Riley: Politics and Pensions - Has Raimondo Given Up?
Tuesday, March 28, 2017
In 2011 when Jim Lehrer and Paul Solman interviewed Gina Raimondo about Rhode Island's pension crisis, her focus was squarely on the many severely underfunded local pension plans that threatened to create chaos across the state.
PAUL SOLMAN: So, what’s the hit that the average pensioner of Rhode Island is going to take? What’s the haircut, as it’s called?
GINA RAIMONDO: I think it could be a significant hit.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPAUL SOLMAN: Twenty percent, 30 percent hit, it could be?
GINA RAIMONDO: It could be. It could be. You know, in Rhode Island, we have 105 pension systems. So, for certain sections, the haircut will be significant, you know, 30, 40-plus percent. For other, you know, systems, it will be less.
GINA RAIMONDO: This problem of the pension, Rhode Island faces it; every state in the country faces it. The unfunded pension liability nationwide is a $3 trillion problem. TARP, we were prepared as a country to put aside $700 billion. The bailout of Fannie and Freddie was $400 billion. They all pale in comparison to the enormity of this financial challenge.
And marginal change won’t fix it. Tinkering won’t fix it. Pretending we don’t have a problem won’t fix it. Looking in the eye of this enormous financial problem honestly and recommending fundamental changes to a system, I believe, is the solution.
These days in 2017 Governor Raimondo almost never refers to the Municipal Pension Crisis. In 2011, as part of RIRSA, a commission was formed by Governor Lincoln Chafee and Chaired by Rosemary Booth Gallogly the State Revenue Director. “The Commission was established to review existing legislation and pension plan administrative practices and to make recommendations for the improved security and funding of locally-administered pension and other post-retirement benefit obligation plans of municipal entities.”
What Happened - Nothing
The commission was very concerned about those communities in “critical” status which was defined as 60% funded or less. That meant the town had only 60% of the funds necessary to pay local employees for the promises already made by the Mayor or Council.
Over the next 3 plus years the commission met 39 times and spent over 1000 hours in training town officials and reinforcing the math and the consequences of slow action to reform. Cities were required (and paid) to produce new, up to date, actuarial reports and to then submit a funding improvement plan “FIP” to the commission. This was all completed by 2013/2014. In 2014 the commission attempted to address OPEB liabilities, but this effort was unsubstantial basically glossed over. Then in late 2014, after collecting all the data, Gallogly/ Chaffee submitted the report you see highlighted above.
It won’t surprise many in Rhode Island to find out that nothing happened. No permanent oversight took place, no laws were changed, nothing. But we did gather data and we did get the towns on the record and to formulate improvement plans. As part of that exercise the towns made predictions about how they were going to emerge from critical status.
I’ve taken the towns' own predictions in 2013 for unfunded liability in 2016 and their expected funded ratios and compared those predictions to the actual numbers today. My report shows a huge miss and obviously, there were no consequences for any town, even those who didn’t even attempt reform or try to set aside more money to fund the liabilities.
The report shows that only one town emerged from “critical” status since 2013 and that one is controversial -- Narragansett using smoothing of returns shows a 61% funded ratio. But Narragansett was only 57% funded when using market value of assets at measurement time, June 30, 2016. Several towns had significantly under-estimated their 2016 unfunded liabilities by double digits amounting to hundreds of millions of dollars. The worst of these included Providence, Johnston and Cranston.
It also became clear that there was a significant variance in investment returns and a general lack of transparency of providing those returns to the public.
My report will show that the Municipal Pension problem is now much worse than 2011 and 2013 and the Treasurer who was so concerned back then is now our Governor who has a real crisis that is growing whether she wants to admit it or not.
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: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
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