Michael Riley: A Personal Plea

Tuesday, December 02, 2014

Michael G. Riley, GoLocalProv MINDSETTER™

This is a personal plea for a simple and intense focus on two items that will create a much more welcoming environment for people and businesses in Rhode Island. Rhode Island needs improvement in so many areas that, understandably, people with good intentions including some of those involved in RhodeMap RI, don’t really know where to begin. I have always avoided massive plans. I have found that picking two or three necessary fixes with identifiable goals is the best way to approach a complex problem.

Rhode Island

As each problem is fixed it becomes clear what is needed next. Make no mistake, Rhode Island is in a real fix. As of today, state  revenue projections are not assured as both the general economic conditions and the states reliance on lottery revenues should soon be under pressure. The national economy has been in recovery mode for 5 years. Yet Rhode Island lags badly behind and despite State Pension Reform by Statute and negotiated reform in our Capitol City.

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The funding  improvements were nonexistent in Providence and modest at  the State level. Providence is now well below 20% funded using the same methodology Moodys used this summer in reviewing Narragansett, Rhode Island. The various new methodologies ,combined with GASB 68 ,will increasingly acknowledge large liabilities that will go from” off balance sheet” promises to real debt obligations thus threatening the borrowing capability of any city or town. It is no mistake that 2 years after Providence so called “reform” Providence debt rating remains the same Baa1 as existed prior to reform. GO refunding bonds were issued in June at the same rating. To put it nicely Providence has less than $300 million in assets to pay pensioners and over $3.3 billion in liabilities owed to them. 

Education

The second issue is education. An existing employer or potential employer would have to be crazy to accept a RI Diploma from a random Public School as evidence of preparedness for either college or work. Employers strongly value young people who have been taught how to learn and can read, write and carry out necessary financial calculations. They love young people who do the basics, show up on time and are responsible for their actions. As Rhode Islanders, we have done a great disservice to any student who is unprepared to deal with daily life in America. An ambitious, knowledgeable and well behaved high school graduate is evident in the first interview and also evident are those who are unprepared. Once employers are confident in the pool of candidates in RI, they will come. Just like the RhodeMap RI “build it and they will come” approach, focusing on education outcomes and assurances that state and corporate taxpayers will not be on the hook for bailing out Providence could easily lay the ground work for success. 

My recommendation is harsh and out of step with the low tax leanings of the Center for Freedom and Prosperity. I am on the board and this is my opinion alone. Providence is different and the population and elected government is dominated by left and progressive thought. Providence is in dire straits and needs to consider imposing a wealth tax totaling about $1 Billion dollars, combined with another $500 million in additional PILOT’s from Brown and other non-profits over the next 3 years to survive. The public workers have done what was asked and they are owed the money by Providence. Taxpayers at both the state and municipal level have also  done what was asked of them. It is the City of Providence that has massively mismanaged their finances, purposely and consistently underfunded their promises. It is Providence that needs to fix it. The reason is simple. What new business would come into Providence knowing that the bond holders will be paid off 100 cents on the dollar in the event of bankruptcy leaving only Municipals taxpayers to take up the slack. It doesn’t take much analysis to realize that very few Providence business owners or Property Owners have the ability to pay more in taxes.  

Money

State Taxpayers in the other 38 communities should realize that the status quo and likely outcome without your voices being heard is that Providence likely  goes into receivership where the general assembly has already cleared the way for a State Taxpayer funded Bail out. Bondholders thanks to a 2011 law have first dibs in bankruptcy and will get paid. Recent bankruptcy results in Detroit left  workers and retirees contacts  unilaterally altered but barely hurt retaining 94% of what was due.

But in Detroit, the  bondholders and unsecured creditors got 10 to 20 cents on the dollar. In Rhode Island there is no other place to go for the money and precedent was set by the GA 2 years in a row with State Taxpayers paying for Central Falls municipal workers. This  likely outcome of State Taxpayers paying for Providence public workers retirements is outrageous and  devastatingly unfair. At $3 billion it  could cost  between  $2500 and $15,000 per household all across the state .

If we really want to reset Rhode Island and make it attractive to set up a family or business, we need to start with fixing Providence and putting competition into education. Then employers will come and jobs will be plentiful.

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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