Riley: Market Crash Puts Providence & RI in Immediate Peril
Tuesday, February 06, 2018
The cause for the decline is of no concern to the average citizen but the massive decline is very worrisome.
The Dow Jones Average lost 1176 points, a single day record, and that was after Friday’s down 666 points. Pension fund managers at both the state level and city level had 18 months of perfect markets with very low volatility. Providence made approximately 12.3% in the calendar year 2017 and 3.4% on top of that in January 2018. The State of Rhode Island made 14.4% in 2017 and was up an estimated 4% in January 2018.
The extraordinary January 2018 gains were wiped out in 3 days and now both pension funds will have to reacquaint themselves with the ominous reality of pathetically underfunded pension plans.
The State of Rhode Island is funded at 53% which is worse than when Governor Raimondo imposed dramatic reforms. The City of Providence is funded at 25.8%, the worst funding ratio of any large city in America. There are fewer assets now in the Providence pension fund than there were in 2006.
The last nine years the market has rallied 300% yet because Providence has purposely underestimated liabilities and purposely overstated assets, the fund is now in much worse shape. Purposely overstating assets and understating liability allows the mayor to hold back contributions to the pension plan and spend it on other things.
Over the last week, the State has lost (by my estimate) approximately $650 million and Providence has lost $25 million of its woefully low $325 million in assets. Both the State and the City need to ramp up pension contributions dramatically to keep the plans solvent. That money will necessarily come from taxpayers.
Pension Obligation Bonds?
Chicago made headlines recently when the Illinois State Universities Annuitants Association urged Illinois to issue $107 billion in bonds to pay off shortfalls in the state’s five leading pension funds. The proposal would bring the 5 Illinois funds to approximately 90% funded.
Providence would need approximately $1.3 billion to achieve 90% funded using a 7% discount rate. The State of Rhode Island would need $3.3 billion in state taxpayer-backed pension obligation bonds. Had the Governor and Mayor contributed more to pension plans, the liability the state taxpayers would be far less.
At what point do we hold politicians responsible for under-contributing to obligation like pension plans in order to cover up operating inefficiencies like UHIP, DCYF, DOT, etc? In reality, the state taxpayer will have to pay for Providence as well and neither Governor Raimondo or Mayor Elorza will even bother to comment or tell us their plans. Shameful.
Related Slideshow: GoLocal: Benchmark Poll, October 2017
Next year, in November of 2018, there will be a statewide general election for Governor and many other state offices. How likely is it that you will vote in this election?
Will you definitely be voting, will you probably be voting, are you 50-50...
Definitely be voting: 78%
Probably be voting: 13%
What would you say is the number one problem facing Rhode Island that you would like the Governor to address?
Jobs and economy: 21%
State budget: 9%
Corruption/Public integrity: .8%
Don’t know: .9%
Recently, a proposal has been made to permit the issuance of $81 million in bonds by the State to build a new stadium for the Pawtucket Red Sox. If there was an election today on this issue, would you vote to approve or reject issuing $81 million in financing supported moral obligation bonds to build the stadium?
Net: Approve: 28%
Definitely approve: 15%
Probably approve: 14%
Net: Reject: 67%
Probably reject: 19%
Definitely reject: 48%
Don't know: 4%
The next question is about the total income of YOUR HOUSEHOLD for the PAST 12 MONTHS. Please include your income PLUS the income of all members living in your household (including cohabiting partners and armed forces members living at home).
$50,000 or less: 27%
More $50,000 but less than $75,000: 13%
More $75,000 but less than $100,000: 13%
More $100,000 but less than $150,000: 17%
$150,000 or more: 13%
Don't know/refused: 17%
What particular ethnic group or nationality - such as English, French, Italian, Irish, Latino, Jewish, African American, and so forth - do you consider yourself a part of or feel closest to?
Black or African American: 6%
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