Riley: Elorza’s Delusion
Tuesday, July 11, 2017
Providence Rhode Island has been in a cash flow squeeze for at least 12 years and I suspect more than 20 years. The city has been blatantly violating law by directing pension contributions to the operating budget instead of immediately depositing employees and employer contributions to the pension plan.
I first accused the city of this practice in the Fall of 2013. In the Spring of 2015 Segal Co agreed with me and said that assets in the pension fund were misstated and added $63 million in liability to the City.
Also around the same time, I identified a mismatch between Advisor Wainwright Counsel LLC-claimed returns on its portfolio and the actual return on assets as stated in the CAFR. About a year ago Wainwright began publishing cash flows received from Providence showing how late the city has been since 2005 in contributing pensions to the trustees for investment.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe flows show that not only did the City pay 16 months late, on average they were also diverting employee contributions taken from their paychecks and intended for deposit for decades.
Where did this money go? I am assuming city officials were paying operating expenses with these dollars which I believe is and was illegal.
Take a look at the cash flows to the Pension asset manager (2005-2017) and notice the change recently. The City still pays late but this last year there have been periodic deposits to the pension fund. I suspect the city now realizes due to my criticism, that they have been violating laws.
I also suspect Elorza, rather than owning up to his infractions plus prior administrations and properly accounting for stolen and diverted monies over the last 20 years or so, he simply found it easier to implement best practices at some point in 2016. But he never properly paid the pension plan for diverting the monies.
Pension Contribution CASH FLOWS According to Wainwright
What happened to the missing Employee Contributions?
Pensioners deserve the lost returns from diverting the money to cover Providence’s horrible cash flow. Elorza last week squawked that: “Providence would get laughed out of court if we ever filed for bankruptcy,” Elorza, a first-term Democrat who has said he intends to run for reelection next year, told reporters. “That’s how strong of a position we are in right now in terms of our short-term finances.”
We find it surprising Elorza can’t even pay back the pension fund for a current liability that was due June 30, 2017 if the City finances are so great. Providence needs an outside forensic audit focused on pension accounting. The unions should want a forensic audit also, but strangely they don’t.
This illogical avoidance of a union not asking for money owed to them is part of the corrupt Providence puzzle and backroom dealings which leads us to believe the unions are more concerned about imminent bankruptcy than stolen pension money due.
Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.
Related Slideshow: 10 Things to Know about Elorza’s Fiscal Year 2017 Budget Proposal
Providence Mayor Jorge Elorza introduced his Fiscal Year 2017 budget proposal for the city -- here are 10 things you should know.
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