A Municipal Pension Study Commission meeting taking place yesterday further proved what trouble several RI towns are in.
Some readers would say that I am singularly focused on the issue of municipal finance and the financial condition of our cities and towns. Yesterday 500 local business leaders gathered with our Congressional delegation at the Greater Providence Chamber of Commerce Congressional Breakfast. I am sure all the reporters and politicians were there.
At that exact same time on Monday, I was attending the Municipal Pension Study Commission meeting, marking its 2-year anniversary and now entering its third year. The RI Municipal Pension Study Commission has more power in its hands to (favorably or adversely) affect the future of Rhode Island Citizens than our entire Congressional delegation will ever have. The potential power of this commission or the harm of missed opportunity cannot be overstated.
That being said, I was shocked when I picked up the agenda package in the senate lounge where the meeting was held. It appeared to include real information and a draft discussion document for “Recommendations to the Government and General Assembly”. Hope quickly dissipated however, and the reality of the Chafee Municipal Pension Study Commission’s lack of focus and constantly wavering sense of urgency reared its ugly head. Chafee has turned his back on the Municipal Pension Crisis and so have members, as the meeting started late and stumbled to open without a quorum. There were maybe 10 public viewers—mostly union or political staff—and me. Finally, the 8th participant Paul Doughty arrived and with a quorum, the real discussion began. Mayor Fung was first and as usual was straight to the point. He clearly described his recent interaction of months of meetings with Moody’s. Mayor Fung cares about his town and ratings. On the other hand, Mayor Taveras did not even attend and neither did Mayor Polisena of Johnston. Perhaps they attended the Congressional breakfast instead.
As an aside, according to Moody’s and GASB metrics as presented to the commission today, the City of Providence—even after its recent “Funding Improvement Plan”—is less than 20% funded and ranks the worst of any city of over 100,000 population in the United States of America. Johnston, Rhode Island has a much smaller population but a huge problem, and is only 21% funded. Significantly, one of the first items in our packet (that Mayor Taveras and Mayor Polisena didn’t even bother to send a representative to receive) was a PowerPoint presentation describing Moody’s Rating Service’s new emphasis on pension and OPEB debt. As my readers have known for months, Moody’s has not only doubled the importance of municipal pension debt in overall rating decisions, it has described real changes in use of the discount rate assumptions capped at around 6% and a new measurement called “net pension liability”. Moody’s and GASB also discuss using market value of asset valuation as opposed to smoothing methods.
Rhode island is highlighted on page one in the report as follows:
“RI cities continue to deal with weak revenue and economic growth and large pension liabilities.”
I will continue to evaluate every city in Rhode Island at 6% discount rate to get a true reading on pension liability and funding status. Also included in the packet is a full explanation of Moody’s definitions of pension burden on the budget.
What’s next for this Commission?
The highlight of the meeting was the discussion about the next steps that this commission will take. The bullet points looked promising but quickly deteriorated as various members of the commission told us why the suggested changes could not happen.
Here are the draft suggestions:
1) Create an OPTIONAL pathway to MERS…
A) Provide one time incentives
B) Give brief period to achieve benchmarks
C) Allow for re-amortization of recalculated UAAL
D) Allow members to retain service credits
E) Provide state/school aid offset in the event of failure to fund
2) Amend Legislation related to Collective Bargaining Agreements and their fiscal impact in out years not just the current budget (impact on Pension and OPEB debt)
3) Establish Continued funding through Municipal Incentive Aid program upon meeting certain criteria
4) Provide a mechanism for continued oversight of local pension plans (and OPEB) to insure implementation of Funding Improvement Plans (FIP)
A) Develop a stakeholder group of all local plans w/ Dept of Revenue, the Auditor General and Treasury.
B) Put FIP guidelines as statute
5) Require State Investment Commission to administer programs for local pensions.
6) Include criteria that the “critical status” of a locally administered pension plan would be considered under the provisions of the fiscal Stability act.
