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Michael Riley: The Municipal Pension Study Commission Is A Failure

Tuesday, February 04, 2014

 

Rhode Island's cities and towns are in worse shape than ever, thanks to the governor's Municipal Pension Study Commission.

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.

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.

 

Related Slideshow: Rhode Island’s Most Unemployed Cities and Towns

Below are the unemployment rates for Rhode Island's 39 cities and towns from August 2013.  

The statewide average for the month was 9.1% -- the third highest rate in the country.  

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#39 Narragansett

Latest Unemployment Rate: 6.0

Labor Force: 9,244

Employed: 8,688

Highest Rate in Last Two Years: 9.0 (January 2012)

Lowest Rate in Last Two Years: 5.6 (September 2012, June 2013)

Prev Next

#37 (Tie) Jamestown

Latest Unemployment Rate: 6.5

Labor Force: 3,014

Employed: 2,818

Highest Rate in Last Two Years: 9.5 (February 2012)

Lowest Rate in Last Two Years: 5.7 (June 2013)

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#37 (Tie) New Shoreham

Latest Unemployment Rate: 6.5

Labor Force: 1,507

Employed: 1,409

Highest Rate in Last Two Years: 30.9 (February 2012)

Lowest Rate in Last Two Years: 5.0 (August 2011)

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#36 Barrington

Latest Unemployment Rate: 6.8

Labor Force: 8,211

Employed: 7,651

Highest Rate in Last Two Years: 8.8 (August 2011)

Lowest Rate in Last Two Years: 6.4 (April, May, July 2013)

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#35 Richmond

Latest Unemployment Rate: 6.9

Labor Force: 4,316

Employed: 4,018

Highest Rate in Last Two Years: 8.5 (February 2012)

Lowest Rate in Last Two Years: 5.2 (May 2013)

Prev Next

#34 Glocester

Latest Unemployment Rate: 7.2

Labor Force: 5,893

Employed: 5,470

Highest Rate in Last Two Years: 10.7 (February 2012)

Lowest Rate in Last Two Years: 6.4 (June 2013)

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#33 North Kingstown

Latest Unemployment Rate: 7.3

Labor Force: 15,033

Employed: 13,939

Highest Rate in Last Two Years: 10.5 (January, February 2012)

Lowest Rate in Last Two Years: 6.6 (June 2013)

Prev Next

#32 Little Compton

Latest Unemployment Rate: 7.4

Labor Force: 1,904

Employed: 1,763

Highest Rate in Last Two Years: 12.4 (January 2012)

Lowest Rate in Last Two Years: 6.9 (April 2013)

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#31 Middletown

Latest Unemployment Rate: 7.5

Labor Force: 7,917

Employed: 7,325

Highest Rate in Last Two Years: 13.5 (January 2012)

Lowest Rate in Last Two Years: 7.1 (June 2013)

Prev Next

#30 Portsmouth

Latest Unemployment Rate: 7.6

Labor Force: 9,362

Employed: 8,651

Highest Rate in Last Two Years: 11.5 (January 2012)

Lowest Rate in Last Two Years: 6.6 (June 2013)

Prev Next

#28 (Tie) Bristol

Latest Unemployment Rate: 8.0

Labor Force: 12,455

Employed: 11,457

Highest Rate in Last Two Years: 10.6 (January 2012)

Lowest Rate in Last Two Years: 6.6 (June 2013)

Prev Next

#28 (Tie) Westerly

Latest Unemployment Rate: 8.0

Labor Force: 11,917

Employed: 10,961

Highest Rate in Last Two Years: 11.2 (February 2012)

Lowest Rate in Last Two Years: 6.8 (September 2012)

Prev Next

#27 Smithfield

Latest Unemployment Rate: 8.3

Labor Force: 11,781

Employed: 10,799

Highest Rate in Last Two Years: 10.4 (August 2011, February 2012)

Lowest Rate in Last Two Years: 5.7 (June 2013)

Prev Next

#25 (Tie) Foster

Latest Unemployment Rate: 8.4

Labor Force: 2,701

Employed: 2,475

Highest Rate in Last Two Years: 13.4 (February 2012)

Lowest Rate in Last Two Years: 7.9 (June 2012)

Prev Next

#25 (Tie) N. Smithfield

Latest Unemployment Rate: 8.4

Labor Force: 3,014

Employed: 2,818

Highest Rate in Last Two Years: 9.8 (August 2012)

Lowest Rate in Last Two Years: 7.4 (December 2012)

Prev Next

#23 (Tie) Coventry

Latest Unemployment Rate: 8.6

Labor Force: 20,279

Employed: 18,537

Highest Rate in Last Two Years: 11.1 (August 2011, February 2012)

Lowest Rate in Last Two Years: 7.1 (June 2013)

