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Michael Riley: Rhode Island’s Potential Pension Nightmare—Headed for disaster...

 
 

Michael Riley: The Pension Study Commission Needs To Face Reality

Tuesday, February 18, 2014

 

Moody's adjustments will yield numbers vastly different from the ones taxpayers have been shown.

There is a great deal of media buzz surrounding Friday’s press conference, considering the settlement amounts to just a little over $240 million. Friday’s announced state settlement cost taxpayers an average of $609 per household. Rhode Island leaders and taxpayers should quickly move on and focus their efforts on the real crisis: the avalanche of debt immediately ahead for cities and towns.

For many taxpayers in Rhode Island, the $609 per household is relatively insignificant. Compare that $609 to the predicament of Providence citizens, for example, who face an increase of over $8,229 per household in the next year in pension liability alone. This is real and will be evident once Moody’s adjusts Mayor Taveras fantasy numbers to reality. Even Providence‘s city-hired auditor points out that $57.3 million in inappropriate assets were claimed in the pension plan. The actuary points this out in Section 1, points 2 and 3 … “We recommend future valuation of plan assets exclude discounted contributions from reported assets. “ Ouch.

Whoops, the auditor just said planned assets were overstated by $57.3 million. No one in the mainstream media apparently reads these reports or does real analysis. Where was Politifact? Taveras hopes and expects the rest of the RI media to just ignore this adjustment, as well as the pending proper liability adjustment of an increased $506 million and total unfunded liability of $1.338 billion (which will be published and verified after this November 2014 elections). He obviously intends to mislead citizens until the inevitable reality hits.

In hot water

There are basically two RI government jurisdictions providing public sector employment. Citizens are taxed at both the state level and at the local level to pay the wages and benefits of public employees. Several towns have merged their local pension plans into the state system and so on Friday, it appears that the hike in liability to those taxpayers in merged towns will be constrained to the agreed upon cost.

However, many cities and towns still run their own local Defined Benefit Pension Plans and those taxpayers are vulnerable to much higher liability. The 17 “critical status” towns alone owe more than $2.2 billion in pension debt. In addition, nearly every city and town carries an OPEB liability, which is basically the unfunded liability due to health care benefits and other benefits. Town leaders bargained future health care coverage for public employees, yet never funded the obligation. These OPEB liabilities totaled $3.56 billion according to a report issued by the RI State Auditor General Dennis Hoyle (a pension commission member).

State settlement insignificant relative to local debt issues

Several other towns in Rhode Island have the same issue as Providence (while not of the same magnitude). They are large and the increases in liability that will appear due to more accurate accounting will dwarf the cost per household of this highly hyped state settlement. Comparatively, the state settlement is literally a drop in the bucket. I have not yet heard a plan for the cities and towns from the gubernatorial candidates. So far, of all the candidates, Mayor Fung seems most concerned about the local issue and has criticized the lack of focus for years now. Ms. Raimondo dropped the city and town fixes in her legislative effort because it was too hard to address.

So what are Providence, Pawtucket, West Warwick, Coventry, Cranston, etc. supposed to do? Are they on their own? Is the Pension Study Commission, now years old, supposed to do anything other than collect data? Does anyone think that the taxpayers in Central Coventry Fire District care more about the $609, or the $30,000+ per household the recent CCFD liquidation reportedly represents?

A looming $30,000 liability will crush local real estate prices, producing a downward spiral in assessment and tax collection. This dynamic is known as the “Detroit syndrome”. Citizens should try to avoid being trapped in this spiral at all costs, but this contagion is just around the corner, and Moody’s will judge all towns more harshly. It begins soon by lowering the discount rates, which are arbitrarily chosen by each town (Providence’s is 8.25%) to a standard 6% so we can compare towns across the United States. Additionally, Moody's has declared that they are doubling the weighing of pension and OPEB under-funding in municipal rating decisions. If a local pension fund is deeply underfunded, then those towns can expect an even lower discount rate—perhaps as low as 4%. Rhode Island stands out like a sore thumb compared to all other localities across the country in the number of local pension plans under 50% funded.

In short, we have a real crisis that may not have 14 more months of “analysis and negotiation“ before this situation spins completely out of control. Which leaders will address this? When can we get a “real” pension commission? Has Chafee now finished and will he defend his 38 Studios actions for the rest of the term, or can he actually pitch in and work to help this crisis? Why doesn’t he involve himself in Coventry, or West Warwick? How about a commission that at least standardizes discount rates and adheres to rating agencies’ reality? Are they really saying Providence is fine at $8.25%? Is it too much to ask for a single metric? All we ask is that the commission tell us the truth and their plans to fix it.

 

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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New England Communities With the Most Political Clout 2013

The Sunlight Foundation, in conjunction with Azavea, released data maps this week showing political contribution dollars to federal elections dating back to 1990 -- by county.

GoLocal takes a look at the counties in New England that had the highest per-capita contributions in the 2012 election cycle -- and talked with experts about what that meant for those areas in New Engand, as well as the candidates.  

