EXCLUSIVE: The Providence Pension Fund Is Cratering - Down 23% This Fiscal Year

EXCLUSIVE: The Providence Pension Fund Is Cratering - Down 23% This Fiscal Year

Providence pension fund documents secured by GoLocalProv show the embattled retirement fund has lost nearly a quarter of its value from July 1, 2021, thru June 16, 2022 this fiscal year.

The final numbers won't be known until later this month.

This is devastating news for city workers, retirees, and taxpayers.

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As of July 1, 2021 -- the start of the fiscal year --  the balance of the Providence pension fund was $410,173,908 — and the pension fund, even at that level, was underfunded by more than 70%.

But in the past 11-and-a-half months, the pension fund balance has decreased by more than 23% and fallen by more than $94 million in value, according to City of Providence documents.

Now, according to pension fund documents, the value of the fund has fallen to $315,775,033.

 

 

Rough Year, But Not This Rough

Pension funds across the country have been hit hard due to the falling stock market, but most have not fallen this much. 

As an example, the largest pension fund in the United States saw a decline, but a far less than the Providence system.

“CalPERS' portfolio fell 4% in the first quarter and was down 10% as of early June from the end of 2021, in line with the broader market volatility since the beginning of the year due in part to rising inflation, CIO Nicole Musicco told the investment committee…” reported Pension & Investment.

 

 

 

4 Years of Growth Wiped Out

The pension fund balance has now fallen to the balance of the fund in the first quarter of  2018 according to a city chart.

Providence Mayor Jorge Elorza -- who has proposed a number of schemes to address the city's unfunded pension liability including multiple efforts to sell the city's water supply -- refused to respond to GoLocal's questions about this most recent decline.

In February of 2021, a series of reports by GoLocal unveiled that the Providence pension fund underperformed in 2020 and one investment in particular adversely impacted the performance of the fund's investments in "alternative investments" -- hedge funds.

That hedge fund, Renaissance Institutional Equities Fund, lost more than 19% in 2020 and in January of 2021, that fund lost another 9.5%, according to Marketwatch.

When GoLocal first reported the impact of Renaissance, Elorza, who then served as the chair of the city’s Board of Investment Commissioners, in a statement from his office said, "The Board of Investment Commissioners actively oversees the Providence Pension Fund's management and will continue to reassess investments in any underperforming funds."

 

Pension Obligation Bonds

Elorza is now trying to move forward and issue pension obligation bonds (POBs) of $515 million.

This type of borrowing is criticized by many fiscal experts -- recently, a new study in Massachusetts called the issuance of POBs a potential fiscal disaster. 

“Virtually every study of POBs finds that timing and duration of the bond issues are critical,” said E.J. McMahon, author of “Rolling the Retirement Dice.” “Bonds floated at the end of a bull market are the most likely to lose money, and that makes this idea a wrong turn at the worst possible time.”

The City of Springfield, MA decided to cancel its issuance of $755 million in POBs due to the financial markets.

On Thursday, the Providence City Council approved a resolution on a vote of 11 to 1 authorizing the city to finance a contribution toward Providence’s unfunded pension liability. 

This was the last step in the authorization process. However, state legislation giving the city approval to borrow does not allow the city to move forward unless they can borrow with an interest rate of 4.9% or lower.

Presently, the borrowing rate is above 6%.