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Riley: What Happened to Rhode Island’s Municipal Pension Crisis?

Tuesday, October 13, 2015

 

gina Raimondo

What happened to Rhode Island’s municipal Pension Crisis? According to Gina Raimondo the Municipal Pension Crisis was a priority for the next governor. One of several “puff’ pieces on Raimondo in 2014 was an article in “Next City”. Upon reading this article you will notice that the Raimondo in the Governor’s office today is very different from the one who ran for office just a year ago. In this GoLocal column I have  repeatedly pointed out the failure of Treasurer Raimondo to address the pension crisis and the financial condition of Rhode Island cities and towns. In 2011 Raimondo worked on the legislation that formed the “Municipal Pension Crisis Commission” headed by Chafee’s Revenue Director Rosemary Booth Gallogly. The commission was a farce, often not achieving a quorum. Its 12 members didn’t accomplish anything. Angel Taveras with nearly $2.5 billion in unfunded liabilities that nearly exceeded the States liabilities, didn’t even bother to attend. Johnston’s Mayor Polisena treated his appointment as a soapbox and used it to yell at “Ernie Almonte” yet Polisena never even turned in a final plan. Polisena and Johnston failed at every level to address his pension crisis. Auditor General Hoyle and Miss Raimondo, both commission members managed to miss the fact that Providence was lying about its pension assets all 3 years even though they held the evidence in their own hands. The commission dissolved a year ago after issuing a report to the Governor and General Assembly suggesting the same commission be a “permanent oversight committee”. Thankfully that didn’t happen.  But what happened to Raimondo?  Why doesn’t she care?

“… we could have waited and had more Detroits in Rhode Island.”

Today, city pensions are in a worse position than when Raimondo in 2012 warned of Central Falls domino effect. However in the years since RIRSA’s passage, there has been no organized state-level follow-up program to address those broken pension programs and the imperiled solvency of Providence other than the failed commission cited above. 

 In 2014 the campaigning Raimondo said “she believes that the governor — whoever takes office in 2015 — needs to work directly with Rhode Island cities to confront the crisis. The city of Providence, she pointed out (cannily, given that her primary opponent was the city’s mayor) has only funded about 30 percent of its pension obligations.” 

A 30% funded ratio?  Not even close Governor Raimondo, Providence is actually funded at around 21%, the worst of any City of its size in the country. Raimondo has been personally aware that Providence has been lying about pension assets and liabilities for nearly 15 years. This misleading of Pension Beneficiaries’ financial condition and Municipal Bondholders violates Federal Securities law but she doesn’t seem to care. She even knew Providence that was secretly borrowing from the pension plan and paying plan contributions as much as 2 years late with 8.25% penalties. This was confirmed by City employees and was in black and white in the documents possessed by members of the Pension commission.. She had requested these documents from all the “crisis Cities” yet either covered up for Providence or didn’t bother to read the documents.  I recently issued a report “Public Corruption and fraud in Providence Pensions” to various authorities including Rhode Island Attorney General Peter Kilmartin . He quickly responded saying   “It wasn’t his jurisdiction” as he rejected the report without reading it. Here is the report   :  http://providencepensionplan.info/

So the Ms Raimondo of 2011 to 2014, who was so concerned about the many “Detroits” in our midst and said “the next Governor should immediately focus in early 2015 on the pension problem with City leaders”, has instead done nothing. I don’t think she has even uttered the words “Pension Crisis” in connection with any city in Rhode Island since she took office nearly a year ago. She has spent significantly more time in the last 10 months on Tourism ad campaigns, baseball stadiums and political fundraising than she has on “confronting” the insolvency and Pension crisis in Providence. As we close out 2015, Ms Raimondo’s words of 2014 appear to be just hollow promises and campaign rhetoric. Her lack of leadership regarding Providence’s pending bankruptcy betrays her reputation as a “problem solver”. Whatever happened to that courageous “pension lady”?     

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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