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25. Merrimack County, NH

Contributions, per capita, 2012: $9.86

Total contributions: $1,447,713

Merrimack County is named after the Merrimack River and is home to the states capital, Concord. Merrimack County has a total area of 956 square miles and a population of 146,761.

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24. Cheshire County, NH

Contributions, per capita, 2012: $9.88

Total contributions: $759,209

Cheshire is one of the five original counties in New Hampshire and was founded in 1771. The highest point in Cheshire County is located at the top of Mount Monadnock, which was made famous by the poets Ralph Waldo Emerson and Henry David Thoreau.

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23. Rockingham County, NH

Contributions, per capita, 2012: $9.96

Total contributions: $2,965,530

Rockingham has 37 communities and has a population of 297,820. Rockingham County also was home to the famous poet, Robert Frost

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22. Belknap County, NH

Contributions, per capita, 2012: $10.02

Total contributions: $604,512

Belknap County is one of the ten counties in New Hampshire and has a population of 60,327. It is located in the center of New Hampshire and the largest city is Laconia.

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21. Hampshire County, MA

Contributions, per capita, 2012: $10.41

Total contributions: $1,664,077

Hampshire County has a total area of 545 square miles and is located in the middle of Massachusetts. Hampshire County is also the only county to be surrounded in all directions by other Massachusetts counties.

 

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20. Barnstable County, MA

Contributions, per capita, 2012: $10.90

Total contributions: $2,348,541

Barnstable County was founded in 1685 and has three national protected areas. Cape Cod National Seashore is the most famous protected area within Barnstable County and brings in a high amount of tourists every year.

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19. Berkshire County, MA

Contributions, per capita, 2012: $12.49

Total contributions: $1,624,400

Berkshire County is located on the western side of Massachusetts and borders three different neighboring states. Originally the Mahican Native American Tribe inhabited Berkshire County up until the English settlers arrived and bought the land in 1724. 

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18. Essex County, MA

Contributions, per capita, 2012: $13.22

Total contributions: $9,991,201

Essex is located in the northeastern part of Massachusetts and contains towns such as Salem, Lynn, and Andover. Essex was founded in 1643 and because of Essex historical background, the whole county has been designated as the Essex National Heritage Area.

 

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17. Chittendon County, VT

Contributions, per capita, 2012: $13.86

Total contributions: $2,196,107

Chittenden has a population of 158,504, making it Vermont’s most populated county. Chittenden’s largest city is Burlington, which has about one third of Vermont’s total population.

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16. Lamoille County, VT

Contributions, per capita, 2012: $14.82

Total contributions: $369,854

Lamoille County was founded in 1835 and has a population of 24,958. The county has 464 square miles, of which 461 of them are land.

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15. Addison County, VT

Contributions, per capita, 2012: $15.49

Total contributions: $569,299

Located on the west side of Vermont, Addison County has a total area of 808 square miles. Addison's largest town is Middlebury, where the Community College of Vermont and Middlebury College are located.

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14. Newport County, RI

Contributions, per capita, 2012: $16.02

Total contributions: $1,214,26

Newport County is one of the five Rhode Island Counties and was founded in 1703. Just like Connecticut, none of Rhode Island counties have an any governmental functions.

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13. Cumberland County, ME

Contributions, per capita, 2012: $18.33

Total contributions: $5,205,507

Cumberland County has a population of 283,921 and is Maine’s most populated county. The county was named after the William, Duke of Cumberland, a son of King George II.

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12. Windsor County, VT

Contributions, per capita, 2012: $20.57

Total contributions: $1,156,149

Windsor County is the largest county in Vermont and consists of 971 square miles of land and 5 square miles of water.

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11. Bristol County, RI

Contributions, per capita, 2012: $20.91

Total contributions: $1,027,472

Bristol County has a population of 49,144 and is the third smallest county in the United States. Bristol County was originally apart of Massachusetts, but was transferred to Rhode Island in 1746.

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10. Grafton County, NH

Contributions, per capita, 2012 :$20.95

Total contributions: $1,868,739

With a population of 89,181, Grafton County is the second largest county in New Hampshire. Home of New Hampshire’s only national forest, White Mountain National Forest takes up about half of Grafton’s total area 

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9. Carrol County, NH

Contributions, per capita, 2012: 2012: $22.81

Total contributions: $1,012,10

Created in 1840, Carroll County has a population of 47,567. Carroll County was also named after Charles Carroll, the last surviving signer of the United States Declaration of Independence.

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8. LItchfield County, CT

Contributions, per capita, 2012: $22.86

Total contributions: $4,286,143

Although it is Connecticut’s largest county, Litchfield has the lowest population density in all of Connecticut. Since 1960 all Connecticut counties have no county government.

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7. Middlesex County, MA

Contributions, per capita, 2012: $32.81

Total contributions: $50,432,154

Middlesex County has a population of 1,503,085 and has been ranked as the most populous county in New England.  The county government was abolished in 1997, but the county boundaries still exists for court jurisdictions and other administrative purposes.

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6. Nantucket County, MA

Contributions, per capita, 2012: $33.41

Total contributions: $344,021

Nantucket County consists of a couple of small islands and is a major tourist destination in Massachusetts. Normally Nantucket has a population of 10,298, but during the summer months the population can reach up to 50,000.

