Ted Nesi WPRI was able to speak with city officials who went on to prove that they don't understand pensions or accounting or GASB 68. Had Taveras actually attended any of the Rhode Island Pension Commission meetings he would have received 3 presentations describing the effect on GASB 68 on calculating ARC. Providence will be severely affected adding tens of millions annually Yet Nesi quotes David Ortiz who said the following:
“It is important to note that this does not change the cost of the plan,” he said. The city’s annual required contribution to the pension fund in upcoming years “stays the same and the city continues with the same 26-year amortization schedule to reach fully funded status,” he said.
Ortiz said Segal has told Providence officials that two recent accounting changes made by the Governmental Accounting Standards Board (GASB) – commonly called GASB 67 and GASB 68 – “are not expected to affect the Providence Retirement System’s liability as long as the city continues to make its full annual contributions into the pension fund.”
These statements show that Providence , the mayor , the finance director and the spokesman are incompetent and despite repeated warnings and instructions from the State Auditor General and GASB over the last 4 years, they don't understand this critical issue.
The purpose of GASB 68 was to keep unfunded plans from using high discount rates to understate liabilities. Providence under Cicilline and now Taveras is the poster boy for this. Using an 8.25% discount rate is laughable and dangerous. The town uses it because it understate s liabilities and prevents Providence from coming up with the money necessary to fund the promises they made. The higher the rate the less they have to put up today. Long ago this has been disallowed in the corporate world and some local and state governments have been abusing this loophole and giving the accounting and actuarial businesses a very bad name as manipulators and "discount rates for sale". The Government Accounting Standards Board has sought to change that to more honest accounting. The new rule GASB 68 says" ok if you have been funding your plan and its reasonably funded now then continue to use the discount rate you are using. BUT IF YOUR City IS A SICK PLAN , defined below as less than 80% funded, THEN YOU MUST USE THE CURRENT 20 YEAR AA MUNICIPAL YIELD TO DISCOUNT THAT PORTION OF LIABILITIES THAT ARE NOT FUNDED. (current AA20 yr muni is 3.4%)
Once Providence ,who claims to be funded at 30%, actually makes this calculation they will see their liability shoot up by more than $1 Billion dollars( with a B). Their ARC will explode and their budget will melt down.
GASB 68 is not new news
This has been knowable for years and Providence and Revenue Director Gallogly have tacitly allowed Providence and all the other towns to ignore it. After reading the comments of Ortiz in Ted Nesi 's column it should be apparent to everyone in the regulatory world including the Securities Exchange Commission and Government Accounting Standards Board that the entire Angel Taveras administration doesn't understand their pension accounting and that they have been misleading everyone. They have purposely lowballed liabilities,illegally inflated assets and mislead voters , pension recipients and current bondholders regarding the financial condition of the city of Providence.
I am not alone in the believing that this behavior amounts to fraud and could be subject to civil and criminal charges.For Providence's officials edification heres is what GASB 68 is and what its attempting to accomplish. Readers and regulators can compare this to Providence actions and Taveras/Ortiz words.
Remember Providence claims to adhere to GASB standards as do almost all localities in the United States.
This following Statement is from Braver PC the Auditor and appears in Providence Comprehensive Annual Report as permanent and accurate record as of June 30 ,2013 submitted Dec 31,2013.
"Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, budgetary comparison information, and Schedules of Funding Progress on Pages 3-ll, Pages 56-62 and Page63, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational economic, or historical context."
So the Auditor and city are Following GASB which is normal but not GASB 68?
GASB 68 Calculation for Providence ( Taveras/Ortiz) estimates no effect
here is my estimate...we only differ by One Billion Dollars !!!!
and this guy wants to be Governor?
Example 3 Providence Rhode Island
( 30% funded *8.25% ) + (70% unfunded * 3.4%) = 4.85%
Adjusting Providence to GASB 68 and subtracting $60 million from assets for accounting lie produces an unfunded liability of $ 1.813 billion . $ 1 billion more than is currently reported.
From a 2012 report GASB 68 instructions for all Town Fiduciaries
With the recent vote, GASB has taken steps to reduce pension
risk to state and local governments by creating new
standards to limit the actuarial assumptions plan administrators
can use to discount unfunded liabilities. Specifically,
state and local pension managers will be expected to use
a riskless discount rate for pension liabilities that are unfunded
or promised benefits that have no assets set aside
to cover the costs.
"When a pension plan’s accrued actuarial liability (liabilities)
exceeds the actuarial valuation of assets, the plan
is said to have an unfunded actuarial accrued liability
(UAAL) or unfunded liabilities. Th e ratio of assets to
liabilities is depicted as a pension plan’s funding ratio,
which indicates the level of funds available for paying
accrued benefits. The benchmark for many state and PROVIDENCE goes from
31% funded to 13% local plans is to maintain an 80 percent funding ratio or
sufficient assets to cover 80 percent of accrued liabilities."