Riley: Raimondo Strikes Out

Tuesday, September 29, 2015



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Gina Raimondo

Saturday’s business section of the NY Times had a feature article on our Governor and the Pension Reform that took place in Rhode Island.

The article was very flattering and depicts the Governor as a warrior and doing what’s necessary to the save the State she loves so much from near certain doom. All these unfunded liabilities were  “no one’s fault” according to Raimondo. She wasn’t concerned with what had caused the Nations worse Pension crisis. The State was 48% funded and Providence 31% funded. Today Rhode Island is described as “saved” due to her heroic acts and it is Rahm Emanuel  that is in deep trouble and will need to either raise taxes sharply or lay off thousands of workers to in order to save Chicago from bankruptcy.

Or that’s how the story goes. Clearly Ms. Raimondo is already running for some other high office than Governor of Rhode Island and also clearly she has a great publicist. But those of us who are watching her closely and maybe like me, formerly supported her efforts for Rhode Island pension reform, sense something very different about the pension lady. I used to think she was brilliant and had a strong moral compass that is rare in Rhode Island politics. Now I just think she is brilliant. Our Governor appears to have succumbed to the same “Insider circle” she often decries. She has become a cynical politician prone to misleading and outright lying. If she is not careful she could ruin her whole political career which was rumored to be Vice President with the support of Mike Bloomberg and friends.  Gina has quite a following but consider some of her recent behavior. These actions  remind us more of Gordon Fox or  David Cicilline than the Pension Lady that is described by the Manhattan Institute in the Times article.

Do the right thing?

That Gina Raimondo “can do “attitude of just trying to do the right thing and “it’s just math”  has been replaced by strange dealings and  a refusal to respond to critics. Her proposal for tolls was poorly conceived, amateurish and landed like a lead balloon in the assembly.  Her ad hoc raises of 33% to a select few of her cronies was dramatically tone deaf. Her involvement in the hiring of Rep Donald Lally in a phony job so he can then be appointed a judgeship is classic William Murphy, Gordon Fox version of Tammany hall politics. It seems that the “aw shucks” Ms. Gina Raimondo has a more sinister, machine politico side to her personality. These recent observations combined with the noticeable lack of follow through on her campaign promises to look into 38 Studios and fire First Southwest Securities leave us all very disappointed. My expertise is in Pension Finance and Portfolio Management. This is where Raimondo has changed stripes and we should all be very concerned. I feel very qualified to comment on Ms. Raimondo’s performance and it stands in stark contrast to the “puff piece” in the New York Times.

Nobody would disagree  with the her  analysis of a state in real Pension Trouble in 2010, with the possible exception of  Treasurer Magaziner’s clueless policy director Tom Sgouros who believes all pensions should be pay as you go. The rest of the world saw a State and Municipal system drastically underfunded and near collapse. The story told by the NYT is that Raimondo heroically left a lucrative venture capital position to run for Treasurer and selflessly save the State and its 39 Municipalities from ruin.

Well, not exactly. It started awkwardly when Raimondo  rather than properly ask the City of Providence and the State of Rhode Island to divest of their investments in Point Judith Capital Fund II she instead  fought to keep those investments in those portfolios and continue to collect fees from the State and City of Providence. She went to the “State Ethics Commission” otherwise known has the RI Democratic bridge and Ethics Club to ask for a ruling. Surprise! Surprise! The favorable ruling allowed her to place her investments into a “blind trust” and continue to allow the State and City of Providence to pay the treasurer management  fees. Wouldn’t it have been simpler and more ethical to just have the State and City divest? Strike one on ethics.

