Good morning, Mr. and Mrs. Rhode Island, and all the ships at sea – happy weekend and welcome to the second edition of my new column. As always, send your takes, tips and trial balloons to tnesi (at) wpri (dot) com and I may include them.

1. I doubt that Governor Chafee will propose significant tax increases in his budget on Tuesday, especially after legislative leaders all but ruled out the idea at this week’s Chamber luncheon. I’m sure, though, Chafee’s budget will include some major cuts in spending on programs that have substantial – and vocal – constituencies, particularly in social services. Chafee, Gordon Fox, Teresa Paiva Weed and their deputies are banking on the hope that May’s revenue estimates will save the day and wipe out most of the $120 million deficit.

2. Nesi’s Notes editor emeritus Charlie Bakst passed along a bit of wisdom to keep in mind as we dive into a big election year: “Everything in politics happens twice: Once when it happens and again when they make a television ad about it.” Like many others, Bakst was also appalled by the New York Times exposé on how Apple treats its foreign workers.

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The Rhode Island Republican Party says it may go to court in an effort to overturn what the GOP sees as a blatant attempt to save a vulnerable incumbent Democrat in Burrillville by redrawing his legislative district.

What has Republicans riled up is “the Keablemander” – the redrawing of House Districts 47 and 48 that would move Donald Fox, the Republican who lost to State Rep. Cale Keable by 196 votes in 2010, out of Keable’s district. The plan would shift four times more people than the 360 required by the Census, said Patrick Sweeney, the GOP’s executive director.

“From the testimony last night, it’s a purely political move with no independent basis,” Sweeney told WPRI.com. “There’s no natural, historic, geographic or any other consideration. It’s just, ‘We’re going to shift 1,500 people.’ It just doesn’t make sense.”

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Republican congressional candidate Brendan Doherty says he hopes President Obama follows his State of the Union speech with a bipartisan approach on issues like an overhaul of the federal tax code.

While many Republicans blasted the president’s address as a campaign speech, Doherty took a softer approach, saying he was “encouraged” by what the president had to say and hopes to see more cooperation and bipartisanship in Washington.

Doherty has endorsed Mitt Romney for president. Here’s the full statement he gave in response to a question from WPRI.com:

I was encouraged that President Obama chose to address the challenges facing middle class Americans in his State of the Union speech. I have always believed that actions speak louder than words and I hope that this administration now will shift its focus away from handouts to Wall Street and big corporations and instead promote a strong economy and secure jobs for the people of Rhode Island and our entire nation. We need comprehensive tax reform that closes loopholes for big business and levels the playing field for small business and the middle class. This will not be easy and will require leadership and bipartisan cooperation that goes far beyond seating arrangements and the rhetoric of class warfare. Like many Rhode Islanders, I am frustrated by constant partisan bickering and I am committed to bringing true leadership and a spirit of cooperation to Washington, DC and to restoring integrity and accountability to Congress.

Cicilline’s statement, which isn’t on his website, blamed the House Republican leadership for blocking the president’s proposals, but other than that didn’t sound markedly different from Doherty’s. Both called for changes to the tax code that would likely increase how much large businesses owe the federal government.

“Rhode Islanders want Congress to move beyond ideological differences to get things done for our country,” Cicilline said Tuesday night. ”Let’s put aside partisanship and send the president bills like these that will advance not just the interests of Democrats or Republicans, but of every American family.”

Illinois Issues reports on how a top Republican in the Land of Lincoln – a state that faces a larger pension shortfall than Rhode Island did – is trying to get the state to rally around its own version of Raimondo-Chafee:

“We’ve talked about pension reform in this state until we’re blue in the face. We know what needs to be done. We know that other states have done what we need to do, like Rhode Island,” House Minority Leader Tom Cross said during a recent news conference.

It is fitting that Cross would cite Rhode Island as an example, since it is the only state that has in recent years taken some controversial pension reform steps similar to a proposal from Cross. David Draine, senior researcher for the Pew Center on the States, called Rhode Island’s reforms “the only [recent] example of a state that really changed the terms of pension benefits for current employees.” …

Rhode Island had one of the largest funding gaps in the country relative to its size. The state operated its fund on a pay-as-you-go basis from the 1930s until the 1970s.

“Pension systems with really severe problems often started out as ‘pay-as-you-go’ plans, in which retirees derived their benefits from current state revenues, not any pool of accumulated cash. Inevitably, the number of retirees grew, relative to the number of current employees, and the checks going out the door took up a larger and larger portion of state revenues,” said a study of state pensions from the Pew Center on the States.

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Treasurer Gina Raimondo acknowledged for the first time on Thursday that she may seek higher office in 2014, which will add to the heated speculation about her future plans.

Asked whether she would rule out a run for higher office in 2014, Raimondo told WPRI.com: ”As you know, I am obsessed with being a good treasurer and working as hard as I possibly can. But I’m not ruling anything out, no.”

Raimondo, 40, didn’t get more specific than that during a half-hour interview in her State House office, but speculation is widespread that she may run for governor in two years when independent Gov. Lincoln Chafee is up for reelection. She had $513,584 in her campaign war chest as of Sept. 30, more than any other politician at the state level in Rhode Island.

“We have a lot of work to do,” Raimondo said. “Pension reform was a huge step forward. I do think Rhode Island is being nationally recognized as a leader on one of the toughest issues the country faces, and saving $4 billion is a big nut – it’s big, no doubt about it – it’s big. But sure, there’s more to do.”

