1. Now that we know both Gina Raimondo and Angel Taveras have hedge funds managing big chunks of Rhode Island’s biggest and second-biggest public pensions, it’s likely citizens and other policymakers will want to take a closer look at their investing strategies. (Taveras aides emphasize that, unlike Raimondo, the mayor didn’t actively move money into hedge funds – he just left it there after taking office.) The treasurer has defended her use of hedge funds as a way to, well, hedge – to invest in assets that won’t move in lockstep with the stock market à la 2008. Yet while publicly traded stocks have rebounded smartly since the recession, The Economist reports that hedge funds are “going nowhere fast.” An index fund with 60% equities and 40% bonds would have returned more than 90% over the past decade; hedge funds returned only 17% after fees. Raimondo doesn’t dispute this, saying that she and the State Investment Commission have made a strategic choice to accept lower returns in order to minimize losses. Still, government pension funds are the ultimate long-term investors: should they have piled into public equities when they were cheap in 2008-09 rather than run away from them – particularly for systems whose funding levels are only 59% (Rhode Island) and 36% (Providence)? Without big investment gains, taxpayers and retirees will be left to fill those sizable shortfalls. Josh Barro, though, says Raimondo has this right: “Higher equity rates of return are purely compensation for risk, and downside risk would be born by RI taxpayers. … Hedge funds might be bad for other reasons, e.g., they charge too many fees. But she’s right not to chase returns by adding risk.”
2. With private-sector labor in a seemingly unstoppable decline, there’s been some interesting discussion on the left lately about alternative ways of organizing workers outside of traditional unions. Josh Eidelson tackled the question in The American Prospect earlier this year, and this week The Washington Post’s Harold Meyerson weighed in. Some of the ideas sound reminiscent of Fuerza Laboral, the Central Falls-based group that helps low-paid workers fight employer exploitation. Josie Shagwert, Fuerza’s former executive director, explained its work on Executive Suite last Labor Day.
Providence has topped a set of national rankings, and Mayor Angel Taveras probably isn’t happy about it.
Taxpayers in Rhode Island’s capital city paid the highest commercial property taxes charged in any of the nation’s 53 biggest cities in 2011, according to the latest edition of a widely cited comparative study by the Lincoln Institute of Land Policy and the Minnesota Taxpayers Association.
The previous edition of the study listed Providence as having the second-highest commercial property taxes among big cities, behind only Detroit – a statistic that’s been widely referenced locally ever since Governor Chafee cited it on Newsmakers and then had his research confirmed by PolitiFact.
But the tax burden on commercial property in Providence grew even heavier in 2011, when Rhode Island’s cash-strapped capital slapped a tax bill of $4,975 on commercial property worth $100,000 – $69 more than second-ranked Des Moines and $75 more than third-ranked Detroit. Here’s a chart:
Taveras has proposed freezing the commercial tax rate for seven years – apparently at what has been the highest level in any major U.S. city, according to this study. Even that may not happen: City Council members have expressed skepticism about the proposal, suggesting they may raise commercial taxes even more.
The study said Providence also charged the fifth-most on apartment buildings among the 53 big cities in 2011, with a tax of $21,765 on a $600,000 property, behind Des Moines, Detroit, New York City and Buffalo. In addition, Providence ranked 11th-highest for homestead property taxes on the median-value home and 9th- and 10th-highest for industrial property taxes on machinery, equipment, inventories and fixtures.
The latest edition of the study was cited Friday on Twitter by Gary Sasse. “Rhode Island’s economic health is linked to more competitive business taxes in the Capital City,” he commented (in abbreviated tweet form). Not coincidentally, the owner of the now-vacant Superman building wants a tax break to redevelop it.
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – R.I. Gov. Lincoln Chafee on Thursday sided with former campaign rival and Moderate Party Chairman Ken Block after Block ripped House Speaker Gordon Fox’s plan to restructure the state’s troubled Economic Development Corporation.
By Dan McGowan and Tim White
PROVIDENCE, R.I. (WPRI) - Several Rhode Island school administrators spent thousands of taxpayer dollars on a trip to China, dining at high-end steakhouses and an in-state overnight staff retreat in 2012, according to a Target 12 review of school district travel data.