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5. Norfolk County, MA

Contributions, per capita, 2012: $35.87

Total contributions: $24,459,854

Named after a county from England, Norfolk County is the wealthiest county in Massachusetts. As of 2011, Norfolk was ranked the 32nd highest income county in the United States. 

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4. Dukes County, MA

Contributions, per capita, 2012: $36.32

Total contributions: $618,960

Consisting of Martha’s Vineyard and the Elizabeth Islands, Dukes County is one of Massachusetts’ top vacation spots. Originally Dukes County was apart New York, however it was transferred to Massachusetts on October 7, 1691.

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3. Suffolk County, MA

Contributions, per capita, 2012: $40.73

Total contributions: $30,323,537

Suffolk County has a population of 744,426 and contains Massachusetts’s largest city, Boston. Although Suffolk’s county government was abolished in the late 1900’s, it still remains as a geographic area.

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2. Knox County, ME

Contributions, per capita, 2012: $45.89

Total contributions: $1,820,410

Knox County was established on April 1st, 1860 and was named after American Revolutionary War General Henry Knox.  The county has a population of 39,668 and is the home of the Union Fair.

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1. Fairfield County, CT

Contributions, per capita, 2012: $55.65.  

Total contributions: $51,970,701 

In a population of 933,835, Fairfield County is the most densely populated county in Connecticut, and contains four of the state's largest cities -- Bridgeport, Stamford, Norwalk and Danbury.

 
 

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Comments:

john paycheck

thanks for the truth.

the writing has been on the wall in providence for at least 10 years.

hard to believe anyone could have voted for ciccilini. the guy made a mess of virtually everything in the city. every department.

Tavares is not much better, there was so much waste and mismanagement in providence when he started, saving $100mil there is like shooting fish in a barrel. still loads to cut.

Stephen DeNinno

I hate Cicilline as much as anyone, but he paid into the system to some 90% of the ARC. Buddy Cianci is the most to blame. During his over two decade tenure as Mayor, he barely funded the system if he did at all. And he has the Balls to sit at the microphone and pontificate about pensions?

Jim D

Riley seems to suggest that the rest of the cities and towns who have been fiscally prudent and paying their bills should be bailing out the rest.

The 'Detroit syndrome' - Really? That's already happening to the State. $1 billion less in personal income from 2000 to 2010 yet the population rose.

Money is leaving and have nots are rolling in from the DR, PF, Mexico etc.

michael riley

I would add ...Taveras deliberate use of 8.25% is so shady but its not just me and conservative accounting its Moodys who will be rating Providence debt and here's a quote from Fitch

"Much has been made about public pension funds' 'aggressive' discount rate assumptions, which average 8%. Fitch agrees that given the recent market downturn and prospects for lower returns going forward this figure is likely optimistic, and to enhance our analytical efforts Fitch is in the process of estimating the size of plans' liabilities under various alternative discount rate assumptions. Such adjustments will clearly reduce estimated funded ratios and raise contributions for most plans and make the dimensions of the problem more pronounced. They will also allow Fitch to compare liabilities among plans on a more equivalent basis, pending expected pension accounting revisions by the Governmental Accounting Standards Board (GASB)."

michael riley

We should avoid all state bailouts of any cities or towns...the troubled cities and towns need to make significant changes on their own ...if the parties wont sit down , then the appointment of a receiver is appropriate....this is a time for reset....wallowing and dithering stifles healing and growth...

Jim D

What then did you mean by this? Then you go on to say that Chafee needs to be involved meaning - the State.

"So what are Providence, Pawtucket, West Warwick, Coventry, Cranston, etc. supposed to do? Are they on their own?"

michael riley

The Municipal Revenue Pension Study Commission which is the subject of this article needs to strongly take up the critical issues in each town. http://www.jamestownpress.com/news/2012-01-19/News/Keiser_named_to_pension_study_commission.html

That commission is Headed by Ms Gallogly and is now over 2 years old. Ms Gallogly reports directly to Governor Chafee.You may remember "the year of Cities and Towns"?
The Governor, if he cares about the plight of this state , should light a fire under this group to actually get something done ..forcing towns like West Warwick and Coventry to make real adjustments or face receivership.

Jackson Teller

Mr. Riley you are probably correct but why punish retirees. Taveras wastes so much $$ and gives his staff lucrative salaries and benefits. Take a look at the degenerate city council in Providence. The perks they get. You want to punish police and fire who work in that hell hole of a city. You have the Igliozzis the most disgusting family in providence raping the city for years. How about Pare 110k pension from state and 150k from city. This bumbling idiot isn't worth the toilet paper I wipe my a$$ with. Thats how you save the pension system by cutting these scumbags jobs and fire all the political appointments. use that $$ to put back in pension system. You have a commissioner of public safety on the tax roll of cransto and Narragansett with 900k in property. And he take 3 jobs away from real police to protect providence because he is a political hack. I can save the city 20 Million in 5 minutes. Now write about that RILEY please.




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