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By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s state pension fund earned a paltry 1.4% return on its investment portfolio last year, far below its target of a 7.5% annual return, WPRI.com has confirmed.

Treasurer Gina Raimondo’s office disclosed the figure for 2011, which is after expenses, in response to an inquiry on Thursday. The pension fund earned 12.5% in 2010, according to the House Fiscal Office.

“It’s really hard to manage money right now,” Raimondo told WPRI.com in an interview. She cited ongoing volatility in the stock market and the impact of the Federal Reserve’s low interest-rate policy on the state’s domestic fixed-income portfolio, which made up about 22% of the pension fund’s assets in 2010.

Rhode Island’s 1.4% return in 2011 beat the 1.1% return earned by the nation’s largest public pension fund, the California Public Employees’ Retirement System. California’s teachers pension fund grew 2.3%.

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That’s the takeaway from an excellent bit of analysis by Jason Becker. ”A true COLA is key to ensuring that purchasing power is maintained throughout retirement,” he writes. “But the cost of goods has not increased 5% or 6% year-over-year ever in the past twenty years.”

Becker ran the numbers to compare what a Providence retiree with a $25,000 pension as of 1992 now receives thanks to 5% or 6% annual compounded cost-of-living adjustments, versus what the same retiree would now receive with a true COLA tied to inflation. Here’s what he found:

• Inflation-tied COLA: $46,132
• 5% annual COLA: $63,174
• 6% annual COLA: $75,640

Treasurer Raimondo made a related point at Tuesday’s local pension workshop, saying it’s important for pension plan fiduciaries to figure out what they’re actually looking to provide their retirees. Before last November’s new law, ”the Rhode Island retirement system was designed to provide an employee with more income at retirement than they got when they were working,” she said. “Is that retirement security?”

• Related: COLA means $796,871 pension for ex-fire chief if he lives to 100 (Nov. 30)

(chart: Jason Becker)

Fascinating story with a Rhode Island angle in The Wall Street Journal:

PROVIDENCE, R.I. — Wearing leg irons and guarded by federal agents, David Whitaker posed as an agent for online drug dealers in dozens of recorded phone calls and email exchanges with Google sales executives, spending $200,000 in government money for ads selling narcotics, steroids and other controlled substances.

Over four months in 2009, Mr. Whitaker, a federal prisoner and convicted con artist, was the lead actor in a government sting targeting Google Inc. that yielded one of the largest business forfeitures in U.S. history.

“There was a part of me that felt bad,” Mr. Whitaker wrote in his account of the undercover operation viewed by The Wall Street Journal. “I had grown to like these people.” But, he said, “I took ease in knowing they … knew it was wrong.”

The government built its criminal case against Google using money, aliases and fake companies—tactics often used against drug cartels and other crime syndicates, according to interviews and court documents. Google agreed to pay a $500 million forfeiture last summer in a settlement to avoid prosecution for aiding illegal online pharmaceutical sales.

Read the rest here. Thanks to reader DB for flagging it. The Projo wrote about Whitaker back in 2008.

Cicilline and Obama at SOTU

A blog post by Congressman David Cicilline is being featured on The Huffington Post’s home page this morning, part of an effort by the freshman lawmaker to link his own economic proposals to this week’s State of the Union:

This week, President Obama offered Congress a plan to rebuild our economy with proposals focused on manufacturing, innovation, and workforce training proposals that I and many of my colleagues support and have already been working hard to advance in Congress. …

We need to ensure that states like Rhode Island, which are hurting more than most right now, can take advantage of new manufacturing opportunities and market conditions. That’s why I have introduced the Make It in America Block Grant Program Act to provide competitive grants to help small to medium-sized manufacturers hardest hit by the Great Recession retool, retrofit their facilities, and train employees so they can maintain their current workforce, create new jobs, and better compete in the 21st century economy. …

In 2011 there were a number of lost opportunities to work, in a bipartisan way, to address some of the great challenges we face as a nation. Instead, a faction in Congress brought us to the brink of defaulting on our financial obligations and attempted to hold up important proposals that benefit our middle class.

The post is up a day after Cicilline’s office issued a press release headlined: “Cicilline Calls on Boehner to Expedite Consideration of Make it in America Block Grant Program Act and Offshoring Prevention Act.” No word yet on Speaker Boehner’s response.

Johnston Mayor Joseph Polisena, a member of the new local pension commission, suggested Wednesday that the huge cuts in state aid to cities and towns are a key reason for the plans’ financial troubles.

There’s no doubt the roughly 75% drop in local aid since 2007 has made it hard for cities and towns to balance their budgets. But there’s also no doubt the 36 locally run pension plans were in trouble well before that.

Don’t take my word for it – look at the auditor general’s reports.

The first report looked at the 36 plans back in July 2007 – with most of the cuts in aid still to come – and at that point they were only 45% funded. The second report, in March 2010, found them 43% funded. The newest report last September said they were 40% funded.

Those numbers are clearly going in the wrong direction, but the situation isn’t radically different now than it was in 2007.

Indeed, Polisena’s own city of Johnston is home to two of the 36 locally run pension plans, and they were each only 31% funded back in 2007. Today they are 27% and 28% funded, making them the ninth and 10th worst-funded out of all three dozen.

• Related: 13 local pension plans worse than RI’s; Cranston, Scituate lag (Dec. 5)