Riley: Default in Providence. Where is our Governor?

Tuesday, June 16, 2015

Michael G. Riley, GoLocalProv MINDSETTER™

Governor Raimondo

Unless the Providence pension Plan receives $62 million in cash or investments from the City by June 30, 2015 the city will once again default on a current liability loan. They have done exactly this for at least 12 years in a row and then the city unilaterally creates a new loan and places a “false Asset” in the reported assets of the pension plan. This scam and fraud has finally been discovered but instead of the actuary referring Providence to the regulators, Segal Co. is doing everything they can do to also mislead municipal investors.

No leadership

Unless and until federal or state regulators step in and investigate, Providence will continue to have unauthorized borrowings from the pension plan, followed by defaults and written off loans harming the pension beneficiaries and taxpayers. While I am not surprised that our own Attorney General Peter Kilmartin turns a blind eye I am surprised that our Auditor General Dennis Hoyle has been so quiet and also that the Governor and Treasurer have been so oblivious. Do they think what Providence is doing is legal? Do they approve of misleading Municipal bond investors? Do they realize that some of those misleading reports could be in their own documents?

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RI Cities and Towns Teeter

The countdown for Providence Bankruptcy and default is on and its 14 days. Raimondo and Magaziner have also been oblivious to the struggles of cities and towns, preferring instead to campaign for green spaces and a green infrastructure bank etc. Meanwhile, the state’s pension performance for fiscal year 2015 is horrible and will certainly push Rhode Island and its funding ratio farther down into critical Status. The enormously complex and expensive portfolio described recently in a recent Ted Siedle report. The Raimondo experiment has failed and it’s time to give up on the idea that paying a lot of money to friends' alternative investments and friends' hedge funds will do anything for us but cost a lot of money. Hundreds of investors and managers should be fired and the fund would turn into just 5 investments and that can return more at less risk.

Rhode Island Sinks into Critical Status again

I estimate that with just 2 weeks left in Fiscal Year 2015 the State Pension Fund has earned just over 3% compared to their own projection of 7.5%. That is a shortfall of approximately $360 million dollars. That’s money that Treasurer Raimondo considered real in her prior role as treasurer but doesn’t even factor as “real” when looking at State Finances. Now she views unfunded pension liability as an off balance sheet obligation that’s completely under control due to her “permanent" pension fix. That is simply untrue and the State taxpayer liability is growing. It’s also strange that she forgot that the Municipal problem was twice as big as the State Pension Crisis. Ignoring fraud in Providence is not a very promising start to her term. If Governor Raimondo can’t provide leadership, who will?

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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.

Riley: Default in Providence. Where is our Governor?

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