X thousand of dollars of funding.'”

Republicans often threaten to slash funding for charities and foundations, but Democrats pride themselves on being more compassionate. So when the Democratic treasurer warned “foundations that you’re going to get a cut if we don’t reform,” people believed she was speaking in good faith.

She even traveled around with charts, a la Paul Ryan. “I don’t know how you can look at a slide like that,” she says, pointing to a series of pie charts in a pamphlet, “which shows that in 2002 we spent three cents of every tax dollar and now we’re on our way to 20 cents of every tax dollar—and not care.”

And she wasn’t afraid to “walk into the belly of the beast” and tell the unions point-blank that “you were lied to [by former politicians] and the system is broken. Today we’re arguing about whether you get a COLA [cost-of-living adjustment], tomorrow we’ll be arguing about whether you get a pension.” Exhibit A was Central Falls, where many retired police officers and firefighters have had their pensions cut in half.

In June, Ms. Raimondo formed a 12-member commission to study potential solutions, which included four union representatives as well as several accountants and consultants. Over the next three months the group met periodically, culminating in the pension-reform legislation that Ms. Raimondo and Gov. Lincoln Chafee introduced in October.

For several weeks the legislature met in the basement of the statehouse, debating and hearing testimony from the community. She recalls “some guy in blue jeans who waited all day to testify,” taking the stand at 11 p.m. “I wondered, what is this guy going to say? And he gets up there to testify and was like ‘I’m just a regular Rhode Islander trying to pay my bills. If you raise my property taxes, I don’t know how I’m going to survive.'”

Although thousands of union members turned out at the capitol to protest, it was an open-and-shut case. The public so overwhelmingly supported the reforms that Ms. Raimondo warned lawmakers who opposed them that they wouldn’t be re-elected. She knew she was connecting with the public when the clerks at Home Depot began noticing who she was and offering support. By mid-November, her legislation became the law of the land in Rhode Island with minor modifications. Seventy-seven of 94 Democrats voted for it.

Ms. Raimondo downplays the opposition from her former union allies. As she tells it, the reforms passed because she conducted “a huge, long, relentless public-education campaign,” and there was no “rushing to a solution.” Plus, the unions were at the table the entire time, she says. “Yes, there was a big protest. They weren’t entirely supportive, but we had a reasonably productive dialogue the entire time—which we still have.”

The unions tell a different story. In their version, the legislation was a done deal in the spring when Ms. Raimondo cut the discount rate and first floated the reforms. The commission and hearings were merely formalities to give the pretense of transparency and due process.

“This was all about politics for the treasurer,” Paul Valletta, president of the Cranston firefighters union, tells me. “This was just a steppingstone for her to run for higher office.”

Are the unions so cynical that they can’t countenance a politician who’s intellectually honest and sincere about reforming government?

According to a Brown University poll of Rhode Island voters last month, Ms. Raimondo enjoys a 58% approval rating—the highest of any statewide elected official and 36 points higher than Mr. Chafee’s. Should she seek the governorship in 2014, as some speculate, many unions have vowed to run a no-holds-barred campaign to defeat her.

Ms. Raimondo poses a greater threat to the labor movement than any Republican, because she undercuts its narrative that pension reform is merely a cause célèbre for conservatives who want to stick it to unions. While the unions had an easy time vilifying New Jersey’s pro-reform Republican governor, Chris Christie, the petite, pro-government Democrat will be more of a challenge.

“I’m generally upset and saddened by all the antigovernment rhetoric that is in our country today,” Ms. Raimondo says. “I respect public employees and school teachers. They deserve a secure retirement.”

Shhh. That’s not what union bosses want people to hear.

Ms. Finley is assistant editor of OpinionJournal.com.