Nov. 15 (Bloomberg) -- Rhode Island Governor Lincoln Chafee, scion of a family of state Republican leaders, won election as an independent last year with just 36 percent of the vote. That was the easy part.
Chafee’s leadership style, described by both friends and critics as soft-spoken and conciliatory, failed its first test earlier this year when lawmakers scrapped his budget. The plan called for broadening the sales tax to include services and amusements such as haircuts and movie tickets, while reducing its rate to 6 percent from 7 percent.
Now he faces another hard sell, curbing benefits under the state’s $7.4 billion pension. The fund holds less than half the assets it needs to cover those costs in coming decades, placing Rhode Island near the top of inadequately funded public plans in a Bloomberg Rankings list. Should he succeed, the smallest U.S. state would join others from New Jersey to South Dakota in cutting expenses by rolling back retirement promises. Some say Chafee doesn’t have enough fight in him to get his plan passed.
“He’s not even in the conversation,” said Wendy Schiller, who teaches politics at Brown University in Providence. “He needs more press conferences, a complete bombarding of the media outlets.”
“He needs to go directly to the people,” Schiller said. “They may trust him to do what he thinks is right, but they don’t view him as a force. He’s wasting his political capital.”
Chafee, 58, said such criticism disregards his status as the only independent U.S. governor in a state whose constitution bestows power on the Legislature while limiting the role of the chief executive.
“If you’re going to fight them, you’re just going to have gridlock, and we can’t afford that,” he said last month in an interview in his office. “Here it takes collaboration every step of the way. My style is good for the long haul.”
In tackling the pension problem, he collaborated with Treasurer Gina Raimondo, a Democrat. A modified version of their bill, opposed by unions, will be taken up by the state House of Representatives and the Senate later this week.
Democrats control veto-proof majorities in both chambers, where a three-fifths vote can pass a measure into law without the governor’s signature. Party members hold 65 of 75 House seats, led by Speaker Gordon Fox of Providence. The party controls 29 of 38 seats in the upper chamber under President M. Teresa Paiva-Weed of Newport.
A Fox spokesman, Larry Berman, didn’t respond to requests for comment on the pension measure. Paiva-Weed also didn’t respond to messages left seeking comment.
First ‘Wow Moment’
The budget defeat three months after he took office marked his first “wow moment,” Chafee said, as businesses lined up against his tax proposal. Lawmakers dumped it and passed a spending plan that cut services to people with disabilities.
“Where were they when we needed them during the budget debate?” he said, the day after 2,000 advocates for the disabled marched on the Capitol to denounce the cuts.
A sales tax broadened to include club memberships, entertainment, personal services, and a temporary 1 percent levy on clothes and non-prescription drugs “would have been good public policy because so many essential items such as clothing are exempt, and when tough times come, that’s all people spend their money on,” Chafee said.
After the Legislature passed its own budget, “it certainly crossed my mind to veto it, have a fight, make my point,” he said. “But pummeling does not make friends and allies.”
Rhode Island, with a population of about 1.05 million, is the smallest U.S. state in land area and one of 33 with public pensions that hold less than 80 percent of the assets needed to pay promised benefits over the next few decades, according to the annual study by Bloomberg Rankings. The 80 percent level is a common threshold of sustainability used by actuaries. In states such as New Jersey and Florida, lawmakers this year have forced workers to pay more into retirement funds.
Chafee said he didn’t know how serious Rhode Island’s pension difficulties were until April, when the plan’s oversight board lowered the fund’s assumed rate of return on invested assets to 7.5 percent a year from 8.25 percent.
“I’d have to say I wasn’t anticipating that during the campaign,” said the former Republican and U.S. senator.
Central Falls Bankruptcy
Central Falls, the state’s smallest city, cited unfunded pension obligations as a major cause of its bankruptcy filing in August. The city’s receiver, Robert Flanders, has cut retiree benefits and raised employee payments to help cover the costs.
The cut in the state’s expected returns, coupled with revised assumptions raising retirees’ life expectancy, reduced the pension fund’s ratio of assets as a proportion of projected obligations to 48 percent from 54 percent, according to Gabriel Roeder Smith & Co., the board’s consulting firm.
A lower assumed rate of return meant taxpayers would provide $622 million a year for the fund, a 33 percent increase from previous estimates. The proposals Chafee developed with Raimondo are designed to lower the state’s pension expenses by at least $3 billion over the next 10 years.
The changes would suspend cost-of-living increases to retirees, begin a combined system of traditional defined-benefit pensions and defined-contribution -- or 401(k) style -- plans for all public employees, and gradually raise the retirement age to 67. Unions gathered under the umbrella of the Rhode Island Retirement Security Coalition oppose the measure, staging a Nov. 8 rally that drew hundreds of protesters to Providence.
Lawmakers plan to take up the plan in both chambers Nov. 17, after finance committees passed reworked versions Nov. 10.
To govern as an independent provides both political advantages and risks, said Tom D’Amore Jr., who served as former Connecticut Governor Lowell Weicker’s chief of staff. Like Chafee, Weicker had served as a Republican in the U.S. Senate before winning election as an independent to be chief executive of a predominantly Democratic New England state.
“He stood up and got Connecticut’s first income tax by appealing to the people over the partisan lawmakers,” D’Amore said in an interview. “The Legislature had to go along because the governor could veto any budget they passed. The parties were in such disrepute, Weicker exploited distrust of the machines and persuaded the public he spoke for everyone.”
D’Amore said Chafee “obviously showed courage in leaving the Republican Party and proposing changes in taxes and pensions, but if he’s not forceful, he’s going to have a problem. You have to be feared as well as respected.”
