Michael Riley: Analysing A Crisis
Tuesday, February 11, 2014
Despite some recent media gaffes and confusion about pensions and proper accounting, it is still possible to correctly frame this critically important debate. The municipal pension issue is by far the biggest factor in Rhode Island today. It is threatening our lifestyle, town by town, city by city—potentially devastating our citizen’s finances and the next generation. This crisis and finding working solutions will be a central political issue this year.
Level the playing field
Not only have I already created a recognized report and template for analyzing Providence by utilizing Stanford GSB metrics, but I have conformed all my findings to the criteria Moody’s will be choosing to rate municipal debt. I am using this template for every town. Rhode Island officials have been notified by Moody’s that the ratings agency has doubled their emphasis on pension under funding and established a variable discount rate assumption ranging from 3% to 6%—not a ridiculously high 8.25% like Providence uses, or 8% for West Warwick and Fireman Doughty, or SEIU 9%, or even the 7.5% the state uses. Every town will be adjusted to Moody’s 6%. Additionally no more “smoothing assets” like Providence has done. All town officials should know the market value of plan assets at all times. Many other cities have violated this obvious GASB change as well and the accounting profession is banning this practice of smoothing.
If the RI Municipal Pension Study Commission were actually fulfilling its function, we would know all the industry changes and acceptable accounting. Cities would be warned to comply. Instead, it’s become another commission boondoggle covering up pension disasters like Johnston, West Warwick, and Coventry. I thought the Pension Commission's main purpose was to shed light on the condition of RI towns. Why then, do they not standardize terms? Why don’t they draw attention to sloppy or unlawful accounting employed by “critical status” towns? Did you know, for example, that Commissioner Polisena’s town of Johnston (which is deep in critical status and less than 20% funded, and where he has been mayor since 2006 and a former fireman) includes the following extras in determining the pensionable salary of a fireman in Johnston?
- Unused sick time (added to salary to calculate pensionable salary)
- Unused vacation pay (same as sick time)
- Overtime (75% of overtime pay added to salary for pension calculation)
- Longevity pay (added to salary)
- Clothing allowance (added to pay and taxpayers will pay for next 25 years even though retired)
- Maintenance pay (Possibly; maybe citizens of Johnston can figure this one out)
This form of pension spiking must go...
The higher the pensionable salary definition, the higher the retirement benefit and the higher the cost to taxpayers. So what has Polisena done since his 2006 election?
Mr. Polisena is heard constantly complaining that it's not municipal-defined benefits that are the problem, but rather it's lack of state funding. Here’s a quote reported by WPRI at the very first Commission meeting: “We inherited a lot of bad decisions in the past. We have to live with it,” Polisena said. But Carcieri “did not help.” The mayor suggested that Central Falls and East Providence might not have their finances under state oversight today if the cuts hadn’t been made. He says it is the “state taxpayers “ who should help him pick up the costs of Johnston’s pension plan. Why? Perhaps some benefit cutbacks make more sense. Just review the fireman example above. How can other towns listen to this whining and witness lack of local action among commission members, sitting there right next to union reps, and then take this commission seriously? Taxpayers from other cities and town shouldn’t have to subsidize Johnston’s corrupt practices such as pension spiking.
In addition to a commission that is stacked against taxpayers, there is the ineffective leadership of Chair Gallogly. Some towns that have been “called on the carpet“ have become rebellious. At least two towns have openly mocked Gallogly‘s authority. Coventry has threatened to sue the commission, and West Warwick has smirkingly missed deadline after deadline for 2 years. The commission has lost significant importance and respect and we can expect that they will continue to drag their heels until Governor Chafee and all his appointees leave at year's end. This may unclog the process, but we’ve wasted 2 years of the so-called “Year of the Cities and Towns” under the Chafee administration as unfunded liabilities compound dramatically.
So because the commission is failing in even a basic way, I have instituted a ratings system that I believe the public can understand. I will review the true condition of localities like Coventry and Johnston. They will be compared to bankrupt cities in America and to average cities. It is quite possible that several Rhode Island towns will be in receivership before we’ve had time to dissect all the issues. I will attempt to review the Auditor General's list of critical plans first.
For towns that are rated terminal, and there are some, it’s game over. Only receivership can help the town turn the corner to sustainability. Let's start with two new towns for our rating system: Coventry is rated terminal and Johnston is rated critical.
Related Slideshow: 13 Biggest Business Stories in RI in 2013
13 Best Biz Cities in RI
GoLocal's examination of the Best Cities and Towns to do business in RI explored new ground for companies looking to relocate or expand.
Our researchers culled municipally-distinct data on tax rates, workforce availability, cost of living index, economic indicators for short term and long-term job growth, even average driving time to TF Green Airport, to quantify a blend of factors that make for a pro-business environment. Because every city and state in RI complies by statewide measures, those metrics weren't included in GoLocal's research.
Our coverage of the Superman building's threatened future started back in 2011, when a news story by GoLocal's News Team first unveiled the threat that Bank of America would leave the building and leave the city with the largest embarrassment.
