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.
BUT A LOT OF PEOPLE HAVE CRITICIZED THE LACK OF RETURN FROM HEDGE FUNDS, COMPARED TO OTHER INVESTMENTS. SO ARE YOU TALKING ABOUT SAFETY, THEN, WHEN YOU TALK ABOUT THAT “BEST PRODUCT AVAILABLE”? We have a really underfunded plan. If I were in Wisconsin, with an extremely well-funded plan, maybe I wouldn’t be so worried about the risk.
We could argue legitimately about what’s the perfect investment strategy. Here’s what you cannot argue about: this pension system lost two billion dollars — 26 percent of its value — in the [2008-’09] crash. We can’t sustain another one like that. Can’t do it, [or] the system will crash again. So we are therefore really focused on the downside and giving up a little upside for that.
We’ve put in place this basket of products to reduce risk and it’s working. You can quantify the risk and it’s substantially lower. Our investment advisors have told us: if this basket of funds was in place in 2008, it would have saved us half a billion dollars. So in my mind, if we’re paying $10 or $20 million dollars more in fees in order to save $500 million dollars of losses, that’s a good investment.
BUT I THINK, NEVERTHELESS, WALL STREET — AND HEDGE FUNDS, IN PARTICULAR — HAVE A SERIOUS IMAGE PROBLEM RIGHT NOW. Agreed. Well-deserved. Like I said, they make too much money. They should pay more in taxes. And they’re very colorful.
WHAT DOES “COLORFUL” MEAN? A lot of these [hedge fund manager] guys, they do these absurd things: they throw lavish parties, they rent out a football stadium or a baseball stadium for their 50th birthday party. They do these things that upset me and upset the average working family — as they should. And they should be more regulated. They should pay more taxes.
But my job is to manage the money so pensions are paid, not to express my political views in the way we manage the money. And I know, with certainty, that if we go through another thing where we lose two billion dollars of money, there’s a risk someone’s pension won’t get paid. And I don’t want to do that. Even though I am enduring serious political heat for this. It would be much easier for Gina Raimondo, politically, to say, “Oh, forget it!” dump the hedge funds, and do something [else].
BUT, DESPITE WHAT YOU JUST SAID ABOUT SEPARATING POLITICAL VIEWS FROM INVESTING, DIDN’T THE STATE INVESTMENT COMMISSION JUST VOTE TO PURSUE DIVESTMENT FROM A GUN DISTRIBUTOR THIS PAST WEEK? Yes, that was an investment decision.
IT WASN’T A POLITICAL DECISION? No. Absolutely not. We had been thinking about it for 10 months. They took a unanimous vote to get out of guns.
BECAUSE GUNS ARE A BAD INVESTMENT? Yeah. Because guns are a bad investment. Here’s what we basically thought: “There’s plenty of other ways to make money, besides fueling the gun industry.” It’s highly regulated. There’s regulatory risk. The federal government could pass a law tomorrow which cuts the value of a gun company in half. There’s headline risk.
And it’s just wrong. I’m a mother. I drop my kids off at Providence public school. You’re afraid. And so, if we can, any time there’s an opportunity where it’s the right thing to do and the right investment decision, it’s an easy decision.
SO IF QUESTIONS OF RIGHT AND WRONG DO ENTER THE EQUATION, EVEN IF THEY’RE NOT PARAMOUNT, SHOULD WE THEN BE HAVING CONVERSATIONS LIKE, “ARE WE GOING TO DIVEST FROM FOSSIL FUELS, AS A STATE?” We should have those conversations. They’re good conversations to have. And actually we are having them. I’ve asked the investment commission to work with me to come up with a corporate governance policy. The state’s never had one. Many pension systems do. And it’s [about] all these issues; it will set up guidelines for how you think about these issues, like diversity.
See, the question we’re always think about is: risk. So, for example, if the fossil fuel industry is higher risk and declining, there are good investment reasons to not go into that. If your company has no women or people of color on its board or on its management team, I’d argue it’s not as well run as it could be. We’re in the process right now of putting together a policy for how to handle that whole bucket of things.
WHEN CAN WE EXPECT THAT? It took the state of California pension system two years to do theirs. These are, as you can imagine, pretty challenging issues. So I don’t have a timeline. But it’s months, not weeks.
