Riley: Providence Needs Full Economic Review

Tuesday, January 13, 2015

Michael G. Riley, GoLocalProv MINDSETTER™

We have all heard the stories from previous Providence Mayors. Lots of misleading information ,whether it was the excellent condition of Providence Finances in 2010 as proclaimed by David Cicilline or the “category 5” disaster he left the same year to Angel Taveras and Taveras miraculously “fixed." We heard about the sacrifices Mr. Taveras made by cutting his salary (saved us 15 grand) and cutting wherever else there was waste.  We heard that there was “no more to cut” and how he saved the pension system by squeezing out substantial concessions from public employees including fire and police using his negotiating skills. It didn’t work. I view Providence as Bankrupt and needing a “reset”. It’s not just the outrageous pension debt but also the cost structure. How can Providence be collecting $360 million in taxes and Pilots and barely balance the budget?

Pensions are a big problem

Is there a way to look at municipal costs and pensions in Providence as compared to similar towns across the country? Not just comparing to other mismanaged towns in Rhode Island. I did this at Stanford on the pension side. I compared Providence to cities and towns across the nation and Providence sticks out like a sore thumb. Providence hasn’t had a funding ratio greater than 39% for 13 years yet there have been no major reforms or increases in funding by any mayor until Taveras.  We know those reforms were weak at best and it was mostly about cutting the 5% and 6% colas, not exactly a tough call. The latest CAFR for Providence was out last week for 2014 and it shows Providence at 29% funded without properly adjusting for assets and the discount rate of 8.25%,(should be closer to 6%). Properly adjusted Providence pension Fund is about 20% funded, making it the worst in the country.

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Costs are also a big Problem

One thing I haven’t done is closely examine the cost structure of Providence to see how it compares to other cities. Are costs and benefits as far out of whack with the rest of the country as the lack of pension funding? Recently, Ken Block has looked at the cost of Fire Protection in Lincoln and other communities. Concurrently, almost certainly Judge Flanders is reviewing cost structure in Coventry for the bankrupt CCFD. Before I get yelled at, let me first say that I love firemen and policemen as I’ve described on other occasions. At the World Trade Center these heroes were going in the building as I was escaping. Public Safety is just one of those things I’m happy to pay for. But how much are we paying in Providence? Are these costs in line? 

Savannah Georgia

 I spend a lot of time in Savannah and it’s a similar sized city to Providence with a population of 140,000. While I haven’t done an exhaustive cost study and don’t intend to, someone should. I just want to highlight some stats to get the conversation and study started. Let’s compare Savannah Georgia population 140,000 with Providence 178,000. Providence property taxes total $351 million while Savannah is $60 million. Providence has in excess of $2.5 billion in unfunded pensions and OPEB while Savannah has $130 million combined. Obviously something is very wrong in Providence but you won’t hear that from David Ortiz. I have posted a few comparative cost statistics that should alarm everyone in the state of Rhode Island and these figures deserve more focus in Providence City Hall than do issues like climate change or the Davey Lopes pool. We can start with the cost of Government, Just look at the administrative costs in Providence and how many people are employed. Let’s hope this new administration honestly addresses pensions and finance for the first time in 20 years and attacks fundamental cost issues. The table below shows an enormous difference in costs for firemen in Savannah vs Providence for example.

 

 

 

 

 

 

 

 

 

 

Providence needs full economic review

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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