In the early days of her reform push, Ms. Raimondo was heavily focused on both the State Pension Plan and the horrible condition of the Municipal Pension Plans. She quickly dismissed herself from the Municipal fix with the following Statement “While as Treasurer I have no authority over these local pension plans, I am committed to helping municipal leaders develop their own comprehensive solutions by sharing Treasury's expertise and resources," said Raimondo. "This second technical working session will help cities and towns set goals and parameters around the challenging work of achieving retirement security." These meetings were part of legislation, set up by Raimondo, intended to deal with Municipal Pension Liabilities and the commission met for 3 years. The Crisis Commission was focused on 17 “crisis plans”. By far the most significantly underfunded was Providence even though Woonsocket and East Providence were already in some form of State Supervision. The commission turned out to be pretty much a joke with Mayor Taveras not even attending or sending a representative the last two years. Had any of the commission members which included Raimondo and Chairman Rosemary Booth Gallogly bothered to read the towns submissions they might have noticed that Providence was lying and had falsely claimed over $50 million in assets in the Pension plan. Those assets didn’t exist. They were “written off” in June when Providence defaulted for the 15 th time on its annual debt payment. Only now the new auditor made it official. Providence mischaracterized assets and funding ratios from at least 2006 to and including 2015 and brazenly submitted 3 years of the misleading documents to the Crisis Commission it sat on. Also sitting on the Commission was Dennis Doyle Auditor General who completely missed the accounting fraud and should be fired. These documents laced with false figures and funding ratios continue to mislead Municipal bond investors today. You would think the Governor, with all her mathematical and pension expertise would have picked up on this and instantly intervened but she did not. At least not publicly. In preparing a report to the SEC I had occasion to interview some folks in Providence. Recently I asked Providence Internal Auditor Matthew Clarkin why the City was allowed to borrow from the Providence pension fund in the first place and why would they pay 8.25% to do so. He simply stated that “it’s been going on for a long time”. When I asked if the Governor or State Treasurer Magaziner was also aware of this he said.” Yes. The whole State knows about it.”

Raimondo knew Providence paid 8.25% to borrow from its pension fund

This was real news. The Governor of Rhode Island has known, for some time,  that Providence is so broke that it borrowed from its own Pension fund? Additionally they were so broke and dumb that they paid 8.25% when tax anticipation notes would have been 1%. Crazy right? Why didn’t the Treasurer and now Governor intervene? Why didn’t Revenue Director Gallogly intervene? All this is taking place right under the Pension Lady’s nose and she has done nothing about it. The Governor, Treasurer, and Auditor General have had full knowledge that Providence officials including the Mayor have been producing false financial documents for public consumption. They have been fully aware that Providence has been misleading Municipal Bond investors for years. Yet they do nothing. In addition to not reporting this to authorities and the SEC the State has not disclosed Providences shaky financial condition in their own official documents. The State has therefore knowingly misled its bond investors.

I’m sure that if the Manhattan Institute were aware of this negligent and criminal behavior on the part of Governor Raimondo they would have thought twice about the puff piece last Saturday.  Ethic Strike two.


There is more. When Gina Raimondo pitched the City of Providence and the State of Rhode Island on investing in her Point Judith Capital Fund II it was chock full of healthcare and medical device companies. Gina is an expert in the field and her star company highlight to both the City of Providence Investment Commissions headed by David Cicilline and State Treasurer Frank Caprio was startup known as NABSYS. NABSYS was a DNA-sequencing firm financed by Raimondo‘s Point Judith Capital.  It was paraded around as a star and potential “homerun”. The company featured professors in physics, chemistry and computer science departments of Brown University. NABSYS was placed into a blind trust along with the rest of the portfolio of Point Judith Capital II. 

A few weeks back GoLocal’s Kate Nagle broke the story that NABSYS had shut its doors and gone out of business. 

Seemingly both the state and the city of Providence were blindsided and found out about the failed investment from GoLocal and Kate Nagle. These facts and others reported by Nagle raise several ethical questions as well as fiduciary questions. From a fiduciary standpoint who is watching or monitoring this investment for beneficiaries? Why wasn’t the City of Providence Investment Commission aware of this closure when the offices were located downtown? Do they even know what they own?  Why didn’t Wainwright Investment Counsel know about this? How much money was lost? Is it really broke? Investigation further showed Raimondo was involved in trying to save the company. Raimondo is a lawyer trained at Paul Weiss and it would be appropriate to see if she violated any laws regarding the blind trust. At the State Fiduciary level why didn’t Treasure Magaziner know anything about NABSYS closing? Doesn’t Raimondo have an obligation to inform pension investors of the failure of NABSYS? Ethics strike 3. 

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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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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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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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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">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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