Michael Riley: From Head-start to Harvard to the Hoosegow?

Tuesday, July 01, 2014

Michael G. Riley, GoLocalProv MINDSETTER™

 

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Now that Mayor Taveras and the City of Providence have admitted to their pension lie, as demonstrated in the bond addendum to the right, I can update first their Pension Assets to reflect the missing $57 million and then their Pension Liabilities to reflect GASB 68 to give clear picture of just how small the so called negotiated Taveras “fixes” are compared to the size of the problem in Providence. 

Before clarifying just how bad the situation will be for any new Mayor, including an experienced one like Buddy Cianci, we should review the lies that have been taking place recently in Providence. The two previous administrations, Taveras and Cicilline, both lied with regard to pension accounting. That fact is very clear.  As far as pension costs, bad bargaining, ridiculous colas etc. it appears that Buddy is a big offender. But the colas were part of Taveras $170 million dollar fix. So clearly there is much more to account for the $3 billion dollar problem.  Buddy pushes the 6% cola mistake off on “group think,” “everyone was doing it,” etc. Whatever.

For this article I am focused on US accounting rules, the SEC, GAAP and GASB 68 and deception by Providence managers and hired actuaries. The last 6 years have been a complete lie and both David Cicilline and (to a lesser extent) Taveras are guilty of misleading voters, taxpayers and bond investors. Across the United States there have been several cases where the Securities and Exchange Commission has recently gotten involved and offenders spent time in prison.

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Asset Pumping…Taveras Caught

So “overstating” pension assets seems to have been going on before the Taveras Administration, but I first noticed it in 2013 at my pension class at Stanford. I saw the unusual accounting and asked other students, professors and our Rhode Island Auditor General if they had seen this kind of accounting treatment for pension assets before? No one had.  Basically what the Mayor and the accountants did was include next year’s contributions as this year’s assets, thus inflating their reported pension assets.

There is a moment of common sense, in situations like this, where honest people would say “this doesn’t make any sense.” But honesty has been absent from Providence, the Mayor, and the city council for some time now. Yes Angel walked into a financial hell hole filled with lies, but then he didn’t reveal all the lies or even address them all. Now we see that he tacitly carried forward a big one. He lied and continued his lies, signing CAFR and bond documents that explicitly lied about the assets in the pension fund. He was nailed in January this year when an auditor, Segal &Co, admonished Providence in that report to stop including the Phony $57 million in their pension assets. They simply don’t exist. So the reality is, next year’s report will have $57 million less in pension assets, maybe Taveras considers it  a gift to the new mayor. This deception is enough to make Taveras look bad, very bad. But there is more. The general media is not paying attention; typically they repeat what the office holder releases to the press. But because this was so egregious and now highlighted by the Auditor, I notified Providence media, city officials, and others. I wrote some articles, I tweeted and face-booked, but as is the modus operandi in this state, the city of Providence went silent and the Mayor said nothing.

They would very likely still be silent today if it were not for that nagging little need for Providence  to borrow and those picky people at the Securities and Exchange Commission who review documents for disclosure and accuracy. The SEC has been on a rampage lately going after municipalities for misleading bond investors.

SEC Sues Illinois City, Comptroller Over Alleged Bond Fraud (June 24 Law360) 

SEC Accuses Miami of Misleading Investors in Muni Bonds

So there were Town officials who needed to refinance bonds for the city of Providence a couple weeks ago, they presumably went to their advisor, who is being sued by the State. Kate Nagle noticed it and passed along the preliminary offering document, and she wrote this story after interviewing me.

Basically I accused the City and the Mayor of purposely misleading bond investors using “false assets” and inaccurate and misleading accounting. I even attempted to purchase bonds through UBS so I could have a copy of the Document and then give it to the SEC. Maybe I made too much noise because apparently “someone” became concerned about disclosure and suddenly the addendum, pictured above, appeared on Bondview and EMMA (two of the premier bond info sites), just prior to the pricing of the bonds.

So now caught red-handed, Providence officials had  admit to and disclosed this problem of fake assets ,, but the most dishonest part is they still haven’t  told their pensioners or taxpayers or even all the other current outstanding bondholders of Providence Debt that they are missing $57 million. Next year, $57 million will vanish from pension plan assets. Providence officials, their actuaries, and their advisor have purposely materially misstated the financial condition of the pension plan and the financial condition of the City of Providence. For his part Taveras been lying for 4 years now. He even had the nerve to fire the previous actuary, a Cicilline carry over, for a $10 million dollar miscalculation of Pension Liabilities in 2011-12. Well certainly this $57 million deserves an explanation and some heads should roll. Will it be the new actuary? Or the Finance Director? How about the entire Council who reviews these documents?  The truth is these guys don’t care about the taxpayers, or the pension plan or anything but their own careers. That is why both Angel Taveras and Michael Solomon are unfit for their respective offices. Incompetence combined with deception is lethal to taxpayers.

The Real Numbers

Providence updated to Reality:

Assets: $380 million – $57 million=   $323 million-- True

Total GASB 68 Liabilities: $2.51 billion-- True

Unfunded Liabilities: $2.18 billion-- TRUE

                              

Taveras and Providence reported

Assets: $380 million-- LIE

Liabilities assuming 8.25%: $1.21 billion-- LIE

Unfunded liability: $831 million-- LIE

 

Size of Taveras fixes: $ 170 million…size of problem Pension + OPEB = $3.38 Billion

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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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