Riley: I Would Endorse a Sale of Providence Water Supply with Strict State Oversight

Tuesday, May 15, 2018

 

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Selling municipal assets to fund needed projects can make perfect sense. In the case of Providence Rhode Island, the need to address and fund massively underfunded past obligations soon is critical to city survival. Here’s why the sale makes sense.

PWS (Providence Water Supply Board) is a long-lived asset providing services to 75,000 ratepayers in and around Providence. There are several public and private sources of water around the state. This long-lived asset is well matched to provide upfront and continuous funding to shore up the Providence pension plans. It is logical to reduce annual funding costs of the pension system to allow Providence more flexibility in budgeting.

The best way to approach this solution is for the State of Rhode Island, through oversight laws, take control over Providence and then negotiate an asset sale deal with the Narragansett Bay Commission.

The State would require substantial city pension reform far beyond the minor reform that took place under Taveras in 2013. Elorza would be placed on the bench for a few years while the State negotiated these terms. Elorza and his current team are clearly not capable or worthy of handling this. Elorza has made zero progress in negotiating any reforms, despite several reports that he funded suggesting this “grand bargain” was critical. 

Alternatively, under state oversight (re-org) overseers will have much more leverage to impose needed reforms such as requiring all future workers participating in hybrid or 401k type plans or reducing the current caps on retirement compensation. There are numerous ways to reduce future pension costs that don’t hurt current workers and retirees.

There is ample evidence that an asset sale can work if the money raised is used judiciously. Obviously, the money must go toward paying off Providence pension debt. I would consider some pre-funding of the huge OPEB obligations. This asset sale will work if Providence can receive more than $300 million. The likelihood of receiving that amount is well argued in the Elorza funded MRV Valuation here. 

And also counter-argued in this fabulous blog by Johanna Harris. 

Assuming $300 million can be raised, and reforms are made after completing an independent forensic audit and restricting the money raised to reducing Providence’s pension liability, then every Rhode Islander will benefit. The State revenue director can impose his will without an official bankruptcy and be in a superior bargaining position with the unions. The goal would be to make the city more financially viable and sustainable. The overseers could more efficiently address problems while avoiding the messy delays of union/mayor politics. It would be a big mistake to approve this sale for implementation by the Mayor and/or Council.

As Reason Foundation put it in 2015, combining asset sales with comprehensive, prospective pension reform are complementary strategies. Asset sales alone are an insufficient solution to long-term pension debt. Rather, they should be paired with prospective, structural reforms to pension systems—primarily shifting new hires away from defined-benefit pensions to defined-contribution, 401(k)-style plans that are more sustainable financially and reduce or eliminate the prospect for new unfunded pension liabilities. Otherwise, without structural reforms to unsustainable pension systems, at some future point pensions debts could easily rise again, and taxpayers would have nothing to show for the asset sales/leases.

Who can argue with improving our state capital’s finances not only temporarily with one-time fixes but rather combined with reforms that can only be only achieved through state oversight. It’s time for our Governor to do whats right and avoid a hasty one time fix implemented by a fairly incompetent Mayor flush with new cash to do whatever he wants with it.

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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: GoLocal: Benchmark Poll, October 2017

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Sponsor: GoLocalProv

Sample: N=403

Rhode Island General Election Voters Margin of Error: +/- 4.9% at 95% Confidence Level

Interviewing Period: October 9-11, 2017

Mode: Landline (61%) and Mobile (39%)

Telephone Directed by: John Della Volpe, SocialSphere, Inc.

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Are you registered to vote at this address?

Yes: 100%

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Unaffiliated: 49%

Democrat: 32%

Republican: 15%

Moderate: .4%

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Will you definitely be voting, will you probably be voting, are you 50-50...

Definitely be voting: 78%

Probably be voting: 13%

50-50: 9%

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Right track: 39%

Wrong track: 45%

Mixed: 10%

Don't know/Refused: .6%

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Jobs and economy:  21%

Education: 12%

Taxes: 12%

Roads: 12%

State budget: 9%

Corruption/Public integrity: .8%

Healthcare: 3%

Governor: 3%

Homelessness: 2%

Immigration: 2%

Other: 7%

Don’t know: .9%

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Changed for the better: 35%

Changed for the worse: 16%

Not changed at all: 43%

Don't know/Refused: 5%

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Over the same time, has your family's financial situation improved, gotten worse, or not changed at all?

Changed for the better: 26%

Changed for the worse: 19%

Not changed at all: 54%

Don't know/Refused: 1%

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Net: Approve: 28%

Definitely approve: 15%

Probably approve: 14%

Net: Reject: 67%

Probably reject: 19%

Definitely reject: 48%

Don't know: 4%

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Could you please tell me your age?

18-24: 7%

25-34: 15%

35-44: 15%

45-54: 20%

55-64: 17%

65+: 25%

Don't know/refused: 1%

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0-11: 2%

High school grad: 16%

Technical/Vocational school: 1%

Some college: 23%

College grad: 34%

Graduate degree: 24%

Don't know/refused: 1%

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$50,000 or less: 27%

More $50,000 but less than $75,000: 13%

More $75,000 but less than $100,000: 13%

More $100,000 but less than $150,000: 17%

$150,000 or more: 13%

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American/None: 21%

English: 13%

Italian: 13%

Irish: 12%

Black or African American: 6%

Latino/Hispanic: 6%

French: 6%

Portuguese: 3%

Jewish: 3%

German: 1%

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Excellent: 13%
Good: 12%
Fair: 14%
Poor: 57%
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Cannot rate: 3%

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Excellent: 22%
Good: 29%
Fair: 23%
Poor: 15%
Never heard of: 6%
Cannot rate: 6%

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Excellent: 17%
Good: 22%
Fair: 21%
Poor: 28%
Never heard of: 6%
Cannot rate: 7%

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Excellent: 9%
Good: 29%
Fair: 21%
Poor: 27%
Never heard of: 6%
Cannot rate:  8%

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Excellent: 7%
Good: 30%
Fair: 20%
Poor: 18%
Never heard of: 13%
Cannot rate: 11%

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Excellent: 6%
Good: 28%
Fair: 30%
Poor: 31%
Never heard of: 1%
Cannot rate: 3%

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Would you say that Daniel McKee has done an excellent good, fair or poor job as Lieutenant Governor?


Excellent: 3%
Good: 16%
Fair: 21%
Poor: 8%
Never heard of: 26%
Cannot rate: 25%

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Would you say that Peter Kilmartin has done an excellent good, fair or poor job as Attorney General?


Excellent: 3%
Good: 20%
Fair: 28%
Poor: 17%
Never heard of: 13%
Cannot rate: 19%

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Would you say that Seth Magaziner has done an excellent good, fair or poor job as General Treasurer?

Excellent: 4%
Good: 18%
Fair: 24%
Poor: 13%
Never heard of: 21%
Cannot rate: 21%

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Would you say that Nellie Gorbea has done an excellent good, fair or poor job as Secretary of State?

Excellent: 5%
Good: 21%
Fair: 21%
Poor: 10%
Never heard of: 20%
Cannot rate: 23%

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Would you say that Jorge Elorza has done an excellent good, fair or poor job as Mayor of Providence?

Excellent: 4%
Good: 24%
Fair: 24%
Poor: 22%
Never heard of: 9%
Cannot rate: 15%

 
 

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