Rhode Island's Trillion-Dollar Lesson for America

Yes, it can be done. Ask Gina Raimondo.

With the possible exceptions of Roger Williams and coffee milk, the contributions of the smallest state to the rest of the U.S. often go unheralded. Maybe Gina Raimondo, who won Rhode Island's Democratic gubernatorial primary yesterday, can change that.

As state treasurer, Raimondo pushed through the boldest pension reform in the country several years ago. With the U.S. facing more than $1 trillion in unfunded pension liabilities, her victory provides a few valuable lessons for her fellow public officials -- Democrats especially.

Lesson No. 1: When pension costs threaten the public's finances, Democratic voters are amenable to changes. Raimondo's reforms -- supported by Democrats in the state legislature -- trimmed pension benefits for both retirees and current workers, raised the retirement age to 67 from 62, suspended most cost-of-living increases until the system was restored to health, and instituted 401(k)-style benefit plans.

For most voters, Democratic and Republican alike, pensions are not a third-rail issue -- if only because relatively few people are personally affected. Moreover, most Democrats -- like most Americans -- do not have pensions. Many, if they have any retirement savings, have 401(k) accounts.

Lesson No. 2: Not all unions oppose making pension plans more solvent. In Rhode Island, public-employee unions lined up against Raimondo, but private-sector unions strongly supported her -- similar to the experience faced by New York's Democratic governor, Andrew Cuomo, who defeated a more liberal challenger in Tuesday's primary.

Lesson No. 3: Give people the data. Raimondo won praise for putting out a clear-eyed report that helped put the focus of the debate on the state's finances, not on the state's employees. Voters understood the bottom line -- the state's pension system was not sustainable -- and rewarded Raimondo for having the courage to do something about it.

Lesson No. 4: Don't make it personal. Past politicians, not current workers, are to blame for offering benefits that proved unaffordable. Voters rightly support and respect teachers, police officers, firefighters, social workers and others who have chosen to make a career of public service.

Of course, all pension battles inevitably end up in court. Unions have sued to stop Rhode Island's pension reform, as they have in Illinois, and many states have laws or court rulings that limit state and local governments from reducing benefits for current retirees and current workers. Unless that changes, governments that want to control labor costs will have to cut more into retirement benefits for future workers -- or reduce public services.

Raimondo's victory is unlikely to lead to a wave of Democrats agitating for pension reform. But it may give some a little more courage --along with some useful pointers on how to do it successfully. Democratic governors in California, Illinois and New York who signed bills trimming pension benefits have won renomination this year -- demonstrating that elected officials can support pension reform and live to tell the tale.

--Editors: Francis Barry, Michael Newman.

To contact the editor on this story:
David Shipley at davidshipley@bloomberg.net