Philip Elliott reports for the AP:
[A] collection of Democratic lawmakers on Thursday renewed their push to keep rates low but also backed interest rates that were based on the markets. Their plan would base rates on a 91-day Treasury bill and allow the Education Department to add to that to pay for the administration of loan programs.
“The student loan interest rate offered by the government shouldn’t be needlessly high, it should be based on actual costs,” Sen. Jack Reed, D-R.I., said in introducing the plan.
The versions from both parties include a proposal that was central to Obama’s budget: interest rates would shift based on financial markets. …
Basing student loans on 10-year Treasury notes’ rates would, at least for now, offer a deal to some students. … That’s not to say, however, the rates would be a good deal forever. If Treasury increases its rates, students’ loan rates would rise, too.
For context, under the current system Congress sets the actual numerical interest rate on student loans – that’s why the rate is currently set by law at 3.8% and is (again) scheduled to rise to 6.8% on July 1. (Hence the growing focus on the issue at the moment.)
Reed’s bill would have Congress stop setting the rate by statute and start basing it on market movements instead, as outlined above. However – unlike similar proposals from President Obama and House Republicans – Reed’s bill would set a maximum cap on rates: 6.8% for subsidized loans and 8.25% for unsubsidized loans. It would also allow students to refinance their loans at a lower rate.
Why the cap? According to Reed, it’s necessary because someday interest rates will return to a higher level.
Reed’s staff says college graduates in the Class of 2007 would have paid almost 8% and the Class of 1981 would have paid almost 17% if the House GOP proposal had been law at the time. Using CBO economic forecasts, they project rates will be back above 8% by 2018 under the Obama/GOP proposals.
The White House and Republicans argue Reed’s proposal could raise costs for borrowers or force other taxpayers to subsidize student loans. “In order to have a cap, we would have to charge students more in order to hedge against the possibility that rates would go up to unmanageable levels in the future,” an administration official told reporters April 10.
While a capped market rate is Reed’s vision for a permanent fix on student loans, in the meantime he’s introduced a bill to freeze current rates for two more years while Congress comes up with a long-term resolution. “Some who claim it is important to avoid burdening our children and grandchildren with national debt are all too willing to bury these young people in student debt,” Reed said in a statement Thursday.
Reed isn’t the only local senator arguing for a fresh approach to student loans. Massachusetts’ Elizabeth Warren on Wednesday introduced a bill to let students borrow at the same rate that big banks get from the Federal Reserve’s discount window.
(photo: Manuel Balce Caneta/AP)
By Dan McGowan and Tim White
PROVIDENCE, R.I. (WPRI) – Nearly two years after Providence closed several public schools, the city is still paying hundreds of thousands of dollars to keep the lights and heat running in the empty buildings, WPRI.com has learned.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – President Obama, Congressman David Cicilline and other Democrats were propelled to victory last November by a surge in voting by Hispanic and black Rhode Islanders as well as a sharp drop in participation among white citizens, a WPRI.com analysis of new Census data shows.
Providence has invested 19.75% of its total pension assets in hedge funds, the Taveras administration disclosed Tuesday after WPRI.com requested a breakdown of its investment portfolio.
Rhode Island’s state pension system has invested somewhat less in hedge funds – 14.6% of assets as of April – under a new investment strategy implemented by Treasurer Gina Raimondo soon after she took office in 2011.
Providence’s Board of Investment Commissioners, which is chaired by the mayor and oversees the city’s pension portfolio, started investing in hedge funds on the advice of its longtime financial consultant, Boston-based Wainwright Investment Counsel, Taveras spokesman David Ortiz told WPRI.com. The investment board meets roughly once a month.
Three of the four members of Rhode Island’s all-Democratic congressional delegation will take aim Wednesday at someone who’s an unusual target for them: President Obama.
U.S. Sen. Jack Reed, U.S. Sen. Sheldon Whitehouse and Congressman David Cicilline are among the eight members of Congress co-hosting a summit on Capitol Hill to criticize a proposal in Obama’s latest budget that would trim Social Security benefits by switching to a measure of inflation known as “chained CPI.”
Rhode Island’s entire delegation slammed the policy when it emerged, and Cicilline has garnered national attention for introducing a resolution that would have Congress express formal disapproval of chained CPI. U.S. Sens. Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont are also among the summit’s hosts, giving it a decidedly New England flavor.
