Is Providence Cooking the Books Now?
Back in October, Rhode Island’s pension system also got national notice due to a union official, Paul Valletta accusing General Treasurer Raimondo of manufacturing a crisis:
Paul Valletta of the State Association of Firefighters said Raimondo “cooked the books” with actuarial assumptions and conservative market projections that exaggerate the pension system’s problems. He accused her of supporting “draconian” changes to the retirement system to raise her political profile.
“She created this problem and now she’s riding in on a white horse,” Valletta said.
He accused her of creating this problem when she went to the State Retirement Board and successfully got the board to lower the expected rate of return on the pension system from 8.25% to 7.5%. When the rate goes down, the amount of anticipated “free money” from the stock market also goes down, which needs to be replaced by the taxpayers and other cuts.
We know how the state pension discussion ended up, so let’s jump over to Providence. Just one week ago, Providence officials were saying:
The city has defended that 8.5% target, saying it will be able to earn more than the state.
In spite of that defense, Mayor Taveras has been looking at lowering the rate as far back as last summer, and he finally pulled the trigger yesterday, lowering the expected return to 8.25%. This action of course, increased the city’s unfunded liability.
It is interesting to see how Providence expects to outgain the state. From Nesi’s Notes:
Providence invests its pension fund assets more aggressively than the state, according to data provided by Buck. As of Nov. 1, 85% of the city’s pension fund was invested in equities, compared with 64% of the state-run pension fund for municipalities. That exposes the city to more risk but also could win it greater returns.
The city’s fortunes will more rise or fall with the stock market, as it seems the state is in more stable investments like bonds and real estate. As for an explanation on why the city can be more agressive? Maybe the city is younger than the state and has more time until retirement? But seriously, as one who also dabbles in the stock market, I hope the city is right on their bet.
But back to the original point, how long should it take now? 3…2…1…cue Mr. Valletta (or Providence Firefighter Union President Paul Doughty), is Providence now cooking their books too?
Here’s an idea: Legally mandate the expected returns to match some real number MINUS a point.
That way we’re all paying for the policies that our democracy enacted for us, and the ‘surprises’ are when we can ease-up and cut taxes, pay-off a bond early, or stock the rainy-day fund with the excess proceeds.
Mangeek and Patrick – Why do you hate the heroes in our police and fire departments?
“and the ‘surprises’ are when we can ease-up and cut taxes, pay-off a bond early, or stock the rainy-day fund with the excess proceeds.”
… wait, what??? Are you talking fiscal prudence, Mangeek? That’s a foreign language in these parts.