Riley: Repeating My Call for Providence Bankruptcy
Tuesday, April 14, 2015
Michael G. Riley, GoLocalProv MINDSETTER™
Each day that Providence, Rhode Island avoids filing for bankruptcy and a nice clean “reset”, the city’s wealthy residents and property owners are placed in a more perilous condition. Delaying the inevitable will cause great harm. A closer look at the financial circumstances shows that Providence has all the signs of Detroit before its downward spiral. Residents and businesses pay property taxes that are among the highest in the nation.
They would sell their properties if they could, but to whom would they sell? As businesses and residents leave, valuations collapse, resulting in fewer and fewer taxpayers paying more of the burden. The liabilities of the city's “governmental activities” exceeded its assets for the fiscal year ending June 30, 2014 by $142.9 million (presented as "total net position"). Of this amount, a negative of $341.9 million was reported as "unrestricted". Major buildings are empty. The per capita and median household incomes are anemic. The city has a stated pension liability and OPEB of over $2 billion, and I believe that this is understated by at least $1 billion dollars. Providence's credit rating, despite the Taveras Reform and a 2011 law placing municipal bondholders in first lien position ahead of retirees, is currently rated just Baa1 by Moody’s, uncomfortably close to “junk.”
Pension Accounting Abnormalities Reveal Stress
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I think a review of Providence Accounting for Pension Liabilities and Assets is quite revealing and shows the stress Providence is under. It makes clear the fact that systematic pension underfunding has morphed into the City actually borrowing directly from the pension fund to survive. One of the mysteries of Providence’s persistent Pension fund deterioration over the last 20 years has been the lack of accuracy of actuarial analysis.
Supposedly, the returns on pension assets have been stellar, and for the last three years investment adviser Wainwright Investment Counsel LLC claims to be at or near the top in return of investments for all pension consultants. They claim a 3 year performance of 10.9%, and this claim was used by Taveras in his run against Gina Raimondo. (Wainwright's claimed a 10 year record of approximately 7.5%) Now, Mayor Elorza is using it to justify the use of their 8.25% discount rate assumption.
There are two major problems with this January 31, 2014 report generated by Wainwright Investment Counsel LLC at the behest of Taveras. First the obvious fact that Wainwright, according to its own calculation, achieved only 7.5% over the 10 years not 8.25% which it endorses. (This does not include calendar year 2014 which was a 6.2% return). So where does this 8.25% assumption come from? Second, and even more important than the fact that an 8.25% discount rate is ludicrous, is the fact that Wainwright returns are based only on the investments they managed, which were well below the assets reported in the Pension fund that Providence reported to the public and existing bond holders.
What are the Assets in Providence pension plan?
In June 2013 Providence stated assets in the Pension Plan, according to official documents, were $380 million dollars. Yet according to Wainwright they were only managing $247 million dollars in 2013 and managed $265 million in 2014. These numbers are confirmed in CAFR 2013 and CAFR 2014. An audit of the pension plan produced in January 2014 by Segal Company shows that since at least 2007, the City of Providence has been borrowing money from the pension fund paying between 8.25% and 8.5% annually.
Not only is this stupid, some consider it illegal, and others wonder why the city doesn’t borrow elsewhere? Segal in the Audit report of January 2014 suggests the arrangement should be ended and its accounting treatment is “inappropriate.” When I warned in June 2014 that the Providence accounting was materially misleading and the Segal report and their warning was not included in a June 2014 bond issuance.
Mayor Taveras' lawyers became concerned enough to amend the bond offering adding that Segal had warned Providence about the accounting treatment. The lawyers amended the bond offering out of concern for liability to the city. Taveras never spoke of it again and appears no change in accounting treatment has taken place. So now it appears that either the assets don’t actually exist in the Providence pension plan or the City of Providence is borrowing from retirees paying 8.25%. No matter which way we slice this mess, the fact remains that every CAFR and financial report since 2007 has been purposefully misleading bondholders and retirees .Each Mayor – including Cicilline, Taveras and now Elorza all knew that the city was borrowing from the pension fund. Mayor Elorza is now Chair of the investment commission and signs all city documents and will be held responsible along with other Providence officials for SEC violations of misleading existing bondholders each and every time they issue uncorrected financial reports.
