Michael Riley: Trust Chafee? I Don’t Think So
Tuesday, December 16, 2014
The City and Towns in Rhode Island have had 5 years of positive capital markets tailwinds that should have produced windfall profits strengthening their pension plans and vastly improving the stability of funding promises to public workers.
In 2011 Rhode Island officials and the nation were still struggling and Rhode Island had several cities on the verge of collapse. Central Falls made headlines nationwide and was placed into receivership. Central Falls has since emerged from bankruptcy and twice the general assembly has appropriated additional funds to Central Falls employees from State Taxpayer dollars. This two time bailout is a very dangerous precedent and Rhode Island taxpayers statewide may now be asked to pay for all municipal bailouts including the very shaky cities of West Warwick, Coventry, Johnston, Pawtucket and Providence.
Together these towns account for as much as $3.5 billion in unfunded pensions and $2 Billion in OPEB. This problem is larger than the State pension liabilities which were so much in the news the last few years and are also backed by State Taxpayers. Accounting rules, unrealistic projections, purposeful underfunding and fraud have all contributed to the present condition. So what has been done during the Chafee administration to address this? What has our General Assembly done? On the eve of Chafee’s new central Planning experiment RhodeMap RI, all Rhode islanders would do well to consider the Track record of this administration in addressing an obvious and critical problem like Municipal debt and potential bankruptcy.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTChafee in 2011
In 2011 Lincoln Chafee after being elected with 36% of the vote was cheered on by Progressives and Mayor Avedesian and the Providence Journal for his bold plan to fix cities and towns. Most of Chafee’s term was like his website, filled with self-promotion and dutiful adherence to some un-named social agenda.
Whether it was the death penalty, holiday trees, his repeal of E-verify, promoting Obama Care and the health exchange he was not lacking an agenda. He used slick marketing to promote these treasured but incomplete ideas and RhodeMap RI is his final effort to impose his values on Rhode Island whether we really like it or not. When forced to deal with substantive issues affecting all Rhode Islanders like municipal Bankruptcy Chafee used the same tactics as seen above. Chafee has repeatedly said he favors the slow and steady approach to solving problems. That would be fine if he ever actually solved the problem.
Lets look at the Municipal Debt problem that Chafee has now distanced himself from because the slow and steady approach has been an outright disaster leaving Cities and Towns more vulnerable than ever to recession after 5 years of expansion. RI Governors efforts including having meetings, forming commissions, gathering data and most of all doing absolutely nothing.
A Municipal Crisis Pension Commission was formed that basically rehashed what Ernie Almonte had reported to the General Assembly and every City and Town since 2007. After 3 years there were no new rules, no consensus on appropriate accounting. Mayors on the “critical status” list didn’t even attend. Chafee appointed Rosemary Booth Gallogly the States Revenue Director who behaved like a teacher handling the after school detention class. Apparently her goal was to waste 3 years and accomplish nothing. Here is the before and after picture of cities and towns with and without required GASB 68 changes now in effect 3 years after Chafee attacked the Crisis and declared 2011 “the year of Cities and Towns” .
Governor Lincoln Chafee October 18, 2011
“The largest threat to having this story repeat itself would be our failure to comprehensively address pension reform. We all know that there are dangerously underfunded municipal pension plans. As Governor of this great state and captain of the ship, I clearly see these icebergs ahead. If you have any doubts, please read Auditor General Dennis Hoyle’s September 2011 report on municipal pensions. This study is a thorough and very sobering analysis detailing our deeply troubled independent municipal pension funds.
Honest, comprehensive reform means a top-to-bottom effort that doesn’t simply ignore these local plans because they aren’t operated by the state. We can’t have true pension reform if our cities and towns are neglected.
The Auditor General recently determined that 24 of Rhode Island’s independent municipal pension plans are in grave danger because of inadequate funding levels. These include Coventry Police at 16.5%, Cranston Police & Fire at 15.8%, and Smithfield Police at 11.4%. And it is important to bear in mind that these estimates are based on overly optimistic figures for rate of return and mortality expectations, so in reality some are even less adequately funded.
I believe that these debts represent the most alarming aspect of Rhode Island’s pension crisis, with many of the municipal plans in far worse shape than the state system. To ignore the pension crisis gripping our cities and towns would be dishonest and closing our eyes to reality. Failure to address these problems now threatens to leave the local property taxpayer bearing all the burden down the road.”
Mission Accomplished?
According to Morningstar a healthy Pension Funded Ratio is > 80% funded today
According to Moody’s a healthy Pension Funded ratio is > 70% * funded today
According to Rhode Island Chafee and Gallogly a healthy ratio is > 60% in 20 years 2034
76% is the median funded ratio of the Top 25 cities in the United States.
Total Failure in pensions followed by his RhodeMap RI
Look at the ridiculously low standards and goals set by Chafee and Gallogly for the commission and city officials to achieve. Sadly, the government planners completely whiffed on those goals. After three years of studies and commissions and shoddy reports and every City is worse off after the Governors Declaration in 2011. He promoted the State Pension Reform that ignored the Cities, he touted reforms in Providence by Angel Taveras that did nothing and he had the advantage of 4 years of the greatest bull market in a century to help increase pension assets. Yet Chafee’s self-declared #1 focus, the crisis of municipal pensions, remains a disaster in 2014. Does Mattiello and the House really want to adopt Lincoln Chafee’s 5 year social equity laced economic development Plan … known as RhodeMap RI?
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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