How a $100,000 check exposes the politics of pension theft
When historians one day sit down to solve the Great American Pension Heist, they will likely focus much of their attention on a scandal that has been unfolding in corruption-plagued Rhode Island over the past three years.
As I've written before, the concurrent trends of slashing public workers' pensions and increasing taxpayer subsidies for corporations are not unrelated. To the contrary, the Ocean State is the latest to show how those two capers are operating in tandem to convert retiree nest eggs into yet more handouts to the super-rich.
The latest twist in this already rancid grotesquerie involves a $100,000 check passed from a former Enron trader to a front-group helping a politician billed as a rising national star in her party. Before I get to that, though, we need to travel back four years when this cartoonish tale began with two seemingly disparate events: the rise and fall of a major league baseball player’s software firm, and the low-key election of a treasurer in the smallest state in the country.
Shelling out for Schilling, pleading poverty for public employees
In 2010, at the urging of Republican Gov. Donald Carcieri, Rhode Island’s Economic Development Corporation gave former Boston Red Sox pitcher Curt Schilling a $75 million loan to move the former baseball all-star’s video game company from Massachusetts to the Ocean State.
This particular giveaway was part of Rhode Island's larger attempt to use taxpayer cash to encourage New England tech firms to relocate. In all, the New York Times reports that the state provides roughly $356 million in corporate subsidies every year (and that may be a low estimate). At the time the particular subsidy for Schilling's firm was enacted, the Boston Globe reported on the Massachusetts tech industry excitedly awaiting more chances at similar taxpayer handouts.
Not surprisingly, Schilling happily accepted the sweetheart deal, Rhode Island’s state government failed to monitor what the taxpayer subsidy to his company was being used for - and then Schilling's firm promptly lost all the money, leaving Rhode Island taxpayers on the hook for $112 million in principal and interest payments. If you're counting, that's a rough cost of $272 for every household in the state.
The same year that this subsidy deal was crafted, Rhode Island voters elected financial industry executive Gina Raimondo (D) state treasurer. Upon taking office - and at the same time the state was so flush with cash it was handing millions over to Schilling and writing checks for its annual $356 million in corporate subsidies - Raimondo began demanding cuts to public workers’ pension benefits. As the Providence Journal reported, her plan "raised the minimum retirement age, suspended annual cost-of-living increases and replaced the state’s defined-benefit pension with a hybrid that includes a 401(k)-style plan."
Raimondo was certainly correct in noting that Rhode Island was facing shortfalls in its pension system. However, as the Economic Policy Institute documents, those shortfalls were “largely due not to overly generous benefits, but to the failure of state and local government employers to pay their required share of pensions’ cost.” Instead of making those contributions, the state (like many others) had been using money owed to pension funds to pay for stuff like the $356 million a year in corporate subsidies, even though there is little proof that they are a solid job-creating investment. Put another way, politicians have been taking money needed to fulfill negotiated pension-fund commitments and instead using the cash to subsidize the corporate class - aka the elite constituency that disproportionately finances those politicians' reelection campaigns.
Despite the immorality of such a scheme, Raimondo proposed to fix the problem not by raising revenues to replenish the pension fund. She did not, for instance, lead the push to end Rhode Island's recently enacted tax cuts for the wealthy. Similarly, even though she had initially raised a few tepid questions about the specific Schilling subsidy in 2010, Raimondo did not as state treasurer lead a charge to end the expensive corporate handouts and then plow the recovered money into the pension fund.
The context of such a decision is key to understanding its insidious ideology. Raimondo chose the pension-cutting course of action even as the Rhode Island Treasurer's Office answered a flat "no" when asked "aren’t state employees and teachers part of the problem?" Worse, she pushed pension cuts instead of tax increases or corporate welfare cuts even though Rhode Island’s annual pension shortfalls were smaller than the amount the state spends every year on the corporate subsidies.
