Riley: Time’s Up, Providence
Wednesday, June 06, 2018
In 2014 Providence and new mayor Jorge Elorza were found to have overstated the assets in the pension plan by their new actuary Segal. This embarrassing discovery and acceptance by Providence and its officials resulted in an additional $63 million added to Providence unfunded liabilities and essential meant dozens of prior CAFR documents were wrong.
Rather than restate years of misleading municipal documents the city decided to accept a $63 million-dollar liability as a change of assumption. In one fell swoop, a more accurate representation (much worse) of the funded ratio was presented. A lower funded ratio is used to calculate ARC.
The whole point of the ARC estimate was to contribute enough money to sustain the pension fund.
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We can make the case that Elorza was caught in a game of “hot potato” between Taveras and David Cicilline, and was pegged with the giant Taveras lie. This makes sense given the Taveras reforms did virtually nothing to fix Providence pension issues. Suspend some COLAs, cap pensions at some exorbitant rate and eliminate 5 and 6% colas. Not exactly awe-inspiring. Meanwhile, both Taveras and Elorza continued to mislead investors about both assets and liabilities and purposely underfund the pension plans.
All the while, first Cicilline, then Taveras, and finally Elorza all touted paying 100% of the ARC as if that was a great accomplishment. First, it has been State Law since the end of last century, to pay 100% of ARC .
While Auditor Almonte chased cities to pay their ARC, the Mayors were moving the goal posts, so they didn’t have to contribute as much to the plans. The egregious use of high discount rates is still present as Providence as Elorza expects to compound returns at 8% over the next 30 years. I’ve written numerous articles about this sleazy practice.
Time's Up Mayor Elorza
As Elorza now approaches his promise of funding the pension plan “on time” by June 30, 2018, the end of the fiscal year, it's becoming clear that this Mayor is like all the others. Here is what one article said in 2015 quoting Mayor Elorza:
Now that he's committed to moving the annual pension payment up to June 30 over the next three years, Elorza said he doesn't consider the rating agencies an immediate concern.
"There is no sort of doomsday that they're predicting or warning against for continuing to do this," Elorza said. "But at the same time, I'm an accountant and I know it's important to comply with accounting standards and over the next several years, we have a plan in place to make sure we're making [payments] within the fiscal year."
Having missed the due date the last 2 years and costing taxpayers millions in additional interest costs by not paying pension contributions on time, Mr. Elorza has just a few weeks to fulfill his promise. I wouldn’t count on it because Providence continues to divert pension contributions to pay for operating expenses. This is a giant NO-NO. Providence has been doing it for a very long time and has avoided calls to have an outside auditor do a forensic audit of the City and its pension accounting.
Suddenly funding progress reports are missing for the City
Here's a Riddle
If all a Mayor or Government must do, is contribute the ARC as provided by the actuary, how could we have a lower funded ratio in 2017 under Elorza than we had in 2007 under Cicilline? How could our liabilities rapidly grow, and our plan assets decline? Here is a table that shows this conundrum:
One of the required supplemental reports (CAFR) used to track funding progress during the Cicilline ERA appears below:
And here’s a more recent one from the Taveras era:
Mysteriously a series of less detailed reports have appeared instead of the required Funding Progress report with the following warning:
*Note - This Schedule is intended to show information for ten years. Additional information will be added as it becomes available.
Question – this should be historical for the previous 10 years.
So why don’t they have that or was it misleading? I’m betting it’s been all a lie and very misleading.
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.
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