Michael Riley: Alerting Treasurers, Governors: Providence Pension Fund Collapsing
Michael G. Riley, GoLocalProv MINDSETTER™
Michael Riley: Alerting Treasurers, Governors: Providence Pension Fund Collapsing
This drop of between 6% and 10 % in 6 weeks is very dangerous for the pension fund (roughly $280 million) and a lesson in why many consider the current risk in Taveras pension Portfolio as ridiculously high. Especially when compared to the funded ratio of the pension plan which I estimate at between 11% and 17%. The real funds in the plan likely lost between $13 and $25 million dollars over the last 6 weeks at the same time liabilities marched relentlessly forward. Providence has not hedged as opposed to the admittedly expensive Hedge Fund Investments by Raimondo designed to hedge against bad markets. Hedge fund strategies differ widely and Providence loaded up on a risky hedge fund and has been badly lagging the market for a year now and is down for 2014. The State has absolute return and stable value or “market neutral” hedge fund exposure so the portfolio is much less risky than Taveras portfolio.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe relevant point here is that Rhode Island s economic health depends almost entirely on Providence’s financial health. Taveras has failed miserably in Pension plan health yet the Mayoral Candidates dance around the subject. The candidates for Treasurer, Almonte and Magaziner avoid the precarious situation in Providence as well. We will need a Treasurer and a Governor who is focused on the importance of Providence future and its potential impact on state taxpayers and state budgeting. Raimondo knows full well how important and poorly managed Providence and its Pension system is yet she does not discuss it. Almonte also knows how poorly constructed the portfolio is and should challenge Magaziner and Raimondo to produce a plan in the event of Bankruptcy. If the markets dropped another 10 % Providence will be forced to start liquidating positions in the portfolio to pay for benefits and will severely damage long term chances for solvency.
Maybe some agree with Taveras and want to play stock market and gamble with public retirements using taxpayer money. Many believe it doesn’t matter how the fund performs because the City still owes the retirees what they “promised”. Others say, this collapse in equities can bankrupt the city and thanks to the generally assembly law passed in 2011, bondholders are guaranteed first lien on tax revenue and will be paid off. This will leave taxpayers and retirees to figure out how to come up with $3 billion in liability. Taxes yes but again thanks to the assembly 75% of the liability will be assumed by the State. That means we will all pay for Providence mismanagement big time.
The reality is we are all exposed, everyone in Rhode Island, to the horrible decisions and lack of funding and increased spending of the Taveras and Cicilline administrations. Now they are gambling and if the market goes up, they win and if it goes down the state taxpayer loses. This is a politicians dream and there is no doubt Buddy will add to risk by issuing pension bonds as he has attempted before. Does everyone in the State realize who will actually be bearing that risk? It’s the rest of the state not just Providence.
5 Ways Taveras Could Have Grown Jobs in Providence
Enforce First Source
1) Failure to Enforce First Source
DARE recently filed a lawsuit asking the court to appoint a moderator so that the Taveras administration would comply with the law that states that companies that get funding or special deals from the City of Providence make a best effort to employ people from the City.
A GoLocal investigation found the program is in chaos -- companies ignore the requirement (or claim that they they did not know about it). Worse yet, the City never enforced it.
Jobs Lost: 1,100 estimated
PEDP Reform
2) Providence Economic Development Partnership
All the problems with PEDP began before Taveras took office, but the "reforms" did little to improve the performance of the federally investigated and federally fined City agency. As GoLocal's Kate Nagle reported last October - three years into Taveras' administration:
"The Providence Economic Development Partnership (PEDP), which came under a federal investigation following a series of GoLocalProv reports, is still facing $2.8 million in loans past due according to documents secured by GoLocalProv through an access to public records request.
According to documents provided by the city to GoLocal, of 136 current loans with a total principle balance of $16.5 million, more than one-third -- 48 in total -- are more than 121 days past due.
The PEDP had voted to write off $2.1 million on loan debt in June 2012, but financial problems continue to persist as the city -- and its federal oversight agency -- determine how to proceed."
Jobs Lost: If the $2.8 million was collected and loaned, an estimated 80 to 120 additional jobs would have been created.
Port of Providence
3) Port Financing Delayed
The Port of Providence/ProvPort received a $20 million federal grant to add cranes and barges to the Port. The application was submitted by ProvPort in conjunction with the Cicilline Administration. The U.S. DOT awarded the grant to the City at the end of the Cicilline administration, but the Taveras administration dragged their feet and delayed the project until the State had to step in and take over the project.
The project was one year delayed and the barges are still not on site four years later.
Jobs Lost: 400 estimated
Prov Police
4) Providence Police
May be one of the biggest mistakes of the Taveras administration was his devastating cuts to the Police Department and the impact has not only been the number of police jobs, but the impact to police response and enforcement.
As GoLocal's Stephen Beale reported in 2012:
As of last week, the number of sworn officers stood at 428. A year and a half ago it was 494.
Joe Rodio, chief legal counsel for the police union, warns the city does not have enough officers. “The rank and file feel the strain because there’s not enough officers on the street,” Rodio said. “We’re feeling the hit from the number of people on the job.”
The numbers of sworn staff peaked at just over 500 during the Dean Esserman era. But during the 1990s the department functioned with a smaller complement, generally hovering around 440 officers. That makes the current force level the lowest it has been in two decades.
“It’s fair to say the numbers are the numbers. The staffing is at the lowest it has been in years,” said Chief Hugh Clements. “I would agree we need to start beefing up our numbers again.”
Jobs Lost: 80-95 Police Officers
(note: Taveras finally started a police academy class in May of 2014)
Downcity Vacancies
5) Businesses in Downcity
Providence now suffers from the 4th highest commercial real estate tax rate in the U.S. - a minimal improvement oover the last ranking. This is a fact not lost of businesses looking to locate in downtown. Providence is a long way from a city that was the HQ to Fleet Bank, Amica Insurance, Citizens Bank and hosts of others.
The Superman building is just one of the under-utilized office spaces downtown. According to CBRE's New England Report, "Overall, there was 81,000 of square feet of negative absorption, but 59,000 square feet this came from the vacancy at One Weybosset (Superman)."
Jobs Missed: 89,000 square feet of leased office space would deliver 445 jobs.
(Average manager position requires 150 office sq. ft., plus 50 feet common space)
