In the wake of last week’s end to the government shutdown, a slew of national commentary has focused on an apparent rift forming between the Tea Party and mainstream Republicans. But here in Rhode Island, a local political rift appears to be brewing in the Democratic Party. Disagreements over the Rhode Island Retirement Security Act of 2011 may dominate the conversation as State Treasurer Gina Raimondo and Providence Mayor Angel Taveras raise money for what looks like it will be an expensive and bruising 2014 Democratic gubernatorial primary.
The act is projected to cut state and local public worker retirement benefits by about $4 billion over 20 years, according to its champion and presumptive 2014 gubernatorial candidate, Raimondo. It does this through cutting benefits for both current and future retirees.
Democratic advocates for the plan say the pension fund was far too underfunded to deliver the benefits it promised and that by saving taxpayers $4 billion that would otherwise pay for public employees’ retirements, it frees up revenue to be used for other important state purposes. Democratic opponents of the plan, including most labor groups, say it broke a contractual agreement the state made with public workers and that the state chose to cut taxes instead of making required contributions to the fund. They contend the savings will not actually materialize because pension fund investments have been shifted to high-fee hedge funds.
Some Rhode Island Democrats appear to see the law as a necessary, proper and inevitable reduction of benefits to public workers to save taxpayers’ money. Other Rhode Island Democrats see it as a Wall Street money-grab that takes retirement funds away from middle-class workers and hands them to upper class, out-of-state hedge fund owners and to the in-state rich who have seen their state income tax rates plummet from 9.9 percent to 5.99 percent as of 2011.
At its heart, this disagreement is a common one, familiar to anyone who follows national politics. A fundamental tenet of economic conservatism is that tax cuts for the wealthy and retirement benefit cuts for the middle class will increase competitiveness and spur economic growth. The economic liberal argument is that tax cuts for the wealthy starve the government of revenue, which makes benefit cuts for the poor and middle class appear necessary and therefore exacerbates wealth inequality and hurts economic demand.
Recently, the controversy surrounding the Rhode Island pension bill has gone national. Matt Taibbi of Rolling Stone, famous for his scathing commentary about the financial industry, wrote an article about the Ocean State called “Looting the Pension Funds.” Progressive commentator David Sirota simultaneously authored companion columns in Salon and a study entitled “The Plot Against Pensions” for the Institute for America’s Future. In his article, Sirota claims “conservative activists are manufacturing the perception of a public pension crisis in order to both slash modest retiree benefits and preserve expensive corporate subsidies and tax breaks.” Sirota and Taibbi’s main argument contends that former Enron trader and billionaire John Arnold is bankrolling studies, politicians, “dark-money” organizations and movements to slash public pension funds in states across the country, and that Rhode Island’s pension act was a sort of proof-of-concept for a larger nation-wide movement.
John Arnold’s foundation did provide a seed donation of somewhere between $100,000 and $500,000 to Engage RI, a now defunct organization that was dedicated to cutting pensions in our state. But Sirota and Taibbi are missing a big part of the story. It was not the Republican Party that cut pension benefits or top-rate taxes in Rhode Island, though the GOP may have supported doing so. It was, in fact, the Democratic Party that did these things. And the divide over this legislation points to a seldom-discussed rift in the Democratic Party base between economic conservatives and economic liberals. This rift has the potential to dominate the Democratic gubernatorial primary in Rhode Island over the coming months.
Labor, long a mainstay of Democratic politics, has all but declared open war on a presumptive Democratic candidate for governor. This may be unprecedented. And to drive the point home, Council 94 of the American Federation of State, County and Municipal Employees hired Edward “Ted” Seidel, a former Securities and Exchange Commission employee and Forbes online commentator, to write a report that is somewhere between a forensic investigation of the state’s pension fund and a righteous condemnation of Raimondo.
In the end, Sirota and Taibbi may be correct that Rhode Island was a test case for further public worker pension cuts. John Arnold has funded similar cuts in Kentucky and is gearing up to fund a similar movement in California right now. But they might not have been correct in highlighting John Arnold’s connections to Republicans, as he donated heavily to President Obama, Raimondo, the Democratic Senatorial Campaign Committee and a host of other Democrats. Rahm Emmanuel, Democratic mayor of Chicago, supports a similar plan for Illinois. In 2011, Engage RI offered the Brown Democrats a chance to win a free iPad if they made posters promoting pension cuts and showed up at the General Assembly. The Brown Democrats took them up on the offer and showed up in support of pension cuts. And I doubt that many Brown Democrats think of themselves as conservatives.
Cutting retirement benefits and top-bracket taxes both locally and nationally is popular among some of the Democratic rank-and-file. It is heresy to others. In the national media, the conversation may be about rifts within the GOP. But here in Rhode Island, I think we will find the conversation turning to a divide in the Democratic Party that may prove just as deep and contentious.
Daniel Carrigg GS loves this little state he has made his home. He may be reached at daniel_carrigg@brown.edu.
ADVERTISEMENT
