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Riley: Why is Governor Raimondo Misleading Bond Investors?

Tuesday, August 18, 2015

 

Gina Raimondo

Over the last few years I have accused the City of Providence of misleading municipal markets and bond investors, taxpayers, Providence citizens and Providence pension fund beneficiaries about the financial condition of Providence and its pension Plan. I accused the city of purposefully and persistently overstating the assets in the pension plan, understating the pension funded ratio and as a result more severely underfunding the most underfunded city in America. From Taveras to Elorza the Mayors and the town council have been virtually silent on these issues and the media has been absent preferring to regurgitate consistently inaccurate numbers. This has resulted in further misleading Municipal bond Investors. Misleading Municipal Bond Investors is a violation of federal Securities laws and falls under the Purview of the SEC and MSRB.

The City of Providence is bound to accurately portray the financial condition of Providence. They have an affirmative obligation of continuing disclosure regarding any material facts impacting a fair analysis of the financial condition of the city and any risks investing in the debt of the city, They also have a legal and moral obligation to tell the truth to city employees, retirees and beneficiaries of the pension plan because the city is the acting fiduciary of the pension plan.

That last sentence brings us to a big question. The City has publicly admitted last Friday that they have regularly borrowed from the pension plan at a rate of 8.25% to 8.5% when short term borrowing rates were and are closer to 1%. 

So, since when can Providence, or any city, borrow from its pension plan?  Much less, do it for 15 consecutive 16 month periods over 20 years without ever paying the “loan” back on time or disclosing this severe cash flow issue to municipal bond investors? How does this fact escape either Auditor General Almonte or Dennis Hoyle? How could the head of municipal finance, Susan Greschner not discuss or disclose it?

Providence officials proffered the laughable story that it is recent efficiency in taxpayer payments that allowed for a quicker pay down. When really it is more spin and more evidence of the city actually admitting to horrible financial planning that has destroyed Providence over the last decade.

Did Gina Raimondo withhold disclosure?

What about former Treasurer and current Governor Gina Raimondo? Has she failed to disclose to the municipal bond market information that is critical to decision makers for investing in Rhode Island issued securities? Sadly the answer is a resounding YES. Ms. Raimondo has known for years that Providence is essentially bankrupt and she definitely knew Providence was regularly “borrowing” from its pension fund at 8.5% when Tax anticipation notes were yielding 1%. That is outrageous given Raimondo’s efforts to unilaterally reign in the cost of pension plans by altering pension benefits. Now she stands idly by as Providence violates federal Securities Laws and as the capital City self-destructs by borrowing $50 million a year at 8.5 % while short term rates cost 1%. They also stole $63 million from the pension plan that covered fire, police and municipal employees. What was her role as Treasurer? How about now as Governor? Should she be purposely withholding from municipal investors critical knowledge of the REAL financial condition of Providence and consequently the State of Providence? Did she intervene to correct millions in waste?

Internal Auditor Matthew Clarkin

A conversation last week with Mathew Clarkin revealed the following comment, when Clarkin was asked: “Was the non-payment/default that just took place June 30,2015 disclosed to the municipal markets or the SEC? Was this disclosed to the Auditor or to the Auditor General?”

Internal Auditor Clarkin replied: “For many years the city has unfortunately been in a financial position where its cash position hasn't allowed for the pension contribution to be made by June 30.  The interest charged to the city for the period past June 30 is 8.25%. As for the disclosure of this situation, the city's actuary, outside auditor and the state have long been aware of this situation. “

Mr Clarkin is the Internal Auditor with the City of Providence, and co-author, with Gary Sasse of the report to the city on Pension Sustainability dated March 6, 2012. As shown above, he has just revealed that virtually everyone in the State was aware that Providence was borrowing for 15 years or more at 8.5% from its own pension fund and subsequently neither tried to intervene or make any disclosure in bond offerings of the State of Rhode Island or the City of Providence.  Let me say this again , Auditor General Hoyle and Governor Raimondo , Mayor Taveras and other inside and outside auditors chose not to disclose that Providence cash flow problems were so severe they were (probably illegally) borrowing from their own pension fund at 8.5% when short term borrowing rates were less than 2%. Apparently the Mayor, The State Treasurer, and the auditor general chose not to disclose this fact to bond buyers at both the state level and on City Borrowings. Did they think bondholders didn’t deserve this information? It was certainly material as 8.5% interest on $60 million dollars totals $5.1 million in costs annually.

This set of facts indicates that the “insider” culture ,that she decries, permeates Providence City Hall and that the “cover up” mentality was the local modus operendi of the last 15 years and this culture of corruption thru omission and misrepresentation runs right through our current Governor’s office.  The Auditor General, who operates away from the Governor, has long been toothless and reports to Nick Mattiello. Mr. Hoyle has been completely silent on proper disclosure and has missed almost all of the entire pension scam. He is thus likely complicit.

Here’s what should happen next

The Securities and Exchange Commission needs to fully investigate Providence going back 15 years. The State Police need to investigate the last 3 Mayors and Staff regarding corruption and purposefully misleading the public about the finances of Providence. The many false reports issued by the city and state have led directly to furthering the personal political gains and income of dozens of elected and appointed officials. The role of the hire “outside” auditors should also be investigated and possibly sued. Taveras did not hesitate to sue in 2012 over a “700,000 error by Buck Consultants” certainly, with total costs to taxpayers in the hundreds of millions, Providence outside accountants have as much to explain as the crooked politicians.

