Riley: $1 Billion is Cost of Providence Pension Lies to Taxpayers

Tuesday, February 13, 2018

 

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David Cicilline

If Providence had contributed an appropriate amount to their police and fire pension plans since 2003 when David Cicilline was elected, we would not have such a desperate situation today. But 15 years of lying about pension assets, siphoning retiree funds to cover operating expenses and purposely overstating the discount rate and pension returns have taken their toll.

Providence sits at approximately 20% funded, the worst in the nation. OPEB (other post-employment benefits) is currently not funded at all and is an additional $1 billion-dollar obligation (bigger than the whole State of Rhode Island). 

The last nine years have included one of the greatest equity and bond market advances of all time and had we been 80% funded throughout that period. The corpus would have grown from $863,000,000 in June of 2007 (80% of $`1.079 billion liability) Instead there was only $426,000,000 in the fund.

The difference in returns from 2007 to 2018 of an 80% funded pension plan and the misleading purposely underfunded pension plan of Cicilline, Taveras, and Elorza is enormous. The current assets in our pension plan are approximately $310 million (overstated as $348 million on June 30, 2017)

From Providence 2017 CAFR Exhibit VIII

Receivables:

Loans receivable $26,593,000

Due from other funds $45,638,000

Other $669 14

Total receivables $72,900,000

A return of 7.5% on the corpus of $863 million compounded from June 2007 to 2017 would have been $925 million dollars for a total asset value of $1.78 billion. Providence would be fully funded today. Years of lying about pension assets and returns and diverting employee and employer payments to cover cash flow and operating costs have cost taxpayers nearly $1 billion dollars. Governor Raimondo needs to assure state taxpayers that do not live in Providence that she will not bail out Providence on the state taxpayers' dime.

Additionally, for at least 20 years, the city has taken money out of pension contribution of each police and fireman s paycheck. Evidence shows that the City, instead of investing as they received the contributions, used those contributions to operate the city and paid the pension plan back a year later with no interest. I believe this to be criminal and unethical.

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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: Timeline - Rhode Island Pension Reform

GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform. 

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2005-2010

In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.
 
Read the Senate Fiscal Office's Brief here.
 
(Photo: 401(k) 2013, Flickr)
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January 2009

Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:

1. An established minimum retirment age of 59 for all state and municipal employees.

2. Elimination of cost-of-living increases.

3. Conversion of new hires into a 401(k) style plan.

 

See WPRI's coverage of Carcieri's proposal here.

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2009

Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions. 

 

Read the NCSL report here

(Photo: FutUndBeidl, Flickr)

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2010

Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.

"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo

 

Check out Wall Street Journal's coverage here.

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November 2010

Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot. 

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April 2011

Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.

Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.

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May 2011

Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.

"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)

 

Read GoLocalProv's analysis of the report here.

Read the Truth in Numbers report here

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October 2011

Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.

“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee

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October 2011

Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.

“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)

Read more from the firefighters' battle with Raimondo here.

Check out the New York Times' take on RI's  pension crisis here.

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November 17, 2011

The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.

 

Read more from GoLocalProv here.

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November 18, 2011

Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.

 

Read about how Rhode Islanders react to RIRSA here.

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January 2012

Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms.  The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.

 

Read about the pension workshop here.

Read Raimondo's feature in Institutional Investor here

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March - April 2012

Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.

“The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)
 
 
See WPRI's coverage of Chafee's attempt to cut pension fund deposits here.
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December 5, 2012

Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package.  In response, Chafee issues a statement supporting the negotiations.

 

Read more about Raimondo's opposition here.

Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here

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March 2013

Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.

 

Read about Raimondo's discussion of distressed municipalities here

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April 2013

The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.

"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)

 

Read GoLocalProv's coverage of the State Pension Fund's losses here

Read Ted Seidle's criticism of Raimondo in Forbes.

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June 2013

Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.

 

Read GoLocalProv's investigation into the rising pension costs here.

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September 2013

Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform. 

Read Taibbi's article in Rolling Stone.

Read GoLocalProv's response to Taibbi here.

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October 2013

As Raimondo eyes the role of Governor of Rhode Island in 2014, more behind-the-curtain information about the 2011 pension reform comes to light.

 

Read more from GoLocalProv about the players in the pension battle here.

 
 

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