Friday, July 18, 2014

Providence RI vs Stockton CA in bankrupt cage match

net assets
 annual Budget
Unrestricted Governement Net Assets(liabilities)
Current Property taxes

Stockton Ca
$32 Million

Providence RI

Moodys Adjusted  2013
New Unfunded Liability
Pension + Opeb

Pension Funded Ratio


Providence RI


The facts above are meant to Compare Bankrupt Stockton California with  Providence, Rhode Island. Mayor Angel Taveras declared a Category 5 fiscal Hurricane upon taking office in 2010 from Congress man David Cicilline . In 2011 he formed a commission to fix the problem. I n late 2012 he used collective bargaining  that he said was necessary to avoid Bankruptcy.Here is a recent press release as Taveras has repeatedly claimed:

Mayor Taveras' FY2015 Budget Focuses on Key Investments, Lasting Fiscal Stability

 Delivering his Fiscal Year 2015 Budget Address to a packed City Council Chamber, Mayor Angel Taveras this evening outlined his fiscal priorities for the coming year: holding the line on taxes, making key investments in education, public safety, infrastructure, and community resources, and continuing to build lasting financial stability in Rhode Island's capital city.

Mayor Taveras recounted the steps taken to pull the City back from the brink of bankruptcy as his administration worked with the City Council to turn a $110 million structural deficit into an operating surplus last year.
"Many people whispered bankruptcy was unavoidable," Mayor Taveras said. "But we were committed to doing whatever was necessary to save our City from financial ruin, and we got to work. The work of saving Providence from bankruptcy has not been easy - we all know that; we lived through it. It has taken tough choices and shared sacrifice by every stakeholder in our City. To them I say, thank you."

This very misleading view of Providence Fiscal Status can not go unchallenged, just as Mayor Cicillines lies should not have gone unchallenged four years ago. My contention is that Mayor Taveras , David ortiz and Finance Director Mancini have been systematically and purposefully misrepresented the true financial condition of the city of Providence to voters , taxpayers and bondholders. These men should be held accountable and we have laws to take care of this inexcusable fraud on the public by Government Officials.

Municipal Disclosure has become a major focus of the SEC as well it should.Over the last several years  warnings and actual sanctions I have been delivered to Miami , Chicago and others. Recently the SEC gave a final warning that sounds awfully similar to tax amnesty programs.  Here is that May 2014 warning.
The Securities and Exchange Commission urged municipal borrowers and underwriters to voluntarily report violations, allowing them to avoid steeper penalties after an investigation.
The regulator today said it created an enforcement program providing standardized settlements for borrowers and banks that report running afoul of the law. For states and cities, it would let them avoid financial penalties.
“We encourage eligible parties to take advantage of the favorable terms we are offering,” Andrew Ceresney, director of the SEC’s enforcement division, said in the statement. “Those who do not self-report and instead decide to take their chances can expect to face increased sanctions for violations.” 

So Providence Officials should be concerned. They have literally made up an asset of $57 million dollars and claimed it was in the Pension Plan.  They did this in all four years.They signed documents claining accuracy and disclosure. I called them out on this in late 2013. In late January 2014 the Auditor Segal and Co said Providence Pension Asset accounting was not sound and told them to stop. In other words, $57 million dollars that Providence claimed were assets in the Pension Fund simply do not exist. Not only did the officials and the Mayor not react to this , they didnt tell anyone. They did not DISCLOSE to anyone. I did , over and over again and finally in June when they needed to borrow money they issued bonds. But whoops! I read that offering and again no disclosure. Kate Nagle at Go Local wrote a story about the offering and I pointed out they were violating securities disclosure law. Apparently the lawyers thought so also and a last minute addendum to the offering was made disclosing Segal's finding and report to Providence in January. Only then did Providence officials address this in Public with a dizzying display of arrogance and deception. Here is an excerpt from WPRI Ted Nesi report a few weeks back:

'An initial bond document dated June 19 didn’t mention Segal’s concerns, according to a filing with the Municipal Securities Rulemaking Board. Six days later – and following vocal public criticism from Michael Riley, a Narragansett investment manager and one-time congressional candidate – the city filed a revised version of the document with the board that acknowledged the actuary’s concerns.
In response to questions from, Taveras spokesman David Ortiz said the city revised the bond document “to clarify” what its actuary had suggested. He said counting the October pension contribution ahead of time in June “was the city’s practice for many years before Mayor Taveras took office.”
Providence’s controller was unable to say precisely which mayoral administration began the practice of counting an October pension contribution the prior June, Ortiz said. “The controller’s office confirmed that the city has made payments in the fall dating back to at least 2003, and anecdotally we believe that the practice goes back further,” he said.
Ortiz said investors appeared to have no concerns about the pension numbers reported June 25. “The bonds went to market the next day and demand was so high that the city was able to save more than $1.57 million in interest payments,” he said. “This demand and the recent ratings agency reports show that investors know the city is on the right track.” '

Not only has Taveras et al been caught lying about assets he and his associates have been massively deceptive about the Unfunded Liabilities and their liberal/ sleazy use of accounting. That is going away by law  because whether Taveras or any other Official likes it or not Providence follows GASB and GASB 68 goes into effect now. That change alone will cause Providence Unfunded liabilities to sore from the lie of $880 million to over $2 billion dollars. Has that been disclosed ? Do citizens, tax payers and bond holders know this?
   The liabilities will also have to be shown on the balance sheet taking away the off balance sheet slushfund that mayors and unions have used for years to fatten compensation and win elections. Once thios liabilities hit the sheets Providence will get squeezed due to its debt ratios and they will be forced to curtail spending , raise taxes or go into receivership. This has been my warning all along and the liars and deceivers have run out of hiding places. The jig is up and I expect that had alot to do with Taveras pressing the early ejection seat button from the burning plane that is Providence and declaring for Governor where it will take a bit longer  for the state to meltdown.
The table above shows the problems ..Stockton is yet again headed for Bankruptcy but when you compare Providence you can see that it is Providence that is up the creek. Providence property  taxes  ten times Stockton. $350 million versus $32 million. Providence population is about half of Stocktons. You don't need to be a genius to figure that taxes per citizen are 20 times larger in Providence Rhode Island than they are in Bankrupt Stockton California.
    Providence pension and OPEB debt is 2.5 times as large as bankrupt Stockton California, which  again, has half the population of Providence. How could Providence possibly be 2 and a half times more in debt with half the population and while taxing 10 times as much? Good question. One hint would be to look at the cost of services . Public Safety costs are the same in both towns despite Stockton's much larger size. Additionally annual public safety expense does not reflect the cumulative debt and cost of Providence retirement plans and lack of funding.
    After reviewing the Data in the tables and the history of deception by Taveras and Officials its very clear that not only is Providence not fixed , its in Critical Status and this administration is more misleading and deceptive about the financial condition of the city than any other city of its size in my research universe. If the SEC has a "watch list" I guarantee Taveras is on it.

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