The Little State That Could

Straight-shooting Gina Raimondo overhauled Rhode Island's pension system in less than a year. Washington should sit up and take notes

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Christopher Morris for TIME

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But change has been creeping up on this strip of coast and woodland between Connecticut and Massachusetts. Maybe it started when back-to-back chief justices of the state supreme court faced trial on corruption charges, or when the state's credit unions imploded because a politically wired crook drained an insurance fund, or when a governor went to jail, or when the Providence mayor went to jail. Political scientist Maureen Moakley of Rhode Island University argued in a recent essay that public "dismay and distrust" have been building for years but "hit home" with voters when the recession landed a much harder blow there than in the rest of New England. Rhode Island's double-digit unemployment rate is among the highest in the country.

So the public was hungry for something better. How did Raimondo deliver?

As you might expect of a kid who took a public bus to school, she was focused, disciplined and relentless. Pensions are a highly emotional subject, so she resolved to take the opposite path. Her weapon of choice was the PowerPoint; her ammo, hard numbers. Long before she proposed her first fix, she spent months laying out the scope of the problem. Her office published an unblinking biopsy of the pension system, titled Truth in Numbers, and Raimondo hit the road to share the results with any audience that would listen. "Ultimately, there were hundreds of meetings, often with very hostile crowds," she says. Opponents tried to back her into uncomfortable corners, but she kept to her timetable, "determined first to communicate the extent of the problem."

Her PowerPoint laid bare the long and doomed story of steadily expanding benefits with no corresponding increase in funding. In 1960, for example, when the average life expectancy was about 70 years, a Rhode Island public employee could retire at age 60 with a pension equal to about half her working salary--with no cost of living adjustment. By 1990, life spans were five years longer, yet the retirement age had dropped to 50. The maximum initial pension had jumped to 80% of salary, and retirees were guaranteed an annual raise. With math like that on your side, retiring from a government job in Rhode Island quickly became more lucrative than working at one. "As a result," the report noted, "retired public employees can routinely earn retirement benefits that exceed 100% of their final average earnings."

Governor Lincoln Chafee, who was elected as an independent with support from the unions in 2010, initially wanted to reamortize the pension fund--that is, borrow money to cover the obligations and pay it off over a very long period. With interest rates at historic lows, reamortization made a certain amount of sense--if you believed that the problem would not grow steadily larger.

To Raimondo, this was just lipstick on a pig, so she took her laptop to the governor's office to PowerPoint out the flaws in his plan. Meanwhile, an odd alliance between cash-strapped Rhode Island mayors and Tea Partyers was shining a harsh light on the cozy relationships between state lawmakers and the public-employee unions. In one such case, senate majority leader Dominick Ruggerio found an $88,000 position on his staff for the 25-year-old high-school-educated son of union boss Donald Iannazzi. Meanwhile, Ruggerio's son drew his paycheck from Iannazzi's payroll.

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