Riley: Providence Misleads Investors, Risks SEC Scrutiny
Tuesday, January 06, 2015
The City of Providence, Mayor Taveras, Finance Director Mancini and Treasurer Lombardi appear to have collectively once again misled bond investors, the SEC and general Public about the financial condition of the City and its Pension Plans. One year ago Providence was rebuked by Segal Co of Boston in an audit of the Providence Pension Plan. Approximately $57 million dollars in assets in the plan was called “other” and was in fact the discounted value of next year’s contributions. We had raised an eyebrow a year earlier and finally in Jan 2014 the auditor Segal confirmed the irregularity was in appropriate.
Item 3 in Segal Report
3.) “As in prior valuations, the actuarial value of assets and the market value of assets include the discounted contribution paid by the City in the following year. We recommend that future valuations exclude discounted contributions from reported assets.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe Comprehensive annual report was just issued for the fiscal year 2014 ended June 30, 2014. There is no change in accounting for pensions assets as suggested by Segal. This outrageous snubbing of the previous auditor without reference or explanation is clearly misleading. In deciding to continue the pension asset lie Taveras has dumped onto Elorza a $57 million dollar problem. In addition to not fixing the asset lies the liability lie continues and the discount rate of 8.25% remains the same despite the fact that the current investment adviser Wainwright Investment Counsel LLC (hired by Buddy Cianci in 1996) has achieved far less than 8% since 1996. In the last 10 years they have earned 7.7% and that included the best 5 year stretch in a century. In fact 1996 to 2014 includes 2 of the best 4 year stretches both 1996-2000 and 2009 to 2013. Still, with the greatest bull markets ever, they could not even earn 8.25%. It amounts to fraud for this adviser and chair of the investment committee Taveras to coerce the new auditor, Marcum , into accepting an 8.25% discount rate going forward. Moodys’ will adjust this to 6% or so as is appropriate. The adjustment will change the liabilities by over a billion dollars.
Quoting Daniel Gallagher of the Securities Exchange Commission on municipalities misleading investors.
“Obviously, the higher the discount rate, the lower the present value of the liability. The difference between a discount rate in the range of seven percent and one in the range of three percent is in large part responsible for the hidden $3 trillion in unfunded liabilities that are currently going unreported.
This lack of transparency can amount to a fraud on municipal bond investors, and it does a disservice to state and local government workers and retirees by saving elected officials from making the hard choices either to fully fund the pension promises that were made to public employees,[35] or not to make the promises in the first place.
In the private sector, the SEC would quickly bring fraud charges against any corporate issuer and its officers for playing such numbers games. And, we would also pursue and punish the so-called fiduciaries who recklessly seek yield to meet unrealistic accounting assumptions. We should not treat municipalities any differently.”
Providence should take notice and proactive actions to prevent SEC enforcement.
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: 5 Ways Taveras Could Have Grown Jobs in Providence
During Angel Taveras' tenure as Mayor of Providence, the unemployment rate ballooned. According, to US Department of Labor statistics, Providence hit a 12.5% unemployment level in the spring on 2014.
Hispanic unemployment is among the worst in the United States. GoLocal looked at tangible, revenue neutral ways Taveras' Administration could have grown jobs.
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