Riley: Raimondo’s Biggest Problem is Providence
Tuesday, November 22, 2016
The GASB 68 adjustment that we have warned about has shaken Dallas, Texas and exposed the threat to their financial future. Dallas' fiscal year ended September 30, 2016 (RI was June 30, 2016). The NY Times reported the Dallas story yesterday this way “Dallas Stares Down a Texas-Size Threat of Bankruptcy”
Providence Not a "Major City"?
Rhode Island was not mentioned - but was dissed anyway - in the NYT article.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST"This month, Moody’s reported that Dallas was struggling with more pension debt, relative to its resources, than any major American city except Chicago," reported the NYT.
In response to the NYT author:
First, Providence is our Capital City, secondly, we deserve at least a mention for our dramatically worse pension predicament. Ironically, it was Segal Co. who recently revealed the Dallas debt was far worse than they had reported prior to GASB 68.
Segal is the same company that agreed with my accusation of Providence's phony pension assets and whacked the city two years ago with a $60 million increase in pension liability. Yet, the city was silent -- and still is, about the pension debt and potential bankruptcy, but they are so energized and vociferous about social issues and the protection of its “undocumented” citizens. Talk about lack of focus.
Segal Company, Dallas
Segal valued the liability for Dallas as follows:
DALLAS
“The Combined Plan: The discount rate used to measure the total pension liability was 4.54%. In order to develop the blended discount rate of 4.54%, the actuarial assumed rate of return of 7.25% was used during the period that the plan was projected to have a fiduciary net position, and a municipal bond rate of 3.34% was used during the period that the plan was projected to have no fiduciary net position. The 3.34% is based on the S&P Municipal Bond 20- year High Grade Rate Index as of December 31, 2014.”
This Segal calculation left Dallas a dreadful 38% funded. Per the most recent Providence official report, municipal investors were told that Providence current funded ratio is 26.9%. Just horrible and below Dallas disaster, yet Providence's funding ratio calculated like Dallas, using a 4.54% discount rate as prescribed by GASB 68, show’s Providence’s true funded ratio is a microscopic 11.93% .
Not only is that easily the worst funded plan in America, it may be the worst funded pension plan of a city greater than 100,000 population in U.S. history.
Wake up MAYOR!
To repeat. If Providence valued their Pension Plan the same as Segal just valued Dallas then Providence would be the worst funded Pension Plan in American History.
Mayor Elorza, despite being closely monitored by Speaker Mattiello and Governor Raimondo, has done nothing about his city’s collapsing Pension Plan. Mayor Elorza has a direct fiduciary responsibility to fairly present the financial condition of the City and its Pension Plan. In the last two years, he’s paid for a few reports and published a menu of small fixes but the reality is only a bankruptcy or a Grand Bargain with the Unions combined with increased taxes will save the pension plan and thus Providence.
I am not the only one frustrated. Frustrations are rising within City Government as Elorza delays dealing in a serious way with the darkening economic reality. Look at this recent report from internal auditor Matthew Clarkin -- who has issued a series of warnings.
Mr. Clarkin clearly thinks Elorza just doesn’t get it.
Where is Raimondo?
Raimondo knows perfectly well the Providence situation is not only just like Dallas but worse. In Dallas the council seems to “get it,” as the Times reported:
“The City of Dallas has no way to pay this,” said Lee Kleinman, a City Council member who served as a pension trustee from 2013 until this year. "If the city had to pay the whole thing, we would declare bankruptcy.”
But in Rhode Island we passed a law in 2010 that assures the State will bail out Providence using State taxpayer money. Is this their plan? Is Elorza calling the Raimondo and Mattiello bluff? Is Elorza extorting the State? What is happening?
We need a leader to act. Raimondo can no longer slip out of town on the Clinton train. Now she has to deal with what supposedly, according to her own words 6 years ago, is the biggest issue in Rhode Island, specifically, municipal pension debt. This failure of hers to act may ruin her career.
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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