IN AUGUST, MIKE STANTON WROTE APROVIDENCE JOURNAL ARTICLE, “IN HEDGE FUND WORLD, TRANSPARENCY TAKES A HIT,” WHICH COMPELLED FOUR GROUPS — THE RHODE ISLAND PRESS ASSOCIATION, THE ACLU, COMMON CAUSE OF RHODE ISLAND, AND THE LEAGUE OF WOMEN VOTERS — TO SEND A LETTER TO YOUR OFFICE VOICING CONCERN ABOUT A LACK OF PUBLIC ACCESS TO INFO ABOUT PENSION FUND INVESTMENTS. WHAT CAN YOU TELL US ABOUT THAT? So, with respect to transparency. . . I have gone above and beyond to push the envelope on disclosure and transparency since I’ve been in office. For example, I launched the state’s first-ever investor relations portal. We put everything online: all of the investment committee minutes are online, all the fees. We’re one of only a handful of pension funds around that country that do that. I’ve [also] instituted something called the “investor pledge,” [where] every single money manager — we make them sign a pledge that says they haven’t given me a dime in campaign contributions. And if they have, they can’t do business with me.
The issue here is we’ve given as much [information] as we’re allowed to give, by law. In these instances, we’ve signed contracts with these firms to keep certain information confidential. And it’s legitimate, like trade secrets, competitive information, business strategy. And if we divulged that, it would actually hurt our interests, because it would inhibit their ability to do that strategy.
BUT IN A STATE WHERE WE HAVE LAWS BARRING INVESTMENT IN CERTAIN PARTS OF THE WORLD, LIKE SUDAN AND IRAN, HOW DO WE KNOW WHAT’S HAPPENING BEHIND THE CURTAIN IS ABIDING BY THOSE RULES? They have to certify to us, “We’re not in Sudan, we’re not in Iran. . . Northern Ireland.” And by the way, when we come up with a corporate governance policy, they’re going to have to check off those boxes, too.
But I do want to be clear. Our investment advisors and our investment staff are aware of the holdings of our alternative asset managers, but as per law, we’re not allowed to give up certain proprietary business strategy information to the public. It’s not like the managers are allowed to keep us in the dark. Anne-Marie [Fink], who’s our chief investment officer, can walk into one of these firms and they have to share what they’re doing. But by law, we can’t give that out to the public.
GETTING BACK TO PENSION REFORM, DO YOU THINK ANY PARTICULAR POINT OF CONFUSION PERSISTS ABOUT WHAT HAPPENED HERE IN 2011? I think these paid-for attacks are trying to suggest falsely that the General Assembly and I made these changes to the pension system in order to help Wall Street. And also they’re saying that I did this all on my own, when in fact we had ten months of open debate. We had a pension advisory group of a dozen people that met in public. Four of those people were from organized labor; they sat at the table, we had 36 hours of public hearings that they were all at. The General Assembly voted overwhelmingly in favor of it. And it fixed the problem. And the whole purpose of it was [to] make the system healthy so pension checks are there, avoid another Central Falls. Those are the facts. But now I’m currently the target of this personal smear campaign which is kind of revising history.
THE TREASURER’S RACE IN 2010 WAS YOUR FIRST RUN FOR PUBLIC OFFICE AND YOU’RE STILL A RELATIVE NEWCOMER ON THE POLITICAL SCENE. DO YOU HAVE ANY REGRETS ABOUT STEPPING INTO PUBLIC LIFE? Absolutely not. I feel so great about the work we did. And, I mean, look: if you read the paper or watch the news and you see people in Central Falls, it’s not a joke. They’re losing their houses. They’re getting kicked out of their houses, because their pensions were cut in half. That was going to happen if we didn’t take action. So I feel great. We took action to avert that human suffering. And politics is ugly and I’m the target of it right now. So be it.
Very few times do you see government work as well as it worked when we solved this problem. It was an open process, a long process. We built consensus and we solved the problem — a really tricky problem. I’m extremely proud of that work and the work the General Assembly did.
You know, my father worked at Bulova watch. [When] the factory went overseas, he lost his job, and his pension got whacked because he was forced into early retirement. Now, my parents’ pension is less then $200 a month. That’s hard. That really hurts them. They have a social security check and a couple-hundred-dollar-a-month pension. The decisions made by the executives of his company were made 30 years ago. He still suffers.
So when I’m outta here — win, lose, or draw — if it weren’t for the work we did, a lot of people would be suffering.
Philip Eil can be reached at [email protected]. Follow him on Twitter @phileil.