So Providence may or may not have an asset, which is actually a loan to the city, in its pension plan. If it does, then why would did the city borrow from the plan? Why not take $57 million from somewhere else or issue some debt at less than 8.25%? The answer of course is that Providence is so broke it has nowhere else to go. This shady emergency borrowing, if that’s what is going on, has to be the dumbest execution of a de-facto pension obligation bond in Municipal history. At the very least, this situation requires a full investigation by outside authorities, because I have already reported this to the city, and to the Auditor General Dennis Hoyle without any response. I first contacted the city and authorities in August 2013 about the accounting treatment.
The Bloody Details
Below is a chart of 2007 to 2014 Providence Stated Pension assets and the actual Investment Returns of Wainwright Investment Counsel LLC. Providence officials, their Actuary and their adviser Wainwright Investment Counsel LLC claimed they would return 8.25%. The returns have actually averaged 5.5 % on reported assets since 2007. That is a $95 million shortfall in returns from the 8.25% discount rate that providence and its actuaries use. Neither Providence nor Wainwright could be reached for comment.
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: Top Providence Pensions
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#49
Name- Daniel Guertin
Annual Earning- $95,050.92
Postition- Police-5
City- Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19,1991
Source: This information was secured through a FOIA request from the city of Providence.
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#48
Name- Carmine Vallante
Annual Earning- $95,140.20
Postition- Fire-4
City- Johnston
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19,1991
Source: This information was secured through a FOIA request from the city of Providence.
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#47
Name- Alfred Millard
Annual Earning- $95,368.32
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Accidental Disability
Retirement Date- March 24, 1994
Source: This information was secured through a FOIA request from the city of Providence.
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#46
Name- James Rattigan
Annual Earning- $95,983.44
Postition- Fire-4
City- North Providence
State- RI
Retirement Type- Service
Retirement Date- June 30, 2003
Source: This information was secured through a FOIA request from the city of Providence.
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#45
Name- Frank Deangelis
Annual Earning- $95,986.80
Postition- Fire-4
City- North Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#44
Name- Stephen Lowe
Annual Earning- $96,156.36
Postition- Fire-4
City- Bristol
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 17, 1992
Source: This information was secured through a FOIA request from the city of Providence.
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#43
Name- Mary Gonsalves
Annual Earning- $97,463.04
Postition- Police-5
City- Warwick
State- RI
Retirement Type- Beneficiary
Retirement Date- December 1, 1993
Source: This information was secured through a FOIA request from the city of Providence.
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#42
Name- William O'Neill
Annual Earning- $98,160.96
Postition- Fire-4
City- Cumberland
State- RI
Retirement Type- Accidental Disability
Retirement Date- August 22, 1990
Source: This information was secured through a FOIA request from the city of Providence.
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#41
Name- Paul Healy
Annual Earning- $98,183.28
Postition- Fire-4
City- Cranston
State- RI
Retirement Type- Service
Retirement Date- October 20, 1993
Source: This information was secured through a FOIA request from the city of Providence.
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#40
Name- James Molloy
Annual Earning- $98,711.16
Postition- Fire-4
City- Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 18, 1987
Source: This information was secured through a FOIA request from the city of Providence.
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#39
Name- Livia Miller
Annual Earning- $99,193.80
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Beneficiary
Retirement Date- May 1, 1997
Source: This information was secured through a FOIA request from the city of Providence.
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#38
Name- Joseph Battista
Annual Earning- $99,271.08
Postition- Fire-4
City- Johnston
State- RI
Retirement Type- Accidental Disability
Retirement Date- April 29, 2004
Source: This information was secured through a FOIA request from the city of Providence.