7) Require plans comply with GASB standards for actuarial methodology.
8) Establish Penalties if a municipality does not fund its local “Required Funding Contribution”
9) Require the submission of OPEB valuations to Auditor and Division of Municipal finance annually.
10) Establish Statewide OPEB trust.
11) Require FIP funding improvement plans for OPEB.
One by one, the seven commissioners who were still left there to discuss potential “next steps” seemed resigned to the fact that after 2 years of data collection, not much had changed. Mr. Dingley, the Deputy Treasurer who represented Treasurer Raimondo, correctly asked for an update as to the status of FIP’s that were finished and submitted a year ago. To my surprise and horror, no one seemed to know. Municipal Finance Chief Susanne Greschner said they had conducted a survey of some type and all but two of the “critical status” communities responded: Providence and Cumberland. When asked what the other 15 or 16 responses where, Ms Greschner was at a loss. This was not a good government moment from my perspective and again made me think that this pension crisis is not being taken seriously by even those responsible for fixing it.
Even though several of the highlighted “next steps” suggestions are worthwhile, at this point it’s too late. There is also no consensus in the group with union representatives objecting to things like moving to Medicare at age 65. Seriously, if we can’t get that done, forget it. Even the most optimistic case presented by Director Gallogly has no summer meeting and potential legislative introduction in 2015 and implementation in 2016.
My recommendation is to give the General Auditor some teeth, including penalties and job suspensions. If Ernie Almonte had some power he would have cleaned up a lot of this mess, but all he did was repeatedly report the problems to the GA and watch the GA ignore the ongoing crisis. Secondly, I would standardize the metrics for judging fiscal stability just as I am using in my studies. The discount rate would be 6% and smoothing of assets would be disallowed. Towns that have no real plan for emerging from ”critical status” or purposely underfunded their ARC would receive just one warning before the automatic imposition of an overseer and/or budget commission. Then, and only then, can we expect the cities and towns to take this crisis seriously.
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.
Related Slideshow: 10 Questions Taveras Has to Answer When Running for Gov of RI
Can Taveras Keep Up with the Big Boys and Girls in Fundraising?
In America today, one issue that is a factor in nearly every election is fundraising. To date, Taveras has yet to demonstrate any consistent ability to keep up with the leading fundraisers in RI.
Taveras will have to compete with General Treasuer Gina Raimondo, who has $2 plus million on hand and a likely run from Clay Pell (grandson of US Senator Claiborne Pell and whose wife is Olympic skater Michelle Kwan).
Raimondo is on pace to raise $5m and Taveras presently has just $692,000 on hand and would be on pace to raise less than $2 mliion.
Pell's family has access to nearly limitless dollars - back in the 1990's Pell's grandfather was ranked as one of the wealthiest members of Congress.
For more than 60 years, no Providence Mayor has been successful running for Governor of Rhode Island. You have to go back to the 1950 election when Dennis Roberts was elected Governor.
Since Roberts, a number of Providence Mayors have taken their shot at running for Governor and each has failed mightily.
Most notably, Buddy Cianci's run against J. Joseph Garrahy - Cianci got less than 30% of the statewide vote.
Joe Paolino was expected to win the Democratic primary in 1990, but was beaten badly by Bruce Sundlun and then Warwick Mayor Frank Flaherty.
Sundlun went on to win the general election and Flaherty was later named to the state Supreme Court.
Can Teachers Trust Taveras - and Will Voters Trust His Relationship with the Teachers Unions?
In the midst of the city's political meltdown, Taveras just into his first few months in office fired all the teachers in Providence.
Taveras received strong public support, but within months he capitulated to pressure from the teachers' unions.
Three years later, he is emerging as the candidate of the teachers' union leadership. Will teachers trust him in a statewide race and will voters trust him if he is perceived as too close to union bosses?
Will Hispanics Vote as a Block in the Primary for Taveras? Are They Influential Enough in the General?
