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Michael Riley: Is the RI Pension Commission Making Up Numbers?

Tuesday, January 28, 2014

 

Michael Riley is calling the pension commission's bluff on their report numbers.

The RI commission that was formed as a result of the 2011 Rhode Island pension reform was designed to address the pension issues of the cities and towns who were left out of state reform. Recently questions have been raised as to the veracity of the numbers used by and produced by both the commission and the town of West Warwick.

On June 13, 2013, state revenue director Rosemary Booth Gallogly’s commission produced a report on all those cities and towns that were deemed “critical status”, which is under 60% funded. West Warwick was 23% funded, but West Warwick was portrayed as having a 2013 UAAL of $75,000,000 and moving to 69% funded by 2033. Nothing could be further from the truth. There has not been a FIP voted on by the town or submitted to the state. Not only has West Warwick not done a single thing to reduce its liability, but the formerly critical Ms. Gallogly now acts as cheerleader for the town, recently commenting to the Providence Journal that “They’ve [the town] been very successful in getting everyone to the table, and I think they understand the magnitude of the problem.” Really? That is quite a shift from May 2012 when she compared West Warwick to Central Falls and the Titanic.

So here is what has happened since Commissioner Gallogly’s Titanic speech in May 2012.

Where did the June 2013 Commission report number come from? At that point, the town hadn’t yet voted on an option or even met to discuss the options with all the parties involved. There had been zero negotiation in 2 years; despite knowing for at least 5 years, bankruptcy was growing more likely. It is no longer likely, it is impending, and the sooner West Warwick moves into receivership, the better.

There is no chance the newly formed team of a town planner-turned-town manager/Budget Director will make the tough cuts necessary or fund the ARC. In addition, appointing a dismissed Providence (also near receivership) financial official as Finance Director is cosmetic but necessary, because West Warwick doesn’t even speak the same language as the State Revenue Commission.

Honesty the best policy?

Still, it’s very odd that the commission used such misleading numbers in June. Where did those numbers come from? What is the point of making up numbers? This commission is in real danger of losing power. They have clearly signaled that they are ready to move on to OPEB—which in many cases is an even higher liability than pensions—yet the job is unfinished on pension reform. The commission is very concerned about the OPEB, because in many towns it is worse than the pension crisis.

Unfunded health care obligations totaled $107,000,000 in West Warwick as of the June 2012 CAFR. The OPEB liability alone is $8,600 per household. Combine that with Moody ‘s estimate of pension liability per household of $20,161 and $29,761 dollars are required per household…and that is just to get West Warwick back on schedule. In no way would this eliminate all the problems. Costs would still have to be controlled and financial markets would need to continue their positive trend. It should concern everyone that since April 2009, the stock market has more than doubled and the assets in the pension plan on June 30, 2009 were $31 million and today they are only $26.5 million.

If taxpayers alone were asked to fund West Warwick’s liability back to just the insufficient and phony numbers submitted by the Commission in June 2013, it would be a supplemental tax of $75 to $100 million. That supplemental tax will be $8,064 per household, and that’s not even touching OPEB.

West Warwick residents should ask themselves if that’s fair. Do they still want public employees on defined pension plans managed by the town? Ms.Gallogly should ask herself if grandstanding and spinning is her job or if fixing a crisis is what we need from her.

 

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:
The 15 Costliest Government Programs in RI

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#15 Non-Highway Transport

Category: Transportation

Cost Per $1,000 of Income: $4.87

National Rank: 4

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#14 Community Development

Category: Environment and Housing

Cost Per $1,000 of Income: $4.97

National Rank: 12

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#13 Sewage & Solid Waste

Category: Environment and Housing

Cost Per $1,000 of Income: $5.09

National Rank: 36

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#12 Health & Hospitals

Category: Social Services

Cost Per $1,000 of Income: $5.40

National Rank: 49

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#11 Other Ed. & Libraries

Category: Education

Cost Per $1,000 of Income: $6.00

National Rank: 12

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#10 Fire

Category: Public Safety

Cost Per $1,000 of Income: $6.50

National Rank: 2

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#9 Highways

Category: Transportation

Cost Per $1,000 of Income: $7.66

National Rank: 48

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#8 Police

Category: Public Safety

Cost Per $1,000 of Income: $7.87

National Rank: 13

Prev Next

#7 Utilities

Category: Utilities and Liquor Stores

Cost Per $1,000 of Income: $9.25

National Rank: 40

Note: Utilities are not considered to be "direct general expenditures." Instead utilities are categorized as "other direct expenditures." The category is a U.S. Census Bureau term. Unlike some states, Rhode Island does not have state-run liquor stores.