Prev Next

#23 (Tie) Cumberland

Latest Unemployment Rate: 8.6

Labor Force: 19,055

Employed: 17,422

Highest Rate in Last Two Years: 10.4 (August 2011, July 2012)

Lowest Rate in Last Two Years: 7.4 (June 2013)

Prev Next

#20 (Tie) Newport

Latest Unemployment Rate: 8.7

Labor Force: 12,885

Employed: 11,763

Highest Rate in Last Two Years: 14.1 (January 2012)

Lowest Rate in Last Two Years: 7.2 (September 2012)

Prev Next

#20 (Tie) Warwick

Latest Unemployment Rate: 8.7

Labor Force: 46,308

Employed: 42,297

Highest Rate in Last Two Years: 9.5 (February 2012)

Lowest Rate in Last Two Years: 10.4 (August 2011)

Prev Next

#20 (Tie) West Greenwich

Latest Unemployment Rate: 8.7

Labor Force: 3,678

Employed: 3,359

Highest Rate in Last Two Years: 11.7 (February 2012)

Lowest Rate in Last Two Years: 6.6 (June 2013)

Prev Next

#19 East Greenwich

Latest Unemployment Rate: 8.9

Labor Force: 6,784

Employed: 6,178

Highest Rate in Last Two Years: 11.0 (February 2012)

Lowest Rate in Last Two Years: 7.5 (June 2013)

Prev Next

#15 (Tie) Charlestown

Latest Unemployment Rate: 9.0

Labor Force: 4,506

Employed: 4,099

Highest Rate in Last Two Years: 14.2 (January 2012)

Lowest Rate in Last Two Years: 7.1 (June 2013)

Prev Next

#15 (Tie) Lincoln

Latest Unemployment Rate: 9.0

Labor Force: 11,781

Employed: 10,717

Highest Rate in Last Two Years: 10.4 (February 2012)

Lowest Rate in Last Two Years: 7.9 (November 2012, June 2013)

Prev Next

#15 (Tie) South Kingstown

Latest Unemployment Rate: 9.0

Labor Force: 16,455

Employed: 14,982

Highest Rate in Last Two Years: 10.6 (January 2012)

Lowest Rate in Last Two Years: 7.8 (September 2012)

Prev Next

#15 (Tie) Warren

Latest Unemployment Rate: 9.0

Labor Force: 5,908

Employed: 5,377

Highest Rate in Last Two Years: 12.0 (February 2012)

Lowest Rate in Last Two Years: 7.6 (June 2013)

Prev Next

#14 Exeter

Latest Unemployment Rate: 9.2

Labor Force: 3,865

Employed: 3,509

Highest Rate in Last Two Years: 11.7 (March 2012)

Lowest Rate in Last Two Years: 7.6 (September 2011)

Prev Next

#13 Tiverton

Latest Unemployment Rate: 9.3

Labor Force: 8,882

Employed: 8,058

Highest Rate in Last Two Years: 12.0 (January, February 2012)

Lowest Rate in Last Two Years: 7.4 (June 2013)

Prev Next

#10 (Tie) Cranston

Latest Unemployment Rate: 9.5

Labor Force: 41,657

Employed: 37,682

Highest Rate in Last Two Years: 11.3 (July 2012)

Lowest Rate in Last Two Years: 8.8 (April 2013)

Prev Next

#10 (Tie) East Providence

Latest Unemployment Rate: 9.5

Labor Force: 24,677

Employed: 22,339

Highest Rate in Last Two Years: 12.6 (January, February 2012)

Lowest Rate in Last Two Years: 8.7 (June 2013)

Prev Next

#10 (Tie) West Warwick

Latest Unemployment Rate: 9.5

Labor Force: 16,240

Employed: 14,693

Highest Rate in Last Two Years: 12.9 (February 2012)

Lowest Rate in Last Two Years: 8.4 (June 2013)

Prev Next

#8 (Tie) Hopkinton

Latest Unemployment Rate: 9.8

Labor Force: 4,888

Employed: 4,411

Highest Rate in Last Two Years: 11.2 (February 2012)

Lowest Rate in Last Two Years: 6.6 (June 2012)

Prev Next

#8 (Tie) North Providence

Latest Unemployment Rate: 9.8

Labor Force: 18,130

Employed: 16,347

Highest Rate in Last Two Years: 11.3 (August 2011)

Lowest Rate in Last Two Years: 8.5 (April 2013)

Prev Next

#7 Burrillville

Latest Unemployment Rate: 10.0

Labor Force: 9,526

Employed: 8,570

Highest Rate in Last Two Years: 11.6 (February 2012)

Lowest Rate in Last Two Years: 8.0 (June 2013)