Conventional wisdom is that Angel Taveras will get a big boost from the Hispanic voting block in the primary, but more recently Council members Luis Aponte, Danian Sanchez and Sabina Matos have all openly battled with the mayor on his tax increases and efforts to close pools in low income wards around the city.
While Taveras can rebound and the impact may be large in the primary, the percentage of voters who are Hispanic in the general election is just 7% according to Pew Research:
Rhode Island’s population is 12% Hispanic, the 13th largest Hispanic population share nationally.
There are 54,000 Hispanic eligible voters in Rhode Island—which ranks 35th in Hispanic eligible voter population nationally. California ranks first with 5.9 million.
Some 7% of Rhode Island eligible voters are Hispanic, the 13th largest Hispanic eligible voter population share nationally. New Mexico ranks first with 39%.
Can Taveras Handle the Campaign Pressure and the Office Pressure of Governor?
Taveras had no experience as a chief executive in business or government before taking office in 2011 in Providence. He has increasingly gotten into some very non-productive scrapes.
In 2012, his law office delivered a document to GoLocalProv as part of a FOIA request and those documents included the social security number of every retiree of the City. Instead of taking responsibility he sent his lawyers to court to try to block GoLocal from writing about the mishandling of social security numbers. The judge ruled against Taveras.
In 2013, Taveras has tried to demolish a commuity swimming pool in South Providence because, according to Councilman Danian Sanchez, Sanchez would not vote for Taveras' tax increase.
Will Taveras be able to prove to voters he has the right stuff?
Can Angel Taveras Build a Political Base Outside of Providence?
While Taveras has a strong political base in Providence, it is unclear if he can build a strong political network in critical Democratic strongholds like Woonsocket, Pawtucket, East Providence, Johnston and North Providence.
It is well known that both Democratic Mayors in North Providence and Johnston have had a strained relationship with Taveras.
This strain has played out over critical matters like mutual emergency aid and in 2012, North Providence, Johnston and East Providence all cancelled emergency aid compacts with Providence.
When Taveras ran for Mayor he won the critical block of East Side Democratic women. Part of his success with this critical block of voters was the support he enjoyed from Democratic power Myrth York.
The two-time Democratic nominee for Governor went all in for Taveras in 2010, but she no longer is active in the inner circle and reportedly would have supported Governor Lincoln Chafee in the primary.
Taveras will need to compete with Raimondo who has already signed former EMILY's list bigwig Kate Coyne-McCoy.
In 2010, Taveras ran under the motto of "from Head Start to Harvard." His claim on the American dream proved a successful juxtaposition to two Democrats who had the same political base - Federal Hill (Steven Costantino and John Lombardi).
Now, Taveras may face the fresh-faced Clay Pell. His bio exceeds Taveras as he can claim the legacy of his grandfather's work and hit the circuit with his superstar wife, Olympian Michelle Kwan.
Can Angel Taveras Articulate a Vision for Rhode Island?
Taveras earned good scores for managing the City of Providence's financial crises, but never seemed to develop major policies for economic development, schools, parking, crime, reducing the cost of government or improving the efficiency.
The Superman building's closure happened on his watch, technology company Dassault Systèmes is moving out of Providence, and no major employers were recruited into the city other than the scrap yard on Allens Avenue.
Taveras will need to define a forward looking vision for Rhode Island.
Can Taveras Explain His Record on Crime and Education?
The biggest problem for Taveras is his record in Providence.
Most people care about the basics - their jobs, education for their children, how safe their neighborhood is. These vary questions could be Taveras' Achilles' heel.
The condition of Providence's schools may be worse. Of the 24 schools ranked as poor (de facto failing) in Rhode Island by the Department of Education, 6 of them were Providence Schools and in the rankings of the best high schools in the state, most of Providence's schools consistently litter the bottom of the rankings.
Taveras lead the city to win the $5 million Bloomberg award. But in a Governor's race one of Taveras' opponents is sure to ask, "Mr. Mayor, are you going to bring the same policies you used on crime and education in Providence to the rest of the state?"
