RI’s Economic Study Funder Manages $65 Million in RI Pension Money
Monday, August 31, 2015
The fact that Gallogly's company manages a large sum of RI pension fund cash raises questions about the study and whether its conclusions would benefit the industries of the study's funders.
"The big question here is how the donation is being handled," said John Marion, the executive director of the Rhode Island Chapter of Common Cause, a good government group that focuses on the issues of ethics, transparency, and the influence of money in politics.
"Is there a firewall between the donors and the researchers or are the donors picking the researchers and in contact with them? If there isn't than the people who care about the issue of government influence by private interests should be concerned, but i would expect academic institutions to have those safeguards in place."
Gallogly, a wildly successful alternative investment manager who now resides in New York, declined comment for this story though his spokeswoman at Centerbridge. Gallogly, in addition to founding his firm, also served on President Obama's Economic Recovery Advisory Board. Gallogly has made political campaign contributions to Governor Gina Raimondo, as well as US Senators Sheldon Whitehouse and Jack Reed according to data on the Federal Election Commission's website.
The issue of studies and the independence of the researchers who perform those studies made news earlier this month when the New York Times reported that a new study, which claimed that the key to losing weight and maintaining a healthy body weight, was primarily a matter staying active and exercising regularly, not restricting caloric intake, was funded by Coca Cola, the world's largest producer of sugary beverages. The study's results basically followed the old adage that consultants have a tendency to tell their employers what they'd like to hear.
Brookings Values Independence
Mark Muro, the Senior Fellow and Director of Policy for the Brookings Institution, emphatically guaranteed that the research would be conducted completely independently, and wouldn't take into account the interests of the folks who funded the study to the detriment of the larger economy. To do otherwise, he said, would be to violate the mission of the Brookings Institution, which is to produce independent research.
"Brookings holds itself to an ethic of absolute independence in the research we do and the conclusions we draw," said Muro. "We are by definition an independent research and policy organization. We zealously maintain our independence, and create rounds of internal and external review of our work to guarantee its quality and independence."
Donors are from Finance World
Phil West, the former executive director from Common Cause, and author of Secrets and Scandals: Reforming Rhode Island, 1986-2006, said that the fact that there are several organizations funding the study as opposed to just one is a good sign.
"That makes me much less inclined to be suspicious than if there were just one person funding the study," said West.
The idea of the study is something that's been kicked around about for some time, particularly by Governor Gina Raimondo, said Muro. Muro said Raimondo was working last year to jumpstart a study prior to her inauguration along with then-Governor Lincoln Chafee, but for some reason the study never became a reality until as of late.
Gina Raimondo's spokeswoman didn't return a request for comment on this story.
Muro also said that the study will host three town hall style meetings sometime later next month and in early October, although the exact dates haven't been finalized. The study's authors want to hear from every stakeholder in Rhode Island who is interested in being heard, he said, and he encourages people to stay tuned and to attend the meetings.
"We want to hear from everybody," said Muro.
Justin Katz, a the research director of the Ocean State Center for Freedom and Prosperity, a center-right think tank, said that he doesn't necessarily believe there's anything nefarious going on with respect to the people who are funding the study, but instead sees it as a natural result of centralized government planning.
"The key to progressive central planning is the notion that the smart people on the inside can make better decisions than the broader public can. Wealthy finance mavens see themselves as part of that cognitive elite, so they incline toward that sort of worldview. The charitable view is that their main objective is to make the world a better place, and the fact they get fabulously rich in the process is just a nice side effect (that allows them to invest more in redesigning the world)," Katz wrote in response to an emailed question.
Finance Industry Under Fire
In any event, all three of the study's individual funders are from the world of finance. In 2011, Raimondo garnered criticism when Engage RI, the group Raimondo helped organize to lobby for pension reform that year, received a $100,000 from John Arnold donated somewhere between $100,000 to $500,000. Arnold was a former energy trader at Enron, and later funded his own Texas based hedge fund, which later closed up shop. Arnold is worth somewhere around $3 billion according to Forbes.
The world of finance, particularly alternative investments (hedge funds, private equity, real estate funds), has come under fire as late from an unexpected place--the Republican Presidential Primary race.
Donald Trump, the richest person running for President, of all people, has been criticizing hedge fund managers, saying they aren't paying enough in taxes. Trump has been telling crowds that hedge fund managers are "getting away with murder" with respect to how little they've been paying in taxes, and called them glorified "paper pushers". Trump has parlayed that populist rhetoric with a call for lowering taxes on the middle class (in exchange for raising them on hedge fund managers).
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.
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'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.
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.
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