Michael Riley: Can Taveras Clean Up His Act for the New Mayor?
Wednesday, September 17, 2014
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.
Providence 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.
Related Slideshow: Providence 2014 Mayoral Candidates’ Top Priorities
See the issues of top concern to Providence Mayoral candidates Lorne Adrain, Jorge Elorza, Dan Harrop, Brett Smiley, and Michael Solomon -- and if elected, what their highest priority would be.
Adrain - Top Issue
"Everything starts with the economy. Real progress will happen when Providence becomes more economically competitive and jobs are being created so that everyone benefits. Schools, neighborhoods and opportunities for all will be improved when our economy takes off."
Adrain - Administration
"The top priority in an Adrain Administration would be to create meaningful and long lasting economic change. This is the biggest challenge facing Providence and my experience allows me to help lead Providence's economic recovery."
Elorza - Top Issue
"Providence must be a city of opportunity where businesses choose to locate, where graduates choose to stay, and where families choose to raise their children."
Elorza - Administration
"My top priority is to make Providence that city and to create opportunities-- strong schools, good jobs, and safe communities-- that will allow families in every one of our neighborhoods to thrive."
Harrop - Top Issue
"City finances: $600 million deficit in pension plan, $1billion deficit in benefits plan, reductions -- because of finances -- in police causing public safety concerns (down 75 from several years ago, when the academy graduates at the end of the year, given further retirements, we will really only be back up about 20-25 new officers), reduced ambulance runs, potholes, crumbling schools, etc., etc."
Harrop - Administration
"Getting the unions into the office and reminding them, again, the city cannot pay the pensions it has promised. Again, the GOP said this 8 years ago, and we were right, the Democrats wrong. We are saying this again (this time, the Dems are silent -- interpret that as you will -- I interpret it that they know we are right, but they have problems admitting their complicity in this problem). We can further negotiate reductions, or move to receivership. Until we acknowledge we cannot pay the pensions, we will be unable to come up with the money for any and all of the spending programs the Democrats are proposing. Further increasing the highest commercial tax rates in the nation is not the answer, and only further depresses the city's economic fortunes."
Smiley - Top Issue
"The most pressing issue facing Providence is our economic well-being, and that's why I've made job creation and economic development a centerpiece of my campaign. We've certainly made progress over the past few years and I'm grateful for the work Mayor Taveras has done to bring us back from the verge of bankruptcy, but we're not out of the woods yet."
Smiley - Administration
"With little left to cut and nothing left to tax, my top priority will be to grow the economy and make City Hall a place where anybody, regardless of whether they "know a guy," can easily start or grow a business."
Solomon - Top Issue
"The most pressing issue is economic development, and there are several components to this: creating jobs, growing our middle class and ensuring that every child has access to a good school. As a small business owner, I understand the challenges of running a business. I want to make it easier to do business in Providence. As City Council President, I've taken on those challenges by supporting a freeze on the commercial tax rate and moving the permitting process online, making it easier for developers to do business. I also want to rebuild our middle class and improve education, goals that can be achieved through my plan - "Rebuilding Providence" - which will invest $250 million to create 2,000 jobs and rebuild our schools."
Solomon - Administration
"As Mayor, my top priority will be creating a city with opportunity for all. I will work together with everyone in the community to rebuild Providence's middle class, create jobs and strengthen our schools. I believe the people who know best how to improve our neighborhoods are the people in living in them. As Mayor, I won't be stuck behind a desk at City Hall. I'll be a Mayor in the neighborhoods, working hand in hand with the community to rebuild Providence."
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