Former Warwick Mayor
Chafee previously served as mayor of Warwick, a Providence suburb with about 82,000 residents, for seven years. When his father, U.S. Senator John Chafee, died suddenly in 1999, then-Governor Lincoln Almond appointed the younger Chafee to complete the remainder of his father’s fourth term in the office.
In 2000, Lincoln Chafee won election to a full six years in the Senate. While in Washington, he stood alone among his party in opposing President George W. Bush on invading Iraq and on cutting income-tax rates. He also cast votes favoring abortion rights and same-sex marriage.
After defeating a Republican primary challenger who had opposed him as too liberal, Chafee lost the 2006 general election to Democrat Sheldon Whitehouse. Whitehouse based part of his campaign on the claim that re-electing Chafee threatened to hand control of the Senate to the Republicans.
None of his choices as governor have been as difficult as his 2007 decision to leave his party, Chafee said. As he describes it, the move became inevitable as he grew increasingly estranged from the party’s ideological positions.
“I kept wondering whether it was cyclical, and that was why I stayed,” he said of his party’s evolution under the Bush administration. “And if I left the party, would that be disloyal because that would mean there would be one less of those who think like me?”
“But watching them squander the surplus, the unnecessary invasion of Iraq, watching them tear apart everything good about America -- it broke my heart,” Chafee said.
In the Ocean State, his family for generations exemplified the New England Republicans who championed personal freedom and fiscal austerity. He, his father, a great-great grandfather and two great-great uncles have served Rhode Island as governors and U.S. senators.
The family history goes back to 17th century Hingham, Massachusetts, whose residents included Samuel Lincoln. One of his descendants was Abraham Lincoln, the 16th U.S. president and a founder of the Republican Party. The man who preserved the nation through the Civil War was such an iconic figure in the family that John Chafee gave his son the assassinated leader’s name, the governor said.
Generations in Rhode Island
His family’s centuries in New England, especially Rhode Island, included generations of farmers, businessmen and lawyers who amassed wealth from the 19th century Industrial Revolution.
Chafee’s net worth, estimated at $40.1 million to $70.9 million, ranked him the fifth-wealthiest senator in 2004, after John Corzine and Jay Rockefeller, both Democrats. As a youth he attended Phillips Academy, a highly selective boarding school in Andover, Massachusetts, and Brown, the Ivy League university where he received a bachelor’s degree in 1975 after majoring in Greek and Latin classics.
Politics didn’t take hold right away. Chafee left the state for Montana State University in Bozeman, where he learned to be a horseshoe fitter before working at harness tracks throughout the U.S. and Canada for seven years into the 1980s.
“It was a great way to see part of the world and gain experience with people from all walks of life,” Chafee said Nov. 3 during an interview in New York.
His political debut came in 1985, as a delegate to a Rhode Island Constitutional Convention. The following year, Chafee won his first election, to Warwick’s City Council.
He geared up for last year’s gubernatorial campaign by hiring Democratic media consultant Tad Devine, who in 2006 had worked for Whitehouse, Chafee’s opponent in the Senate race. The governor has hired Democrats, Republicans, independents and aides to former rivals as advisers. Christine Hunsinger, his communications director, managed the gubernatorial campaign of an opponent in 2010.
Devine said he went to work for Chafee out of respect for his decision to leave the Republican fold and endorse Democrat Barack Obama’s presidential bid in 2008. As a campaign consultant, he pushed the slogan, “Trust Chafee,” in television spots and brochures.
“It was a very simple mantra,” Devine said in an interview. “It’s who he is.”
“What he learned as mayor of Warwick, as a Republican in a very Democratic city, was to work well with others, to give up posturing and fighting and try to find common ground,” he said.
The media adviser said he tried and failed to talk Chafee out of proposing his sales-tax increase during the campaign for governor. He reminded his candidate that his father had lost a re-election campaign for governor on a tax pledge.
“We wound up making a spot on the tax increase, he looked right into the camera,” Devine said. “I knew it could cost us the election. The guy is going to be honest, sometimes to a fault.”
The former Republican won the National Education Association of Rhode Island’s endorsement last year over his Democratic rival, ex-state Treasurer Frank Caprio, after telling the teachers’ union that he would protect their pensions. The group, which represents 11,800 educators, has since joined with other labor organizations to fight Chafee’s overhaul.
Chafee broke his promises, belying his campaign slogan of trust, said J. Michael Downey, president of Council 94 of the American Federation of State, County and Municipal Employees, Rhode Island’s largest public-workers’ union. It represents more than 10,000 current and retired government employees.
“He ran on the premise that we could ‘Trust Chafee’ and now a year later, after promising he would not attack the pensions, we don’t feel we can trust him to do what he said in the campaign,” Downey said in an interview. “These are drastic changes, some of the most drastic in the country, and the theme of ‘Trust Chafee’ isn’t working for the people I represent.”
Asked to respond to those accusations six days before he sent the pension proposal to the Legislature, Chafee said his plan aims to ensure that benefits are there for retiring workers.
“I want to make sure there’s retirement security for teachers,” Chafee said. “That’s what I said in the campaign, and that’s what I hope to deliver.”
Lincoln Davenport Chafee at a glance:
Born: March 26, 1953 (age 58)
Spouse: Stephanie Danforth Chafee, 54, nurse and philanthropist.
Children: Louisa, 20; Caleb, 17, and Thea, 13.
Education: Brown University, Providence, Rhode Island, BA. 1975, Classics; attended Montana State University, Bozeman, 1976
Career: U.S. Senator, Rhode Island 1999-2006; Mayor, Warwick, Rhode Island, 1992 to 1999.
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