Riley: Raimondo’s Biggest Problem is Providence

Tuesday, November 22, 2016


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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.

"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:


“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.

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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.


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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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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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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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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December 5, 2012

Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package.  In response, Chafee issues a statement supporting the negotiations.


Read more about Raimondo's opposition here.

Read about Chafee's statement">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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