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: The Highest Paid Early Retirees in the RI Pension System

Below are the top 20 highest paid retirees in the state pension system who retired at age 45 or younger. Data are current as of June 30, 2014 and were obtained directly from the General Treasurer’s office. Estimates of age and annual pension are GoLocalProv calculations. Ages were calculated by comparing birth year with retirement year. The data did not include months and dates for either. The annual pension and total amount paid since retirement are provided for each. Retirees are listed in order of lowest paid, of the top 20, to the highest. 

Prev Next

#20

Name: Raymond Daguanno

Year Retired: 1990

Estimated Age at Retirement: 44

Gross Annual Pension: $30,529

Total Paid out Since Retirement: $421,024

Retired From: State Government

Retirement System: State Employees

Prev Next

#19

Name: Charles Rallis 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $38,571

Total Paid out Since Retirement: $425,046

Retired From: Coventry Public Schools

Retirement System: Teachers

Prev Next

#18

Name: Edward Bradley 

Year Retired: 1990

Estimated Age at Retirement: 44

Gross Annual Pension: $31,880

Total Paid out Since Retirement: $430,918

Retired From: Barrington Public Schools

Retirement System: Teachers

Prev Next

#17

Name: Normand Crepeau 

Year Retired: 2004

Estimated Age at Retirement: 43

Gross Annual Pension: $45,630

Total Paid out Since Retirement: $438,809

Retired From: Woonsocket Police Dept.

Retirement System: Municipal Employees (MERS)

Prev Next

#16

Name: Sidney Bachman 

Year Retired: 1998

Estimated Age at Retirement: 45

Gross Annual Pension: $40,522

Total Paid out Since Retirement: $442,162

Retired From: State Government

Retirement System: State Employees

Prev Next

#15

Name: Richard Grant 

Year Retired: 1997

Estimated Age at Retirement: 45

Gross Annual Pension: $42,279

Total Paid out Since Retirement: $450,703

Retired From: State Government

Retirement System: State Employees

Prev Next

#14

Name: Margaret Dunn 

Year Retired: 2002

Estimated Age at Retirement: 44

Gross Annual Pension: $41,688

Total Paid out Since Retirement: $454,457

Retired From: State Government

Retirement System: State Employees

Prev Next

#13

Name: Susan Gemma 

Year Retired: 1990

Estimated Age at Retirement: 42

Gross Annual Pension: $30,669

Total Paid out Since Retirement: $456,192

Retired From: State Government

Retirement System: State Employees

Prev Next

#12

Name: William McCombe 

Year Retired: 2004

Estimated Age at Retirement: 45

Gross Annual Pension: $46,955

Total Paid out Since Retirement: $457,339

Retired From: New Shoreham Police Dept.

Retirement System: Municipal Employees (MERS)

Prev Next

#11

Name: Robert Thomas 

Year Retired: 1999

Estimated Age at Retirement: 45

Gross Annual Pension: $41,194

Total Paid out Since Retirement: $458,916

Retired From: North Kingstown Fire Dept.

Retirement System: Municipal Employees (MERS)

Prev Next

#10

Name: Glenn Parrillo 

Year Retired: 2001

Estimated Age at Retirement: 45

Gross Annual Pension: $43,179

Total Paid out Since Retirement: $469,691

Retired From: State Government

Retirement System: State Employees

Prev Next

#9

Name: Daniel Wheelan 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $37,481

Total Paid out Since Retirement: $470,891

Retired From: State Government

Retirement System: State Employees

Prev Next

#8

Name: Diane Lowe Verdolotti 

Year Retired: 1990

Estimated Age at Retirement: 43

Gross Annual Pension: $34,046

Total Paid out Since Retirement: $478,871

Retired From: Providence School Dept.

Retirement System: Teachers

Prev Next

#7

Name: Barry Couto 

Year Retired: 1990

Estimated Age at Retirement: 42

Gross Annual Pension: $33,509

Total Paid out Since Retirement: $481,039

Retired From: State Government

Retirement System: State Employees

Prev Next

#6

Name: James Razza 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $37,993

Total Paid out Since Retirement: $491,360

Retired From: Middletown Public Schools

Retirement System: Teachers

Prev Next

#5

Name: Edward Whiteside 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $39,996

Total Paid out Since Retirement: $499,137

Retired From: Central Falls Collaborative

Retirement System: Teachers

Prev Next

#4

Name: Robert Gaipo 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $37,878

Total Paid out Since Retirement: $500,287

Retired From: State Government

Retirement System: State Employees

Prev Next

#3

Name: Andrew Lindh 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $42,078

Total Paid out Since Retirement: $528,990

Retired From: State Government

Retirement System: State Employees

Prev Next

#2

Name: Paul Brousseau 

Year Retired: 2000

Estimated Age at Retirement: 45

Gross Annual Pension: $54,066

Total Paid out Since Retirement: $588,071

Retired From: State Government

Retirement System: State Employees

Prev Next

#1

Name: Christopher O'Neil 

Year Retired: 1990

Estimated Age at Retirement: 45

Gross Annual Pension: $53,502

Total Paid out Since Retirement: $646,775

Retired From: State Government

Retirement System: State Employees

 
 

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