Riley: Close, But No Cigar for Providence

Riley: Close, But No Cigar for Providence

Providence has just stunned me by its actions and Mayor Elorza has almost fulfilled a promise to pay contributions to the pension plan in the same fiscal year that he allocated contributions to the pension plan. This is the first time this has happened in at least a decade and probably 20 years. How did he do it? Where did the money come from? So now the assets in the pension plan are real and at year end assets totaled $246 million dollars. An additional $47 million was deposited on July 25.  After the July 25 deposit flash assets are $295 million. The adviser, Wainwright Investment Counsel LLC, has taken the extra step of showing the actual cash flows to and from the fund. The chart below shows the enormous inflow of funds to the plan in the last few weeks of June and July 2016.

 

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I am waiting to see where the money came from and whether the city books will still show a liability to the pension plan. Why has this never happened before? Clearly SOMETHING has happened in city hall and an enormous effort to improve accounting is underway. Perhaps the regulators are already there in Providence. After watching the recent worsening spectacle of 38 studios and the massive abuse of power in Rhode Island government, it wouldn’t surprise me if the State and the Mayor have suppressed news of an investigation into the city. 

New Revenue Director Mr. Robert Hull was on TV this weekend and I got the sense that Mr. Hull  is on the case and that Providence will receive real scrutiny. 

While this appears to be progress, there are still large looming questions about the earnings that should have accrued to pension investors for the last 20 years. There is the very real question of purposely misleading municipal bond investors about the health of the pension plan and the reported level of assets. If those assets were diverted illegally, what is owed to the pension plan? Once these facts are acknowledged, it follows that from 2005 to 2016 Providence mayors and finance directors and other appointed and elected officials have purposely deceived municipal bond investors about the true health of Providence finances. 

I will take credit for the improvements made as virtually no one in oversight seemed to have a clue that money was diverted. The unions were oblivious and the State Auditor Generals as well as the pension Crisis Commission should have caught the wild discrepancies in Providence reporting of pension assets. I first noticed in Fall of 2013. No amount of questioning produced a response until Segal ruling released in Spring 2014 that Providence was falsely overstating pension assets. Providence continues to overstate pension assets to this day adding to years of understated funding ratios that were used to calculate ARC and thus purposely understated the contributions necessary by cash strapped Providence. The result was a constantly deteriorating funded ratio placing beneficiaries and taxpayers in danger of huge costs and take backs.

This is just one more reason to create the Office of Inspector General. Current office holders are not to be trusted. 

Other States have an OIG. Here’s why:

Reasons cited by different states for having an Inspector General include:    

•    maintain public confidence
•     need for entity to prevent fraud
•     created in the wake of a scandal    
•     root out fraud, corruption and inefficiency is state government, and cut down waste of taxpayer money

Rhode Island needs and OIG -- ASAP.

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.