In the story, The Superman Building: Downtown’s Ticking Time Bomb - former Mayor and developer Joe Paolino predicted the demise of the iconic building.
The failure to act by the Taveras Administration created the tallest embarrasment in America - one that has been reported by most every news organization in America.
GoLocal covered the demise of the building throughout the year.
11 JetBlue Factor
JetBlue's arrival to Rhode Island was first announced by GoLocal is the summer of 2012, but no one quite knew the impact of the JetBlue factor, until a promotion by the airline was launched in partnership with the Big Blue Bug, which rocked the internet and sold out $20 tickets in minutes.
The promotion launched on GoLocalProv showed the world of advertising has changed forever.
10 New England's Business
GoLocal's business team loves to collect and breakdown critical data to help Rhode Islander's get a beat on the story or even the bigger story.
One massively wide-read story was one that pivoted off the data of the Milken Institute and its rankings of all the cities in America.
The Best-Performing Cities study is published annually in order to highlight the cities and metropolitan areas in the U.S. that are prospering, and to point out those that are struggling from a structural point of view. By examining job, wage, and technology metrics over a five-year period, the publication utilizes a data-driven approach to provide a comprehensive measure of economic strength.
9 Arcade is Back
GoLocal has been tracking the Arcade since we came online in 2010 - from investigative video reports about the homeless living in the building to restoration and the reopenning.
While the financial district is only a shadow of itself - kudos need to go out Evan Granoff for pouring millions into the restoration of the classic Greek revival edifice.
8 38 Studios Defendants
An exclusive report by GoLocal's Investigative Team unveiled that defendant's in the 38 Studio's lawsuit had filed responses, and they had a very different opinion of what caused the collapse and the loss of $100 million to the State of Rhode Island.
Almost every defendant pinned the blame on Governor Lincoln Chafee for failing to give oversight and then hitting the panic button and forcing the ultimate collapse of the company.
7 Social Media
Social media continues to flex its muscle and demonstrate that it is far more influential than legacy media.
Twitters IPO and the progression of the Facebook model have redefined business.
One article in GoLocal's on going coverage of the metamorphosis of social media was a great guidance article by Johnson & Wales' Sierra Barter which functionally went viral.
Amazingly, one of the biggest stories of 2013, the effort by union leaders to force John DePetro off the air for calling female teacher protestors "WHORES," has been battled almost exclsuively on social media.
6 Alex and Ani Growth
Rhode Island's homegrown Alex and Ani continues at rocket speed growth.
The Cranston-based, Made in America jewelry company continues to bundle the very best of Rhode Island: jewelry design, old school manufacturing and smart marketing.
• Generated $80.04 million in revenue, including $22.06 million in sales in the state of Rhode Island, $51.42 million in sales in other U.S. states, and $6.57 million in exports.
• Supported 1,094 full-time equivalent (FTE) jobs in Rhode Island, from which 296 are direct FTE jobs and 798 are induced FTE jobs.
• Created $35.4 million in income for Rhode Island households. Direct earnings totaled $10.32 million and induced earnings totaled $25.1 million.
5 College Endowments
In Rhode Island, colleges and universities are big business. They are major economic engines and each of the local colleges readily announce the positive impact they have on the local economy and job creation.
GoLocal's look at the top 50 endowments of the college and universities in New England, found that Harvard's $30+ billion endowment overshadowed all other colleges in New England.
Brown ranked ranked 5th in New England and 28th overall with an endowment of more than $2.4 billion.
4 Fastest Growing
While Rhode Island's economy is trailing the rest of the country, there are some bright spots. Throughout 2013, GoLocal featured a number of companies that were fast-growing.
Inc Magazine's fastest growing companies in the US list flagged some real growth engines.
3 Twin River Rebound
Twin River is now a real casino with humans not video tapes dealing black jack.
Under the leadership of John Taylor, the company has rebounded from bankruptcy and become a model for gaming firms.
Now, Twin River is expanding and has made a strategic purchase in Mississippi.
With casinos coming online in Massachusetts sometime in the future, Twin River is doing a better job diversifying and planning for the future than the state of Rhode Island, who is so dependent on the revenue.
Rhode Island's unemployment situtation is a national embarrassment, and it is hard to see a governmental strategy designed for its improvement. In the post-38 Studios environment, decision-makers are affraid to champion significant initiatives.
The result is now that Rhode Island is last in America in unemployment and the crisis has gone on without improvement for years and years.
1 Demise of Newspapers
In the past year, the Providence Journal has laid off, demanded buyout or pushed retirements of over 50 reporters, editors and photographers - a staggering percentage of the newsroom.
Many of the those who departed were among the most recognized. Pulitzer Prize winning writer Mike Stanton quit to take a teaching job at UConn and now freelances for the Boston Globe.
Speaking of the Boston Globe, Red Sox owner John Henry bought the Globe from the New York Times for $70 million which represented a 97% loss in value for what the NYTimes had paid for the Globe and other related media.
As GoLocal's Pultizer Prize winning reporter Dean Starkman has written repeatedly about the need for media to invest in content. His words seem to fall on deaf ears.
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