An Island of Rationality in Blue-State New England

As her party sprints left, Rhode Island’s Democratic governor is going after faster economic growth.

By Allysia Finley 11/19/16

Rhode Island was founded as a refuge for heretics and outcasts, and staying true to the state’s heritage, Democratic Gov. Gina Raimondo is proclaiming a message decidedly at odds with her party’s progressive base. In 2011 Ms. Raimondo, then the state treasurer, spearheaded a bold reform of Rhode Island’s public-pension system that made her reviled among government unions. Yet she lived to fight another campaign. After being elected governor two years ago, she set about making her state great again for business with regulatory and tax reforms. This year’s election has spurred soul-searching within the Democratic Party. A debate rages between progressives who argue that Democrats need to double down on the party’s current strategy—that is, dividing the electorate into identity groups and promising a government program for every pot—and those like Ms. Raimondo who believe that boosting economic growth is the only sustainable path for their country and party. Soon after the election, Ms. Raimondo dropped by the Journal’s offices while on a trip to New York. “Rhode Island is on the move again,”she declared. “I want businesses to know that.”With a population of just over one million, the state is easy to overlook. Its western frontier bordering Connecticut is rural. Donald Trump overwhelmingly won these towns. Smithfield, where Ms. Raimondo grew up, is one of them. The mill towns in the Blackstone Valley that once churned out jewelry, silverware and textiles resemble the Midwest. After factories closed, many workers struggled to find employment. The liberal gentry reside in hamlets along the coast. Taylor Swift owns a summer house in the seaside town of Westerly. Providence, the epicenter of the state’s government and economy, is a mere 45-minute ride on the Acela train from Boston. About 5 miles out of Providence is Central Falls, which declared bankruptcy in 2011 due to ballooning pension liabilities and a shrinking tax base. Some police officers’pensions were slashed in half, spurring Ms. Raimondo’s crusade for reform. The reforms Ms. Raimondo championed in 2011 were, and still are, revolutionary. They shifted future as well as current workers to hybrid plans with a defined-contribution component. The retirement age was increased while cost-of-living adjustments were suspended, slashing the state’s unfunded liability by nearly half. Ms. Raimondo says the reforms were key to giving businesses certainty so they can invest. “I’m not going to raise your taxes, and you can believe me,”she says. That’s something her Connecticut counterpart Dannel Malloy can’t say. After fending off attacks from public unions—apart from which her pension reforms were widely popular—Ms. Raimondo was elected governor in 2014. One of her first acts was an executive order requiring that agencies quantify the costs and benefits for rules. She later rallied her Democratic legislature to overhaul the state’s labyrinthine Administrative Procedures Act, cutting the amount of red tape that businesses must chew through by about 2,700 pages or 10% of the regulations. With health-care costs escalating due to ObamaCare’s Medicaid expansion, progressives have urged Democratic governors to establish single-payer systems. Yet Ms. Raimondo resisted the pressure and convened a panel of health-care experts to recommend efficiencies. ObamaCare limits states’ability to reduce eligibility or benefits, so savings must be achieved through technocratic improvements like better coordinating care. By encouraging home care for elderly patients and increasing managed care, Rhode Island has bent the proverbial cost curve and reduced its Medicaid projected costs by 10%. Ms. Raimondo has funneled the savings into workforce training programs that match community colleges with local employers. Her goal is to equip the long-term unemployed and young people with skills for high-tech manufacturing and service jobs. The skills-jobs mismatch is a major contributor to the state’s 5.6% unemployment rate, though solving this universal problem doesn’t rank high on most Democratic governors’to-do lists. The governor also boasts of cutting the state’s alternative minimum corporate tax and unemployment insurance tax. The cuts were modest, and Rhode Island still ranks 44th on the Tax Foundation’s state ranking of business climates, behind Massachusetts (27) and Connecticut (43). But Rhode Island at least is headed in a more business-friendly trajectory, unlike some of its Northeastern neighbors. While Rhode Island still suffers from the ninth highest unemployment rate in the country, jobs growth has picked up since her pension reforms passed. Over the past two years, its GDP growth has surpassed every state in New England, save Massachusetts. This might seem like a low bar for measuring achievement, but Rhode Island was dead last in the years between the prior two recessions. Living next door to Massachusetts and Connecticut is a curse and a blessing. Providence dwells in the shadow of booming Boston, which this year nabbed GE’s new headquarters from Fairfield, Conn. Although Ms. Raimondo sought to lure the corporation, GE Digital gave her a technology center as a consolation prize. Meantime, Mr. Malloy, who has rammed through many corporate and income taxes, seems to be doing his best to help Ms. Raimondo succeed. The contrast between their philosophies reflects the battle for the soul of the Democratic Party. At least when it comes to economic growth, Ms. Raimondo is winning. Ms. Finley is an editorial writer for the Journal.■

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