Michael Riley: The Municipal Pension Study Commission Is A Failure

Tuesday, February 04, 2014

Michael G. Riley, GoLocalProv MINDSETTER™

Governor Chafee’s Municipal Pension Study Commission has failed. Reflecting the incrementalist behavior of our governor, this committee has asked the bare minimum of cities and towns, let slide various deadlines, and acted more like a cheerleader than disciplinarian. We are most emphatically in crisis, and this issue of local pension and OPEB debt hangs like the Sword of Damocles over all municipal spending and funding decisions in this state.

Even after reform on the state pension system, the state of Rhode Island has crawled from the second-worst funded state to 11th. The state has now barely lifted its head above the “critical status” threshold of 60% funded. But cities and towns are a different story. The municipal commission laughably gives 20 years for the cities to reach this level of funding and the cities indicate they are very unlikely to do even that.

Providence is the second-worst funded city in the United States, according to a recent Moody’s study. Recent reforms (adjusted to Moody’s standards) show that Providence is even worse than Taveras famously declared a “Category 5 Hurricane”, it is now the worst in the country with a funded ratio of 21%. Including the adjustments that have been warned for years by Moody’s and will be implemented in ratings next year, Providence has understated its UAAL by over $600 million dollars. This estimate was given by Providence officials in the midst of “crisis negotiations” and after several commissions were formed. Providence has, if anything, proven it can do no more on its own and a Budget Commission should be appointed.

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My study (see above chart) shows that per household debt in Providence including OPEB is now $59,837, quite different from the cute little signs held up on recently on a news channel's “What’s Your Number?” exposé. This frighteningly large debt figure is not plucked from thin air. The figure is based on Moody’s multiple guidance as has been delivered to Providence city officials and its actuary. The town council and Mayor Taveras chose to ignore these guidelines and instead have chosen to overstate assets and understate liabilities by over $600 million. Sadly, this is after difficult negotiations and changes that were spurred by the Pension Study Commission. Similar understatement exists in several other cities across Rhode Island, but Providence is by far the guiltiest of misrepresentation, especially in light of claims that negotiations have saved the city.

The Commission was formed to focus on cities and towns. The state pension reform was purely the effort of Treasurer Gina Raimondo. Governor Chafee—who ultimately oversees Revenue Director Rosemary Booth Gallogly— has little or no understanding of the issue. Until Treasurer Raimondo appeared on the scene, he had never even expressed concern over pension and OPEB issues. If anything, he has a history of being part of the problem. Chafee had hoped to claim some political turf and help cities by including municipal reform in RIRSA. That failed, and this commission was formed.

Who are the stakeholders at the table in Rhode Island’s pension Crisis? The first goal of the Municipal Pension Study Commission is nearly complete…after 2 years. Cities and towns have now produced actuarial reports and in most cases, Funding Improvement Plans (FIP). This 2-year process cost Rhode Island taxpayers tens of millions of dollars. Cities should have had these figures by law many years ago, but the warnings of a toothless Auditor General went unheeded for over a decade. As a result of the now-verified crisis, very few changes have actually taken place. West Warwick has done nothing (and supposedly meets in secret) and Coventry, Johnston, Pawtucket, Cranston, Newport, Warwick, and Woonsocket all have solvency-threatening issues to be explored. This commission, like the many commissions before it, is vulnerable to being used as a tactic to delay action. How many commissions have been formed on this “crisis”? By my count, over a dozen commissions have been formed in Rhode Island, all recommending changes that never took place. The solvency and financial condition continues to deteriorate.

Where is the taxpayer representative?

The current commission is composed of Chafee appointees Paul Doughty, Jean Bouchard, Steven St. Pierre, Joseph Polisena, Jamestown Administrator Bruce Keiser, Gordon Fox and Paiva Weed’s respective selections of Antonio Pires and J. Michael Lenihan, and their joint selection of Angel Taveras. Rounding out the 14-member panel are Director Rosemary Booth Gallogly, Auditor General Dennis Hoyle, Chaffee assistant Richard Licht, Treasurer Gina Raimondo, Mayor Alan Fung as President RI League of Cities and Towns, and finally John Simmons of RIPEC.

It is universally claimed that the stakeholders in this crisis include public employee beneficiaries, bondholders, and local property tax payers. However, this panel consists of Union representatives, bureaucrats, a government funded and dependent think tank, and politicians including the mayors of three critical-status towns. Are there no tax advocates that could—and should—have been appointed to this panel? Are taxpayers to believe that the same people who have ignored and compounded the debt on taxpayers are now going to save the taxpayer? This commission is nearing the end of its useful life, and demands a more forceful leader. Gallogly has been slow to react and complicit in the pending collapses of at least five pension plans. Taxpayers should start organizing now in West Warwick and Providence if they want to protect their interests. The clock is ticking.

 

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.

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