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#37
Name- Robert Kerfoot
Annual Earning- $100,140.36
Postition- Fire-4
City- Cranston
State- RI
Retirement Type- Accidental Disability
Retirement Date- March 24, 1994
Source: This information was secured through a FOIA request from the city of Providence.
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#36
Name- Ralph Ricci
Annual Earning- $100,357.44
Postition- Fire-4
City- Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- April 28, 1994
Source: This information was secured through a FOIA request from the city of Providence.
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#35
Name- Henry Latek
Annual Earning- $100,502.52
Postition- Fire-4
City- Providence
State- RI
Retirement Type- Service
Retirement Date- June 30, 1995
Source: This information was secured through a FOIA request from the city of Providence.
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#34
Name- Joseph Bradley
Annual Earning- $100,898.52
Postition- Fire-4
City- Whitefield
State- NH
Retirement Type- Accidental Disability
Retirement Date- November 20, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#33
Name- Ronald Johnson
Annual Earning- $102,098.64
Postition- Fire-4
City- North Scituate
State- RI
Retirement Type- Accidental Disability
Retirement Date- May 1, 2003
Source: This information was secured through a FOIA request from the city of Providence.
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#32
Name- Gloria Pisaturo
Annual Earning- $103,385.76
Postition- Police-5
City- Warwick
State- RI
Retirement Type- Beneficiary
Retirement Date- December 1, 2002
Source: This information was secured through a FOIA request from the city of Providence.
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#31
Name- Edmond Malloy
Annual Earning- $103,575.72
Postition- Police-5
City- Chepachet
State- RI
Retirement Type- Accidental Disability
Retirement Date- September 5, 1990
Source: This information was secured through a FOIA request from the city of Providence.
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#30
Name- John Reposa
Annual Earning- $104,665.44
Postition- Fire-4
City- Jamestown
State- RI
Retirement Type- Accidental Disability
Retirement Date- June 21, 1995
Source: This information was secured through a FOIA request from the city of Providence.
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#29
Name- Pasquale Rocchio
Annual Earning- $105,238.32
Postition- Police-5
City- North Providence
State- RI
Retirement Type- Service
Retirement Date- August 22, 1989
Source: This information was secured through a FOIA request from the city of Providence.
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#28
Name- David Deignan
Annual Earning- $105,609.36
Postition- Police-5
City- Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#27
Name- Lee Podedworny
Annual Earning- $106,838.16
Postition- Fire-4
City- South Kingstown
State- RI
Retirement Type- Accidental Disability
Retirement Date- July 23, 1992
Source: This information was secured through a FOIA request from the city of Providence.
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#26
Name- Nancy Donahue
Annual Earning- $107,757.24
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Beneficiary
Retirement Date- July 1, 2005
Source: This information was secured through a FOIA request from the city of Providence.
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#25
Name- Domenic Pono
Annual Earning- $107,850.72
Postition- Fire-4
City- Cranston
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#24
Name- John Murphy
Annual Earning- $107,892.84
Postition- Fire-4
City- Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#23
Name- Robert Carlson
Annual Earning- $108,555.36
Postition- Fire-4
City- Greenville
State- RI
Retirement Type- Accidental Disability
Retirement Date- April 24, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#22
Name- Robert Emmett
Annual Earning- $109,256.16
Postition- Police-5
City- Cranston
State- RI
Retirement Type- Service
Retirement Date- November 13, 1990
Source: This information was secured through a FOIA request from the city of Providence.
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#21
Name- Thomas Doyle
Annual Earning- $109,329.24
Postition- Fire-4
City- West Warwick
State- RI
Retirement Type- Accidental Disability
Retirement Date- August 26, 1988
Source: This information was secured through a FOIA request from the city of Providence.
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#20
Name- Joseph Errico
Annual Earning- $109,611.60
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Service
Retirement Date- June 30, 1995
Source: This information was secured through a FOIA request from the city of Providence.
