Michael Riley: Can Taveras Clean Up His Act for the New Mayor?
Wednesday, September 17, 2014
Providence Mayor Angel Taveras has much to accomplish if he wants to avoid a repeat of the last mayor. Mr. Taveras and finance director Mancini have been less than honest for years about several financial problems that I have pointed out over the last year. They have solved none. So the question is, will the Mayor and finance director leave it to Elorza, Cianci or Harrop to clean up? Mr. Taveras came off poorly in the campaign by not ever responding to legitimate criticism and concerns.
First identified in late 2013, Providence Pension assets were improperly inflated by $57 million dollars, this allowed Providence to overstate its funding ratio and understate its ARC. In the corporate world this borders on fraud. This saved Providence approximately $3 million in annual payments to the fund for at least 4 years. The discount rate of 8.25% is one of the highest in the nation despite the fact that Providence is only 30% funded (26% funded when assets are adjusted). Moody’s and GASB 68 have warned on this dangerous combination since 2010.
Providence did not publicly recognize the Auditor report in January 2014 from Segal that disallowed the pension accounting I had cited and told the city that counting $57 million as assets was inappropriate. Still even after this, they did not notify the public employees or existing bondholders that pension assets were misstated. This is an MSRB violation as well as an SEC violation. Cities and towns cannot mislead investors and must inform them of significant changes in finances.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTProvidence and Taveras ignored my warning about this as well. It wasn’t until they had to borrow in June 2014 and I warned them yet again in a Kate Nagle column that they amended the bond offering to reflect the Auditor report in January. For six months they refused to acknowledge accounting improprieties to existing Providence bondholders. Even when the amended the offering in June, they did not notify existing bondholders, setting up even more violations of MSRB and the SEC. To this day they haven’t told the citizens of Providence or the Pension Beneficiaries that $57 million is missing.
Then there is the issue of the city Investment adviser Wainwright Investment Counsel LLC and the impossibility of getting an accurate account of fees received by that adviser. Taveras never issued an RFP for the investment advisor, even though the pension funding ratio was 30% and he found a “category 5 hurricane” left by David Cicilline. Then, despite his highly publicized mad dash for cutting expenses and examining costs, he did not even issue an “RFP” for that very important investment adviser post. Nor did he at any time in his 4 years as head of that commission and Mayor of Providence. That adviser “WIC” was first hired by Buddy Cianci in 1995. Our examination of the adviser found Wainwright had been involved with Bernard Madoff and paid $2.4 million to settle client lawsuits in 2008, 2009. In the next several years most cities and towns across Massachusetts replaced Wainwright.
In early 2006, Wainwright Investment Counsel convinced David Cicilline (Cianci was in prison) to invest a large chunk of the pension fund into Renaissance Technologies an aggressive, high frequency hedge fund. Cicilline and Myrth York were pitched that Renaissance would deliver the S&P 500 plus 600 basis points (example: if S&P was up 7% , Renaissance would be up 13%) and the promised to do this at 1/3 less risk than the index. You can read the presentation and all the celebrity worship in these minutes. Providence maintains this large investment despite Renaissance failure to perform as promised. I have asked Providence if Renaissance pays Wainwright anything in addition to what Providence pays, which is exactly what Taveras accused Raimondo of doing in the State Plan. Mancini and Taveras have refused to respond.
Renaissance Technologies appeared in July 2014 in front of a US Senate Inquiry as a key figure in a $6 billion dollar tax evasion scheme. Can you imagine the outcry from Projo or other media in RI had the State of Rhode Island under Treasurer Gina Raimondo been invested in Renaissance? Projo’s use of silence, obliviousness and their outright incompetence has shielded Taveras from most of these charges. That still doesn’t excuse Taveras absences these past 4 years. The behavior and obfuscation of the Taveras administration regarding all these issues is appalling. Taveras has a few months to try to set things right or he can dump it on someone else’s lap just like his predecessor, Cicilline.
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.
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