Riley: Rhode Island Gives Pat on Back to Bankrupt Cities
Tuesday, April 25, 2017
Michael G. Riley, GoLocalProv MINDSETTER™
On April 20 the Rhode Island Treasurer released the results of a comprehensive Public Debt Affordability Study.
"It is imperative that Rhode Island maintain committed to making job-creating investments in infrastructure, school facilities, and other capital projects," said Treasurer Magaziner. "But we also must ensure that we never borrow beyond our means. With the most comprehensive analysis of public debt the state has ever conducted, we are shedding new light on the affordability of public borrowing across the Rhode Island."
Municipal Disaster Ahead
Reading this report would make any sane or rational Governor or Treasurer shudder in fear. The report clearly shows the Municipal disaster dead ahead and admits to understating the problem by ignoring OPEB debt as if it doesn’t exist. It also purposely underestimates Pension Debt of State and its municipalities by allowing the use of unrealistic discount rates, false pension assets, and shady accounting in Providence which accounts for $2.5 Billion alone in debt for OPEB and pension assets.
I have published below the findings which do not include 2016 financial data. The new light that has been shed with this report is the fact that virtually no one in office has addressed the Municipal Debt issue since 2011 when Gina Raimondo declared the Municipal Debt problem as bigger than the State problems which required dramatic reform.
Mr. Magaziner, publishing a report is not the same as action. You or the Governor need to take immediate action. Neither of you has been able to earn decent returns. Its time to shut down any municipal pension plan that is less than 65% funded and place it in quarantine. Those Mayors, councils and finance directors are clearly irresponsible and incapable of managing a defined pension plan.
The comment at the end of the report shows a huge problem in Rhode Island. Our leaders accept mediocrity and don’t ask for results. Mediocrity and low standards are embedded in the psyche of the government workers. So, that’s what we get.
“The purpose of this study is not to single out any particular public entity, and this report should not be read as a criticism of an entity that has a level of debt in excess of its recommended target. In most cases where an agency or municipality exceeds its target, it took on significant liabilities long before its current leadership was in place, and grappling with inherited legacy costs can be a tremendous challenge even for the most skilled management teams.”
Mediocre would be a step up. Ask yourselves, what type of leader or what kind of mindset would put this paragraph in the summary? We wouldn’t want to single out incompetence or criminal behavior would we. Let's just give everyone a blue ribbon for trying.
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.
2005-2010In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.Read the Senate Fiscal Office's Brief here.(Photo: 401(k) 2013, Flickr)
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.“The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)See WPRI's coverage of Chafee's attempt to cut pension fund deposits here.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
As Raimondo eyes the role of Governor of Rhode Island in 2014, more behind-the-curtain information about the 2011 pension reform comes to light.
Read more from GoLocalProv about the players in the pension battle here.