"Profiting at the expense of the state"
The juxtaposition of Rhode Island's huge corporate subsidies and high-income tax cuts with its massive pension cuts was, of course, a classic case of Selective Deficit Disorder. Rhode Island apparently had hundreds of millions of dollars available for politically connected corporations and the wealthy, but was simultaneously claiming it had no money when it came to meeting its financial obligations to public workers. Indeed, in a speech to the right-wing Manhattan Institute, Raimondo explicitly pled poverty, insisting "we focused on the math, not politics" - as if a state spending $356 million a year on corporate subsidies somehow had no resources to meet its pension obligations.
As an independent forensic report commissioned by retirees' representatives later determined, Raimondo's "reform" proposal was a veneer for pension theft. Conducted by former SEC investigator Ted Siedle, the 106-page analysis showed that Raimondo's initiative was all about "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."
That increased risk came from Raimondo move to not only eviscerate retiree benefits, but also to move more pension money into the volatile high-fee hedge fund and venture capital world that Raimondo built her career in. Some of those moves involved putting pension money into firms run by Raimondo's campaign contributors. Another move involved retirees' pension money being put into a high-fee fund that Raimondo herself had a financial stake in.
"The Treasurer may literally be profiting at the expense of the state," concluded Siedle's report.
It was an ingeniously diabolical scheme. Under the guise of “reform,” a Democratic state official had devised a way to pretend to help balance the state’s budget exclusively through cuts to worker benefits, thereby preventing serious cuts to corporate welfare programs like the ones that gave $75 million to a baseball-player-turned-tech-executive. At the same time, the new system may actually raise costs for the state and most certainly hands over more pension money to the financial industry - aka one of of Raimondo's biggest campaign contributors. And for such an effort, Raimondo was vigorously defended by front groups like Third Way, which are funded primarily by the very financial industry that has so benefited from her “reforms.”
To pass such a self-serving and cunning scheme through Rhode Island’s legislature, proponents of Raimondo's bill relied on two weapons.
First, there was the rhetorical argument about deficits and fiscal responsibility - an argument that dishonestly obscured the fact that Raimondo’s pension "reforms" threaten to increase costs to the state.
Those increased costs are due, in part, to the fact that so much more retiree money will be spent paying fees to the financial industry - which, again, just so happens to be one of Raimondo's biggest campaign contributors. Such fees are hardly surprising - in an interview with Bloomberg News, Raimondo says of her campaign fundraising, “I never ask for a contribution, I ask for an investment.” Clearly, the investment the financial industry made in her paid off in the form of pension-funded fees.
Just as critical in passing Raimondo's "reform" plan was the big money behind the public campaign to justify her initiative. A huge chunk of that cash came from former Enron trader John Arnold - a Texas oligarch looking to turn Rhode Island into a national template for his ideological campaign to reduce public pension benefits. As the Wall Street Journal reported, the push to pass Raimondo's initiative "was financed in large part" by Arnold's six-figure contributions to a local front group (Rhode Island Public Radio later reported on Raimondo's role in forming that front group). The Journal noted that the "Houston billionaire... sees the state as an opening salvo in a quest to transform retirement systems nationwide.”
His move to bankroll Raimondo's pension-slashing crusade became part of the $10 million Arnold has now spent championing similar retirement-raiding schemes in states across the nation.
A record-setting cash haul
Since the one-two punch of the Schilling fiasco and the Raimondo/Arnold heist, there has been serious pushback.
In Rhode Island, Gov. Lincoln Chafee (D) has launched a formal review of his state’s corporate welfare budget and his administration has brought a lawsuit against Curt Schilling’s defunct tech firm. Additionally, Rhode Island public workers that Raimondo ripped off have filed a lawsuit pointing to past rulings as proof that the state treasurer’s pension cuts violated implicit contractual obligations to retirees (adding insult to injury, Raimondo has used almost $400,000 of state workers’ own pension funds to defend the pension cuts in court).
