Riley: Providence Misleads Investors, Risks SEC Scrutiny

Tuesday, January 06, 2015


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Angel Taveras

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.”

The 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.

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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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Enforce First Source

1) Failure to Enforce First Source

DARE recently filed a lawsuit asking the court to appoint a moderator so that the Taveras administration would comply with the law that states that companies that get funding or special deals from the City of Providence make a best effort to employ people from the City.

A GoLocal investigation found the program is in chaos -- companies ignore the requirement (or claim that they they did not know about it). Worse yet, the City never enforced it. 

Jobs Lost: 1,100 estimated

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PEDP Reform

2) Providence Economic Development Partnership

All the problems with PEDP began before Taveras took office, but the "reforms" did little to improve the performance of the federally investigated and federally fined City agency. As GoLocal's Kate Nagle reported last October - three years into Taveras' administration:

"The Providence Economic Development Partnership (PEDP), which came under a federal investigation following a series of GoLocalProv reports, is still facing $2.8 million in loans past due according to documents secured by GoLocalProv through an access to public records request.

According to documents provided by the city to GoLocal, of 136 current loans with a total principle balance of $16.5 million, more than one-third -- 48 in total -- are more than 121 days past due.

The PEDP had voted to write off $2.1 million on loan debt in June 2012, but financial problems continue to persist as the city -- and its federal oversight agency -- determine how to proceed."

Jobs Lost: If the $2.8 million was collected and loaned, an estimated 80 to 120 additional jobs would have been created.

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Port of Providence

3) Port Financing Delayed

The Port of Providence/ProvPort received a $20 million federal grant to add cranes and barges to the Port.  The application was submitted by ProvPort in conjunction with the Cicilline Administration.  The U.S. DOT awarded the grant to the City at the end of the Cicilline administration, but the Taveras administration dragged their feet and delayed the project until the State had to step in and take over the project.  

The project was one year delayed and the barges are still not on site four years later.

Jobs Lost: 400 estimated

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Prov Police

4) Providence Police

May be one of the biggest mistakes of the Taveras administration was his devastating cuts to the Police Department  and the impact has not only been the number of police jobs, but the impact to police response and enforcement.

As GoLocal's Stephen Beale reported in 2012:

As of last week, the number of sworn officers stood at 428. A year and a half ago it was 494.

Joe Rodio, chief legal counsel for the police union, warns the city does not have enough officers. “The rank and file feel the strain because there’s not enough officers on the street,” Rodio said. “We’re feeling the hit from the number of people on the job.”

The numbers of sworn staff peaked at just over 500 during the Dean Esserman era. But during the 1990s the department functioned with a smaller complement, generally hovering around 440 officers. That makes the current force level the lowest it has been in two decades.
“It’s fair to say the numbers are the numbers. The staffing is at the lowest it has been in years,” said Chief Hugh Clements. “I would agree we need to start beefing up our numbers again.”

Jobs Lost: 80-95 Police Officers 
(note: Taveras finally started a police academy class in May of 2014)

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Downcity Vacancies

5) Businesses in Downcity

Providence now suffers from the 4th highest commercial real estate tax rate in the U.S. - a minimal improvement oover the last ranking. This is a fact not lost of businesses looking to locate in downtown. Providence is a long way from a city that was the HQ to Fleet Bank, Amica Insurance, Citizens Bank and hosts of others.

The Superman building is just one of the under-utilized office spaces downtown.  According to CBRE's New England Report, "Overall, there was 81,000 of square feet of negative absorption, but 59,000 square feet this came from the vacancy at One Weybosset (Superman)."

Jobs Missed: 89,000 square feet of leased office space would deliver 445 jobs. 

(Average manager position requires 150 office sq. ft., plus 50 feet common space)


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