Prev Next

#6 Scituate

Latest Unemployment Rate: 10.4

Labor Force: 6,166

Employed: 5,527

Highest Rate in Last Two Years: 11.2 (July 2012)

Lowest Rate in Last Two Years: 8.4 (June 2013)

Prev Next

#5 Johnston

Latest Unemployment Rate: 10.5

Labor Force: 15,645

Employed: 14,004

Highest Rate in Last Two Years: 12.9 (February 2012)

Lowest Rate in Last Two Years: 9.2 (June 2013)

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#4 Pawtucket

Latest Unemployment Rate: 11.1

Labor Force: 36,412

Employed: 32,378

Highest Rate in Last Two Years: 13.7 (July 2012)

Lowest Rate in Last Two Years: 10.2 (June 2013)

Prev Next

#3 Woonsocket

Latest Unemployment Rate: 11.2

Labor Force: 20,730

Employed: 18,409

Highest Rate in Last Two Years: 13.6 (January 2012)

Lowest Rate in Last Two Years: 10.7 (June 2013)

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#2 Providence

Latest Unemployment Rate: 11.5

Labor Force: 80,605

Employed: 71,362

Highest Rate in Last Two Years: 14.3 (August 2011)

Lowest Rate in Last Two Years: 10.4 (May 2013)

Prev Next

#1 Central Falls

Latest Unemployment Rate: 12.1

Labor Force: 8,348

Employed: 7,341

Highest Rate in Last Two Years: 15.3 (January, February 2012)

Lowest Rate in Last Two Years: 11.4 (April 2013)

 
 

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Comments:

Very well done. Just wish more constituents got it.

Comment #1 by Jeffrey Brown on 2014 02 05

One good idea Mike Riley has put forward many times is to phase in defined contribution pension plans for municipal and other public employees. As a (retired) state employee of the old Board of Governors for Higher Education, I am in one, and though it is subject to the vagaries of thr market, ultimately so too are the defined benefit plans that also depend on investment returns. But once the money is in the defined contribution plans, it is not subject to local political manipulation which for me includes the exhorbitant hedge fund management fees.
The defined benefit plans apparently cannot be sustained as they are subject to extravagant promises by politicians looking for current support (see B Cianci for ex) and system abuse whereby insiders may get big raises in their last few years to generate much higher calculated pensions, or game the rules for their advantage. Insiders used to "buy" pension years of service without having to serve the years, indeed in the late 1980s state teachers union leaders (both AFT and NEA) arranged state pensions for themselves even though they didn't work for the state. Rank and file public employees are not well served by this sytem, especially as their pensions are now at risk.

Comment #2 by barry schiller on 2014 02 05

Good comments Barry , we definitely need to find a cheaper way to hedge or protect our portfolios than the 2% and 20% structure commonplace in the private equity and Hedge fund space. I do think the hedge funds in Rhode Island's portfolio actually reduce the risk but the fees are just too high.

Comment #3 by michael riley on 2014 02 05

Wow more mind setting! The system is rigged by unions and libtards. That is why I'm not in DC.
"Where is the taxpayer representative?" RIPEC is not gubmint agency. Maybe you should sign-up with them.

Comment #4 by Real Clear on 2014 02 06

Do you mean :isn't there some hedge fund ceo, like you Riley,that could save the pension funds just by investing in your fund,for example?

You offer no real solutions - just take from the only ones who contributed to the pension funds-the employees and the retirees.

The Prov.pension is 21% funded!
The last article I just read stated that the funding level is 31%.
I won't be clicking on any more pension stories.

Unfunded liability?
Right now I'm concerned about the $600 my family owes right now for the Schilling debacle.

What I owe for the cops,firefighters,street sweepers,City Hall clerks etc.-not so worried.
Why?
The #s being spun contradict each other and until the real truth is known,and who is really at fault,no self serving hedge fund ceo, part of the 1%,who is certainly not interested in my best interests.is going to convince me the sky has fallen.

Comment #5 by mark malachi on 2014 02 10

Barry,State and local pensions are defined contribution/defined benefit-can you say annuity?
Private pensions are defined benefit and non-contributory.

Comment #6 by mark malachi on 2014 02 10

providence RI is 21% funded ..maybe 22% making it the worst funded city of 50,000 or more, Providence business are taxed at the highest commercial rate in the country, Detroit is second. The figures i am Using are Moodys metrics and the changes that Providence actuaries have forced the city to make in their most recent report. Maybe they 'll fire this actuary also.
Providence cant tax so its likely significantly more layoffs plus wage freezes and selling of assets. They already pressured the universities for cash so thats done. Pension bonds are always the last resort of a sinking city so we should expect that proposal by the Mayor shortly.
good luck to you

Comment #7 by michael riley on 2014 02 10




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