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#19
Name- Edward MacDonald
Annual Earning- $110,225.64
Postition- Fire-4
City- Johnston
State- RI
Retirement Type- Accidental Disability
Retirement Date- May 26, 1994
Source: This information was secured through a FOIA request from the city of Providence.
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#18
Name- Alfred Lamothe
Annual Earning- $110,505.96
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Accidental Disability
Retirement Date- September 6, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#17
Name- Ernest Silva
Annual Earning- $112,796.28
Postition- Fire-4
City- Ft. Myers
State- FL
Retirement Type- Accidental Disability
Retirement Date- April 24, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#16
Name- Edward Dolan
Annual Earning- $113,126.04
Postition- Fire-4
City- North Kingstown
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#15
Name- Paul Marianetti
Annual Earning- $113,331.60
Postition- Fire-4
City- Ormond Beach
State- FL
Retirement Type- Accidental Disability
Retirement Date- November 17, 1994
Source: This information was secured through a FOIA request from the city of Providence.
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#14
Name- Rosemary Clark
Annual Earning- $114,725.64
Postition- Police-5
City- Chepachet
State- RI
Retirement Type- Beneficiary
Retirement Date- August 1, 2004
Source: This information was secured through a FOIA request from the city of Providence.
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#13
Name- John Gannon
Annual Earning- $117,318.60
Postition-Police-5
City- Coventry
State- RI
Retirement Type- Accidental Disability
Retirement Date- January 24, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#12
Name- Marcia Moise
Annual Earning- $119,791.20
Postition- Fire-4
City- Jupiter
State- FL
Retirement Type- Beneficiary
Retirement Date- April 1, 1997
Source: This information was secured through a FOIA request from the city of Providence.
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#11
Name- Robert Read
Annual Earning- $123,105.00
Postition- Fire-4
City- Cranston
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#10
Name- Alfred Bertoncini
Annual Earning- $123,599.16
Postition- Fire-4
City- Smithfield
State- RI
Retirement Type- Service
Retirement Date- December 19,1994
Source: This information was secured through a FOIA request from the city of Providence.
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#9
Name- Victor Dichiara
Annual Earning- $126,845.28
Postition- Fire-4
City- East Greenwich
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 17, 1992
Source: This information was secured through a FOIA request from the city of Providence.
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#8
Name- Edmund Calcagni
Annual Earning- $135,702.72
Postition- Police-5
City- North Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 29, 1990
Source: This information was secured through a FOIA request from the city of Providence.
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#7
Name- James Kelly
Annual Earning- $137,336.04
Postition- Fire-4
City- Greenville
State- RI
Retirement Type- Accidental Disability
Retirement Date- September 28, 1988
Source: This information was secured through a FOIA request from the city of Providence.
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#6
Name- Vincent Delisi
Annual Earning- $145,520.88
Postition- Fire-4
City- North Providence
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 17, 1992
Source: This information was secured through a FOIA request from the city of Providence.
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#5
Name- William Manchester
Annual Earning- $148,839.84
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Accidental Disability
Retirement Date- December 19, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#4
Name- William D'Iorio
Annual Earning- $156,870.60
Postition- Fire-4
City- Smithfield
State- RI
Retirement Type- Accidental Disability
Retirement Date- Novemver 29, 1990
Source: This information was secured through a FOIA request from the city of Providence.
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#3
Name- Anthony Sauro
Annual Earning- $161,487.24
Postition- Fire-4
City- Johnston
State- RI
Retirement Type- Accidental Disability
Retirement Date- July 5, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#2
Name- Robert Anthony
Annual Earning- $162,944.04
Postition- Fire-4
City- Smithfield
State- RI
Retirement Type- Accidental Disability
Retirement Date- September 25, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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#1
Name- Gilbert McLaughlin
Annual Earning- $196,813.08
Postition- Fire-4
City- Warwick
State- RI
Retirement Type- Accidental Disability
Retirement Date- October 24, 1991
Source: This information was secured through a FOIA request from the city of Providence.
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