Michael Riley: West Warwick and Gallogly Pull Hoax on Taxpayers
Tuesday, June 03, 2014
Michael G. Riley, GoLocalProv MINDSETTER™
Break out the Champagne this is a great example of everyone working together to do what is right for the next generation and the Town of West Warwick. West Warwick’s highly touted fix to their pension and general funding issues received glowing comments from Town officials and the architect Revenue Director Rosemary Booth Gallogly. The Providence Journal
recently reported:
“Everyone has come to the table,” council President David Gosselin said Tuesday night just before the board began approving a five-year financial plan that will serve as a blueprint for getting West Warwick back on sound financial footing.
“This is teamwork not seen elsewhere,” he said. “We are making a change in history tonight in moving West Warwick forward.”
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While in May 2012, Rosemary Booth Gallogly likened the town to the “Titanic ready to sink.”
Gallogly was back with a different message Tuesday night.
She congratulated Presley, the council and all employees and retirees for the steps they have taken to get the town started on a better financial path and able to finally address its pension debt.
Gallogly, whose office has been heavily involved in drafting the five-year financial blueprint, called their actions “courageous,” and said it would have been difficult — and expensive — if the state had had to step in and take the reins.
The council would have lost control of the annual budget and taxpayers would have forfeited their ability to vote on the tax rate every year, she said.
Hopefully, she said, the threat of all that will now just be a “distant memory.”
But the reality is exactly as I feared
West Warwick is not in good shape and is still very much in danger of state takeover and/or Chapter 9 bankruptcy. Even after the latest cynical effort by RI Revenue Director Gallogly, the per household burden for the taxpayers in West Warwick for services already rendered yet not yet funded is enormous. At over $14,000 per household, the burden is one of the biggest in the country and exceeds that of Central Falls prior to state takeover which was under $7000 per household. If this is what passes for a fix these days or courage then we are all in serious trouble.
Not only have Ms. Gallogly's toothless threats been hugely ineffective, but her coddling of $100,000 dollar a year West Warwick town managers and finance directors has been a sign to all other communities to just wait. The commission will be along eventually and let you ignore the Funding Improvement Plans you filed a year ago, they’ll ignore GASB 68, and they will hold your hand as you together kick the can down the road and heartlessly burden the next generation .
The Down and Dirty of Gallogly’s deception
During the last few RI Pension Commission meetings there has been an emphasis on GASB 68. This accounting change has a very real impact on measuring liabilities used to calculate ARC. The Standards board has been discussing this and notifying the State, Cities and Towns since 2009. As fiscal year 2015 budgeting right now includes these standards a reasonable person would think a five –year plan would also incorporate this change. The Revenue Director of the State of Rhode Island however has worked with West Warwick and instructed them to project a 5 year plan without incorporating GASB 68. This is intentionally misleading vendors and debt holders who do business with or underwrite West Warwick.
The omission of GASB 68 makes all the so called hard fought changes to contracts and the tax increase essentially meaningless. When GASB 68 is implemented any saving form this” kick the can maneuver” will disappear.
This chart shows just how cynical and ineffective Gallogly and the Pension Commission has been :
FIX? or Deception?
The chart clearly shows that West Warwick will be considered by everyone to be in deep, deep trouble they may get a 12 month delay of proper ARC payment due to Gallogly’s deception but within 18 months the new Director of Revenue will have to deal with this mess. My hope is they attack this with proper authority and a resolve to fix the problems rather than mask them. The “feel good” but do nothing approach of Gallogly and her boss Chafee have set Rhode Island back years in employing corrective action so that as a state we can recover.
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: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
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2005-2010
In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.
Read the Senate Fiscal Office's Brief
here.
(Photo: 401(k) 2013, Flickr)
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January 2009
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
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2009
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
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2010
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
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November 2010
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
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April 2011
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
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May 2011
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
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October 2011
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
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October 2011
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
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November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
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November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
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January 2012
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
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March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
“The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)
See WPRI's coverage of Chafee's attempt to cut pension fund deposits
here.
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March 2013
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
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April 2013
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
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June 2013
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
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September 2013
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
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October 2013
As Raimondo eyes the role of Governor of Rhode Island in 2014, more behind-the-curtain information about the 2011 pension reform comes to light.
Read more from GoLocalProv about the players in the pension battle here.
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