Seth Magaziner on Pensions, Hedge Funds, and More
Sunday, April 23, 2017
Magaziner spoke to his recent legislative proposal to bring struggling local pension plans into the statewide municipal system, to the impact of statewide debt, per a recent report, to the Treasurer's office looking to inform Rhode Islanders of unclaimed property, due to them.
Earlier this week, Magaziner released the Debt Affordability Study in the state's history, setting new debt affordability targets for the first time since 1999.
"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."
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According to Magaziner, in Rhode Island, there are more than 100 entities that can issue public debt, including State itself, municipalities, school, water and fire districts, along with quasi-public entities including the Narragansett Bay Commission, Commerce Corporation, Rhode Island Student Loan Authority, and the Rhode Island Airport Corporation. Combined, Rhode Island public issuers have accumulated more than $10.5 billion of debt.
Related Slideshow: 10 Questions from Rhode Island Pension Reform Settlement
Gag order impact?
While a revised gag order has been put in place by Judge Taft-Carter following the revelation of the pension reform settlement, opponents to the secrecy of the process have continued to rail against the deal having taken place with little information having been made available to the general public.
"Secret negotiations are where state government does its worst work," said RI Taxpayers Larry Fitzmorris. "The judge's gag order has kept the decision process secret from those who will have to pay the bill. Union members and retirees were given information by their leadership but taxpayers were kept completely in the dark about this deal."
With the requirement of confidentiality required until the termination of all the litigation in the case, when will Rhode Islanders get the full information regarding negotiations -- and will they be satisfied with such revelations after the fact?
The deal presented by Special Master Frank Williams to Judge Taft-Carter will soon be subject to approval (or not) by the General Assembly. While the April 20 trial date was vacated by lieu of the settlement, a 45 day "implementation" period was put in place for action on the terms of the agreement by the parties in the suit. So when will the General Assembly ultimately take it up? Speaker Mattiello and Senate President Paiva-Weed both expressed their preliminary support of the deal -- and indicated that the General Assembly will be reviewing the settlement -- including taking public testimony - in the coming weeks. How much input will the public have, and how much information will be provided to the public concerning its impact and when?
What about the unions who didn't approve it? Last time a deal was presented to the unions and retirees in 2014, one union dismantled that previous effort by just 254 votes. This time it was the unions representing municipal police, along with Cranston police and Cranston fire, that didn't agree to the terms - but their lawsuits are continuing and are slated to be addressed by the court after the settlement is implemented. What will be the ramifications of those unions' protracted legal battles?
The 2011 pension reform that was intended to save the state $3 billion in the ensuing decade by enrolling public employees in a 401K-style hybrid plan, freezing cost-of-living-adjustments (COLAs) and raising the retirement age for many union workers has been abated - but by just how much?
After one failed attempt at a negotiated settlement, the potential impact of the second deal reached will soon be made more clear (the changes from the original law, to the first settlement, to the second, can be found here).
"Remember that this is a second, enhanced settlement," said Monique Chartier with RI Taxpayers. "So we are now two steps removed from the original pension reform at a cost of an additional $232 million for state taxpayers alone."
If the pension deal goes through, and Rhode Island cities and towns are faced with major budgetary implications -- what would re-amortization -- i.e. stretching out the debt over time -- look like? How will cash-strapped municipalities, already facing harsh fiscal realities, factor in the new obligations -- and how long will future generations be paying for them? While the settlement is expected to maintain most of the savings achieved by the 2011 reform, the concessions will have significant impact. Just how will the state and the cities and towns will have to address it, and over what duration?
Following the announcement of a deal, a number of individuals -- and groups -- came forward to oppose the agreement, including advocacy group RI Taxpayers.
"These secret pension reform negotiations have amounted to an unconstitutional, alternative law-making process unaccountable to the people," states R.I.Taxpayers' Chair Larry Fitzmorris. "Further, under a settlement, the critical matter of whether the pensions represented an implied contract would remain unresolved and might even jeopardize the state's legal position if this matter comes up again down the road."
"Far from being an awesome achievement, as the Special Master describes it, this settlement is a bad deal for taxpayers," said R.I. Taxpayers' spokesperson Monique Chartier.
Senate President Paiva Weed indicated that public testimony will be part of General Assembly consideration -- how vocal will the opposition be?
While the pension reform deal addresses a number of points of contention, the precedent for any future reforms is being called into question by some in Rhode Island. Following the announcement, the Center for Freedom and Prosperity questioned the leeway lawmakers now have in light of the decision.
"Regardless of the details of the negotiated settlement of the state's 2011 pension-cutting law, Rhode Island lawmakers and taxpayers will be left in limbo as to whether or not future pension reforms at the state and local level can be legally conducted," said the Center in a release.
"We don't need a backward looking pension deal, we need a forward looking pension ruling on its constitutionality," commented Mike Stenhouse, CEO for the Center. "We all know that the 2011 law was just a band-aid and that massive reforms are still required at the state level, and especially in municipalities."
The landmark pension reform legislation of 2011 was a defining moment for then-General Treasurer Gina Raimondo, heralded by supporters for addressing the state's burgeoning pensions costs, and blasted by detractors for cutting what appeared to be iron-clad agreements.
Whether Raimondo seeks a second term as Governor (or a higher office), the legacy of now supporting a settlement to avoid trial will be lauded by some for its fiscal prudence of avoiding costly litigation with an uncertain outcome, but for the union members who had hoped to undo the reform in its entirety is another matter of local -- and possibly national -- implications. How will history, and voters, view this chapter of Raimondo's career?
Outspoken Raimondo critic Edward Siedle, the former SEC-lawyer turned forensic pension investigator and Forbes' contributor who took a scathing look into Raimondo's 2011 pension reform back in 2013, is toeing the waters to see about conducting a second follow-up investigation in Rhode Island. Siedle was highly critical of Raimondo's hedge fund strategy -- and since his initial report, the state has pulled out of a number of beleaguered hedge fund investments -- and Raimondo's Point Judith fee structure has since been disclosed, among other developments. Would a second look by Siedle uncover new information that could have an impact on past and present oversight of the state's pension fund?
Will the settlement have an impact on the Rhode Island's bond ratings? Following a year that saw ratings agencies threaten to downgrade Rhode Island's general obligation bonds if the state defaulted on the 38 Studios Bonds, Raimondo seems to think that this pension deal will have a favorable outcome for the state. "We anticipate that removing the uncertainty will have a favorable impact," said Raimondo Press Secretary Marie Aberger. While the announcement of the settlement is the first step in the process, will any developments on the ratings front be forthcoming following General Assembly action?