Providence Pension Watchdog Riley Releases Report, Calls for More Answers
Wednesday, July 01, 2015
Writes Riley in his report, "Providence, Rhode Island is misleading its municipal bond investors and has been for as many as 20 years. Misleading municipal bond Investors is a violation of Federal securities laws."
On Tuesday, the city announced it would be paying back the $66 million pension payment due by end of Fiscal Year 2015 -- June 30, 2015 -- in the first quarter of Fiscal Year 2016 -- but that it would be looking to make the payments in the correct fiscal year in three years time.
"Schools, water, and workforce solutions have all paid for $12.4 million already," said Providence Mayor Jorge Elorza press director Evan England of making a payment in the current fiscal year on Tuesday."We will have the corrective action plan in the coming days."
City Internal Auditor Matt Clarkin said he would have to see the plan before making any projections.
"I have not seen the administration's corrective action plan, so I can't comment on it," said Clarkin. "As for the financial impact of making the payment in July or August instead of October, it would result in a smaller payment because there will be less interest charged. The issue/concern is that that what is the city's projection for cash through October 24.*
Riley said he applauded the steps being taken.
"I do congratulate Elorza as someone in government owning up to two decades of lies and the city's purposefully misleading overstatement of assets but that doesn't make their actions less criminal," said Riley. "There's much much more here and the regulators need to move in immediately. the stonewall has ended now its time for the sunlight to enter and cleanse city hall."
Timing of Report Issuance
"My goal is to have the SEC and US attorney investigate the last several decades of criminal activity and persistent and purposeful lying leading to misleading ratings agencies, municipal bondholders and taxpayers and pension beneficiaries," said Riley.
Following the city's pronouncement of paying FY15's pension payment obligation with FY16 dollars -- Riley had the following to say:
"They have not solved anything," said Riley. "[Tuesday] is their first recognition (first public comment) that they actually even have a problem but they ignore the missing year of payments and simply refer to how in the future they intend to pay on June 30, instead of October the following year. They still defaulted on this 62 million they owed. To get squared up, that's two payments next year and then get on the right schedule."
In May, Auditor General Dennis Hoyle issued a letter to Riley in response to Riley's columns. Wrote Hoyle:
My objective in writing is to correct the record on some of the issues [you] highlighted.
The issue essentially is one of timing and cash flow. At some time in the past (I’m not sure it has been definitively determined as to when this commenced) the City’s contribution to its pension plan was made after the close of the fiscal year. Ideally, contributions to a pension plan are made periodically throughout the year. For example, the General Laws require contributions to the plans administered by the Employees’ Retirement System of Rhode Island be made by the 15th of the month following the applicable payroll period. All would agree that the timing of the City’s contributions to its pension plan is not the norm or desirable.
However, my perspective is that the City has appropriately accounted for these events consistent with generally accepted accounting principles.
Riley in turn fired back:
"I am troubled by the fact that every year since at least 2006, the assets in the pension fund were knowingly overstated by tens of millions of dollars. It’s unlikely these amounts would be just one month or quarter of delayed payments. It appears as though the cash flow problems may have caused the city to skip almost all payments to the pension plan for an entire year, before then giving an "IOU" and paying four months late. And then the city rolled that missing year forward for over a decade, never quite catching up. It appears that the city owes $62 million by this June 30 or they are defaulting on an unauthorized loan that sits on the city balance sheet as a current liability. In my opinion on June 30 the city defaults on this unauthorized loan. This default should have taken place years ago had the city actually arranged a “legitimate loan” from the pension plan. They did not," wrote Riley.
"They also did not even notify the pension board or beneficiaries or the municipal bond holders. To this day, years of overstated assets have misled bondholders, producing fantasy funding ratios and affecting all manner of actuarial calculations. The ratings agencies have also been misled. Materially misleading bondholders is a violation of federal Securities law as you know," continueed Riley. "The $62 million that Segal proposes to "write off" and remove from the assets of the pension plan on July 1 upon the technical default of the city (that means they once again did not pay) is most certainly "material". The asset known as "other" represented as much of 25% of the reported actuarial assets in the pension fund. Not only is this outrageously high, I don't see any evidence in any other town of this type of accounting. I also find it difficult to believe that no one was alarmed by this number or asked about this anomaly."
Related Slideshow: The Highest Paid Early Retirees in the RI Pension System
Below are the top 20 highest paid retirees in the state pension system who retired at age 45 or younger. Data are current as of June 30, 2014 and were obtained directly from the General Treasurer’s office. Estimates of age and annual pension are GoLocalProv calculations. Ages were calculated by comparing birth year with retirement year. The data did not include months and dates for either. The annual pension and total amount paid since retirement are provided for each. Retirees are listed in order of lowest paid, of the top 20, to the highest.
- Riley: Institutional Investor Gives Bad Grades to RI’s Hedge Fund Picks
- Riley: How Does Providence Arrive at 8.25% Discount Rate for Pensions?
- Riley: Providence Pension Fund is Risky Business
- Riley: RI Has $600 Million Shortfall for Fiscal Year 2015
- Riley: Does the RI Treasurer Know his Senior Policy Adviser?
- Riley: Why Aren’t Rhode Island Pension Plans Working?
- Riley: Mr. Magaziner, No More Spin - Just the Facts
- Riley: Providence Misleads Investors, Risks SEC Scrutiny
- Riley: Providence Needs Full Economic Review
- Riley: Providence Pension Scam Revealed in Print
- Riley: Pension Settlement Does Little to Help Rhode Island
- Riley: Repeating My Call for Providence Bankruptcy
- Riley: How to Start Fixing the Rhode Island State Pension Fund
- Riley: Providence Pension Scam is Unraveling
- Riley: A Corrupt Providence Approaches Default
- Riley: Japonica, A Mystery to Rhode Islanders
- Riley: Negative Return on Fiscal Year 2015
- Riley: Progressive Magaziner and the Discount Rate
- Riley: I’ll Gladly Pay You Tuesday for a Hamburger Today
- Riley: Raimondo and Mattiello Fiddle While Providence Implodes
- Riley: Countdown to Default in Providence
- Riley: Default in Providence. Where is our Governor?
- Riley: Leaders Silent on “Enron-esque” Providence Pension Debacle
- Riley: RI Pension Study Commission Boondoggle