Meanwhile, data have undermined Raimondo's ability to pretend she has at least put the state on more sound financial footing. For instance, the Providence Journal reported that Raimondo’s “reforms” resulted in $70 million in new fees paid from the state’s pension fund to the financial industry. The New York Times also reported that thanks in part to subpar returns by Raimondo’s investments in her beloved hedge fund industry, her state’s pension funds are producing below-average results as compared to the rest of the country.
In 2013, reporting by myself, Rolling Stone’s Matt Taibbi and Rhode Island outlets publicized some of the ugliest downsides of Raimondo’s record. In response to this and to pressure from a rival challenging her in Rhode Island's upcoming Democratic gubernatorial primary, Raimondo has attempted to portray her pension-cutting record as "a bold progressive agenda." She is also suddenly pretending to be a leading champion of Wall Street reform. Yes, the same State Treasurer who secretly converted her state’s public pension funds into another money funnel for Wall Street (and possibly for herself) is now a gubernatorial candidate telling voters she has always been an advocate for “tougher laws and regulatory reform to prevent financial executives from defrauding investors, exploiting loopholes and hurting the middle class.”
This, of course, is the kind of rhetoric that may be wildly popular with voters in this era of crushing inequality, but it is the kind of rhetoric Wall Street plutocrats and the John Arnolds of the world despise.
So who is the real Gina Raimondo? Is she the politician whose pension schemes aim to protect corporate welfare subsidies while converting retiree money into Wall Street fees? Or is she the defender of pensioners against the plutocrats?
The answer to that question comes in the form of that aforementioned $100,000 check. Reporting just days after Raimondo claimed she opposed outside spending by Super PACs, Providence’s CBS affiliate WPRI this week discovered:
A super PAC formed to boost Treasurer Gina Raimondo raised $116,988 during the second half of last year, with most of the money coming from a deep-pocketed Texas couple who previously backed the pro-pension-overhaul group Engage Rhode Island.
The American LeadHERship PAC – created last year by political operative Kate CoyneMcCoy to support Raimondo’s campaign for the Democratic gubernatorial nomination – received a $100,000 donation on Aug. 7 from John and Laura Arnold of San Marcos, Texas, according to Federal Election Commission records obtained by WPRI.com. The stunning news of a six-figure check in a tiny state’s gubernatorial race followed Taibbi’s earlier report showing that Raimondo had already “raised more than $2 million” after “donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money.” According to GoLocalProv, that includes $21,000 from employees of firms that have been sanctioned by the Securities and Exchange Commission.
If, as the saying goes, money talks, then Raimondo’s record-setting cash haul and her support from Arnold is quite clearly telling the public who she really - still - represents. Likewise, though Arnold declined to be interviewed by Pando for this article, the sheer size of his contribution to the Raimondo-aligned Super PAC speaks volumes about his desire to see Rhode Island's pension-gutting policy become a national model.
More broadly, the entire episode reveals that while polls suggest that both pension cuts and corporate welfare are unpopular, there is plenty of oligarch money mobilized to support the politicians who most loyally aid the Great American Pension Heist. That’s because the heist isn’t just a crime against retirees in a vacuum. It is a wealth transfer from those retirees to the richest of the rich.
Sometimes the beneficiaries of that transfer are successful tech giants, who receive big subsidies financed by money that is owed to pension funds. Sometimes the beneficiaries are the billionaire NFL team owners, who get stadium subsidies paid for by funds that are owed to those pension funds. And sometimes, as in Rhode Island’s case, the beneficiaries are unproven software firms and politically connected hedge funders, both of whom received the money that was owed to the state's pension funds.
No matter the particular beneficiary in any one particular scheme, though, one thing is obvious: there is a financial reward system now in place to protect politicians who make sure this heist continues. And so it does just that - it continues in perpetuity, retirees and local economies be damned.
[Illustration by Hallie Bateman for Pando]