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#6 Gov't. Administration

Category: Administration and Debt Interest

Cost Per $1,000 of Income: $11.05

National Rank: 16

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#5 Interest on Debt

Category: Administration and Debt Interest

Cost Per $1,000 of Income: $12.13

National Rank: 3

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#4 Higher Education

Category: Education

Cost Per $1,000 of Income: $13.59

National Rank: 45

Prev Next

#3 Pensions and Other

Category: Insurance Trust

Cost Per $1,000 of Income: $39.62

National Rank: 4

Note: Other than pensions this area of spending includes unemployment security, disability insurance, and workers compensation. Together, these expenses are categorized U.S. Census Bureau as "insurance trust."

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#2 Public Welfare

Category: Social Services

Cost Per $1,000 of Income: $46.90

National Rank: 7

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#1 Elementary and Sec. Ed

Category: Education

Cost Per $1,000 of Income: $48.59

National Rank: 15

 
 

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Comments:

Jonathan Bainsworth

Mr. Riley conveniently leaves out one important fact in his analysis. Taxpayers are voters. Politicians don't just waltz into office and start negotiating bad pensions deals....they're voted in by people such as yourself Mr. Riley. It's called democracy. Whatever decisions they make are representative of the will of the majority. Once they establish a contract they have an obligation to abide by it just like any other financial transaction. Mr. Riley I would ask how long your business would last if everyone involved relinquished their contractual obligations. If you don't like the way your representatives negotiate pension contracts...vote them out! Otherwise, pay your taxes or have your city or town file bankruptcy.

Sean Patrick

Great, just what we need. The arrogant, drunk "Don't you know who I am?" Michael Riley who blamed his ridiculous behavior on the claim that he witnessed 9/11. Way to take responsibility for your actions! All his claims were deemed mostly false on Politifact.com. as well. This obnoxious jerk goes from running for Congress to being a "Guest Mindsetter" and responding to reader's comments on Projo.com. Oh how the mighty have fallen. Please do us a favor and just disappear.

Redd Ratt

Sean, It is inaccurate that all of his claims were deemed "mostly false" on politifact. Are you a liar or just wrong?

Jonathan, your right politicians are elected by taxpayers. We get what we deserve.

lupe fiasco

Well said Sean Paul. Some people just do not know when to go away.

michael riley

I think these proven facts on Town Pensions and the causes may have touched a nerve....what we need in Rhode Island is fixes not the "usual suspects of vacuous insults". I invite the merry band of "do nothings" to actually propose solutions. Your insults are tiresome, unimaginative and unproductive. How do you propose we fix this very important problem or do you just not care?

For everyone else I invite proposals to help address this very serious issue.

michael riley

Both Redd and Jonathan are hitting a very important point, we elected the politicians who made and CONTINUE to make promises we cant pay for. Thats why my solutions propose taxpayers take a substantial hit.

Redd Ratt

Michael, I can proudly say I didn't elect any of the morons on Smith Hill or in D.C. All of my candidates lost.

Stephen DeNinno

Michael and others. What are we saying...We cannot afford anything? Remember Providence never had to match Social Security for police or fire. Did they at least match our pension payments? No they did not. I was a big proponent of making the city pay SS. If Providence goes BR, What would I live on? I don't understand this BS. I talked to a financial advisor the other day. He stated if I saved 10% of my income, from the time I started working, I would be financially secure in retirement. Well the city took 10% of my income from the time I started working and guess what? They will probably file Chapter 9 in the next 10 years and I will be on welfare. Is that financial advisor wrong? Did the city do their due diligence and pay their share? No. Now us and only us are paying for the sins of the past. The justice department should be in here investigating every time the politicians failed to pay. They should have their freedom, like my freedom to live a normal life is going to be taken away. I say jail the politicians that underfunded the system.

Redd Ratt

Stephen, I agree. Ridiculous that the government forces all private employees and employers into social security but not itself or its employees. Its also ridiculous that we haven't moved out of defined benefit plans. All new hires should be in social security and defined contribution pensions and the cities should not be allowed to not fund them.

Stephen DeNinno

Redd, it will never happen. The cities and state for that matter, have been using the pension fund as a slush fund. This is why I opted out of the Providence settlement. As soon as it was approved, Taveras stole 20 million out to balance the budget. He can't do that with SS. By the way, there are several cities and states that went to 401Ks, they found them more expensive to manage then defined benefit pensions.

michael riley

see my blog for case study on public vs private West warwick

http://rishrugs.blogspot.com/2014/01/case-study-of-west-warwick-pvt-vs.html




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