Riley: Troubling Facts in Providence Pension Plan
Tuesday, February 09, 2016
A few weeks back in this column I produced a letter written to Rhode Island Auditor General Dennis Hoyle.
The Questions were basically this:
1) Which cities and towns do not pay contributions to the pension plan as the year progresses and instead pay a lump sum at year end?
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He has kindly responded. With regard to ERSRI Mr. Hoyle responded as follows:
Q: When should payroll data and contributions be submitted to ERSRI?
A: Contributions and data must be sent to ERSRI each month, and are payable by the 15th of the month following payroll. For example, if payroll is made on Jan. 31, contributions and data are due by Feb. 15.
Q: What happens if an employer is late in making a contribution?
A: Consistent with Rhode Island General Law, the General Treasurer’s Office is authorized to withhold state aid to communities that do not make timely contribution payments.
As you can see this does not answer the question about the Providence Pension Plan for Police and Fire which is underfunded by at least one billion dollars. Hoyle then gives us this nugget :
“There are no employers that I am aware of that are allowed to remit their contributions on an alternate schedule (e.g., at the close of the year) – for either the employee or employer share of required contributions. The City’s practice of paying their contributions to the pension plan after fiscal year end is neither desirable nor endorsed. I am somewhat encouraged by their recent efforts to accelerate the payments – the amounts paid for fiscal 2015 contributions were made considerably earlier than the previous year. I have discussed this with the City and it is an area that they pledge to continue to work on. I’m not aware of another city that has a similar situation to the City of Providence but admittedly haven’t done any exhaustive search either. “
We thank Mr. Hoyle for his responses yet these facts still remain. Providence has allocated $71.6 million to the pension plan in its FY 2016 City budget to make up for prior year underfunding and normal contributions. The bulk of that $72 million is only an annual amortization of the present value of the estimated liability. Yet it has no plan of paying that amount in fiscal. In fact it’s not even clear the city has contributed anything to the Providence Investment Commission in order for retiree‘s to earn a return on contributions. That commission is headed by Mayor Elorza. Wouldn’t he know how much and when the contributions of employees in the Providence Town Pension Plan are deposited into the account he of the commission he is Chairman of? You would think so.
Predictably, Mr. Elorza has not responded to our questions and WPRI seems far more interested in filming local “disabled” workers at gyms than looking into a $200 million dollar charade perpetrated on us by the leaders in Providence. Perhaps our crack mainstream media at WPRI or Projo could simply ask the question? Something like –“Dear Mayor Elorza. The city budgeted $ 71.6 million for amortization payments and normal contributions for fiscal 2016. What payments to the pension fund have been paid so far for fiscal 2016 contributions? What rate of return have pension beneficiaries received?”
Since Mr. Hoyle and I agree that we have been unable to find any other city that is withholding money rightly owed to the pension plan, what interest rate should the city of Providence pay its pension plan for the unauthorized use of retiree’s money? If this has been the practice for 15 years, does the city owe the pension plan interest for 15 years? I think they do.
Fitch rates Providence BBB
Recently Fitch ratings services downgraded Providence GO debt to BBB, one step from junk.
That near junk rating exists despite the Taveras so called miracle Pension Reform of 2012. It exists despite the untested and highly unusual law that places bondholders ahead of public workers and taxpayers in the event of receivership. Some have argued that all municipal debt in Rhode Island should be AA rated because of that 5 year old law. That’s simply foolish. We disagree vehemently and recommend the immediate sale of all Providence related debt. There is no upside in owning the bonds and there is lots of downside. This downgrade now qualifies as a trigger to bring in the current Director of Revenue.
Pension funds still in turmoil
Municipal pension plans and the Rhode Island State Pension plans are seeing unprecedented losses yet again in February that will affect all budgeting going forward. Sadly our elected leaders are silent and are currently pressing for even higher Government spending as though the Pension Liabilities weren’t exploding as we speak.
The lack of vision, accountability and leadership are becoming the hallmarks of this Governor and General Assembly.
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.
Main Photo: Flickr/TaxCredits.net
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