Wednesday, February 26, 2014

Mayor Taveras Magic Pension Math

                                                    Should Providence be investigated ?

        On August 13 , 2013 Ted Nesi trumpeted Providence pension plan returns had been 13.4% in Providence for the year ending June 30.and then described the plan as having $247 million in assets. Yet Providence own actuary showed  assets  $383,881,000 down materially  from  $422,800,000 the previous year.Welcome to the strange world of "Providence accounting"  reinforced by a reporter lacking in proper inquisition, fact checking  and void of analysis . 
           Mr Nesi then dutifully posted the Chart below showing Providence's  positive returns over various periods of time. This ,nearly useless chart, is in direct conflict with the numbers I have looked at and highlighted below in yellow as "extremely misleading accounting".

                                        Riddle -me -this-Mr. Mayor

             How did the city of Providence pension assets go from $427 million dollars, when Taveras arrived on the scene, to only $ 380 million today if they had a  positive return on assets?  Taveras and Nesi show 7% annual returns over the last 5 years. Hmmmm. First ,considering the stock market had risen over 100% during the same period , that's not a very good performance even if was true. Second , and more importantly  how did they manage to lose $47 million in assets  and simultaneously claim a 7% annual  gain on investments? Again welcome to "Enron style" accounting produced by providence and backed up by Taveras buddies in the press.

here's a replay and  link to NESI's shoddy reporting in 2013

Taveras’s 13.4% pension return beats Raimondo’s 11.1%

*      August 13th, 2013 at 2:48 pm by Ted Nesi under Nesi's NotesOn the Main Site

Providence is significantly outpacing the state of Rhode Island in the battle of the pension plans.
Providence’s $247-million pension fund, the second-largest in Rhode Island, earned a return of 13.4% during the 12 months ended June 30 – more than two percentage points better than the 11.1% earned by the $7.55-billion state fund over the same period, according to data obtained from the city by

So lets look at those assets over the last 5 years according to Providence ‘s own reports by their own self selected actuary.

Year end june 30,2009    Pension plan  assets     $405,217,000   cafr 6-30-09 pg49
Year end june 30,2010    Pension plan  assets     $427,891,000   cafr 6-30-10 actuary report  pg 9
Year end june 30,2011    Pension plan  assets     $422,800,000   Buck exp rpt 6-30-11 pg 6
Year end june 30,2012    Pension plan  assets     $383,881,000   cafr 6-30-13 pg50

Year end June 30,2013    Pension plan  assets     $380,484,000   cafr 6-30-13 pg50

 I have also repeatedly  stated that Mr Taveras has been warned against this type of accounting since 2011. Moodys has said Providence discount rate is too high and asset smoothing will not be tolerated., instead Moody's will use the Market Value of Assets.

next blog we will discuss the recent warning by Providence Actuary that backs up my claim that Providence pumped up assets to appear better funded by approximately $57 million dollars.

Tuesday, February 11, 2014

Rileys Pension Rating System

                                                Is your Town using questionable accounting?

     As mentioned in My Go Local articles. I have developed a new rating system that can make apples to apples comparisons of every town in Rhode Island. One of the reasons for doing this is that actuaries are not impartial they are hired by the same town officials who have often made questionable funding and investing decisions. This conflict is exactly like the one where wall Street hired rating agencies to look at their Bundled sub-prime loans and CDO’s. There has been significant leeway given to auditors and actuaries regarding Government Pension Accounting. The rules tightened dramatically a decade ago in the private sector and now GASB is doing the same for Public pension Accounting. Providence auditor disclosed just a few weeks ago that Providence can no longer overstate its assets by  discounting next years contributions and adding it to assets. DUH. Providence will also end asset smoothing as will ever one in the US after this JUNE . Town finance officials have known this was coming for years yet chose to ignore it and overstate its assets. I estimate Mayor Taveras and the council overstated Pension assets by $120 million in 2011 and 2012.This overstatement was nearly as much as the “savings” derived from the courageous negotiated decision to end 6% colas.(sarcasm)
        Mayor Taveras sits on the Municipal Pension Study Commission. Another Mayor on the commission is Joe Polisena who describes himself as a “proponent of pension reform” but like so many others in this State he wants someone else to do it. He’s been Mayor since 2006 ,has been deeply underfunded the entire time and when we look at compensation in Johnston public safety we find it way out of line with firefighters making an average of $97,000 why should he blame Carcieri or the state. He should clean up his own house.
                                                             Let’s Compare

        Not only have I already created a recognized report and template for analyzing Providence by utilizing Stanford GSB metrics, but I have conformed all my findings to the criteria Moody’s will be choosing to rate municipal debt. I am using this template for every town. Rhode Island officials have been notified by Moody’s that the ratings agency has doubled their emphasis on pension under funding and established a variable discount rate assumption ranging from 3% to 6%—not a ridiculously high 8.25% like Providence uses, or 8% for West Warwick and Fireman Doughty, or SEIU 9%, or even the 7.5% the state uses. Every town will be adjusted to Moody’s 6%. Additionally no more “smoothing assets” like Providence has done. All town officials should know the market value of plan assets at all times. Many other cities have violated this obvious GASB change as well and the accounting profession is banning this practice of smoothing.

If the RI Municipal Pension Study Commission were actually fulfilling its function, we would know all the industry changes and acceptable accounting. Cities would be warned to comply. Instead, it’s become another commission boondoggle covering up pension disasters like Johnston, West Warwick, and Coventry. I thought the Pension Commission's main purpose was to shed light on the condition of RI towns.

    Government Plan DEBT
 uaal per household
Uaal/per capita           
    Pension       UAAL %      payroll     Funded         ratio
TEAM PROVIDENCE* $ 19,716  $ 7,583 998 %    21%
Detroit (GRS) $   3,312  $ 1,274 299 %       70 %
NYC (NYCERS) $   6,324  $ 2,433 167 %       68 %
San Jose FCERS municipal $   3,194  $ 1,229 520 %       58 %
Wisconsin State Pension System $   2,329  $   896      
      94 %
North Carolina teachers and state  $  1,441  $  554 42%       91 %
massachussets retirement system(MTRS) $  5,708  $ 2,196

        254 %        
      61 %
riley/moodys   Johnston RI $13,106  $ 5,041    1606 %       21%
MEDIAN US TOP 25 CITY Morningstar Nov 2013 $  4,045  $ 1,556          n/a       76 %
Little Rock,Ark $  1,940  $   746            51 %           45 %
riley/moodys COVENTRY RI  $10,350  $ 3,981 992 %       
      14 %

Philadelphia,Pa $  8,537  $ 3,284         297 %        48 %

West Warwick RI $11,217  $ 4,314 830 %       19 %
CENTRAL FALLS prior to Chapter 9  $ 6,422  $ 2,470 838 %       22 %

Narragansett  town plan  $ 6,698.88  $ 2,576

Rhode Island Cities and towns in real distress ..way beyond the rest of the Country.

So our new system will have the following rankings

Good -           Finances of pension plan are stable and sustainable
Fair -              Stable pension system but concerns exist
Serious-         Unstable and under 65% funded( using Moody's criteria)
Critical-         Particularly unstable in danger of becoming terminal (under 50% funded)
Terminal         Receivership/Bankruptcy  Necessary w/in 12 mos( no plan > 50% funded in 10 years)