There were 207,122 Rhode Island residents receiving Social Security benefits in December 2011, the most recent month for which figures are available – meaning nearly 20% of state residents are on Social Security. Two-thirds of Rhode Island’s beneficiaries were 65 or older, while 35,905 were disabled and 15,704 were children. The Rhode Islanders’ combined Social Security benefits totaled $236 million that month.
The congressional event at 12:30 p.m. will be streamed live online by Strengthen Social Security, a coalition of unions and progressive groups that supports increasing benefits.
• Related: RI congressional delegation slams Obama over Social Security (April 10)
The investment performance of Rhode Island’s pension fund is lagging behind its peers under the new mix of assets adopted by Treasurer Gina Raimondo and the State Investment Commission that relies more heavily on hedge funds, data released Tuesday suggests.
Rhode Island’s $7.7 billion pension fund earned 9.81% during the 12 months ended March 31, according to Bank of New York Mellon Corp., its custodial bank. By comparison, the median public-sector plan with assets of at least $5 billion earned 10.5% over the same period, Wilshire Associates Inc. reported Tuesday.
Raimondo has acknowledged her new investment strategy, approved unanimously by the investment commission in 2011, could reduce the state’s investment return somewhat, but argues it will benefit the state in the long run by reducing risk and volatility.
“The improvements made by the State Investment Commission to the investment portfolio were designed to deliver strong, long-term returns, while reducing risk to provide a secure retirement for public employees and retirees,” Raimondo spokeswoman Joy Fox told WPRI.com. “The SIC’s strategies should be evaluated against long-term returns, not against any particular immediate snapshot.”
Rhode Island’s pension investments also grew more slowly over the three years and five years ended March 31 compared with the median plan of at least $5 billion, according to Wilshire and BNY Mellon. However, Rhode Island’s return over the 10-year period ended March 31 was 8.78%, better than the median plan’s 8.59%. Rhode Island’s plan also beat the internal benchmark it uses for comparison purposes:
The median plan’s performance published by Santa Monica-based Wilshire comes from its Wilshire Trust Universe Comparison Service, which tracks more than 1,700 public and private investment plans that control more than $3.4 trillion in assets. A Wilshire spokeswoman declined to disclose how many of those are public plans with at least $5 billion worth of assets.
• Related: Raimondo puts 14% in hedge funds, 10 times US median (April 29)
The NYT taped an interview with Senator Reed to gauge his thoughts on the conflict in Syria. He’s cautious:
I think we really have to carefully look at the situation. The Israeli attacks [in Syria last weekend] were prompted more in terms of disrupting the flow of military equipment to Hezbollah, and not so much involvement in the political and military activities within Syria of the opposition.
I think, one, we want to with the regional partners look at what we can do to aid the opposition to be effective, inclusive, and to as quickly as possible try to force the Assad government out. They have been attacking their own people and they’ve been destroying their country, literally, so we want that. But the precise military steps, I think, have to be carefully calibrated.
Senator Whitehouse actually sounded more hawkish about Syria than Reed after a trip there in January, when he told me: “This is a chance for us to be the great power that comes to the relief of Syria so that 100 years from now we’re still remembered as the country that helped them get their freedom.”
• Related: Levin retirement sets up Jack Reed for powerful Armed Services chairmanship (March 7)
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – Rhode Island’s capital city will repay the U.S. Department of Housing and Urban Development more than $600,000 that was improperly spent by a troubled taxpayer-backed loan program, WPRI.com has learned.
By Ted Nesi
NARRAGANSETT, R.I. (WPRI) – Roman Catholic Bishop Robert McManus of Worcester was arrested Saturday night in Rhode Island on suspicion of drunken driving after a hit-and-run, WPRI.com has confirmed.
The Journal’s advertising revenue was down 15% between Jan. 1 and March 31 compared with the same period in 2012, parent company A.H. Belo disclosed in an SEC filing. Quarterly ad sales fell to $9.6 million, or $1.7 million below last year’s level.
Total first-quarter revenue at The Journal from all sources was down 9% from 2013, falling to $20.6 million, thanks to a 10% increase in its contracts to print and distribute other newspapers. Circulation revenue fell 7% to $8 million.
“In Providence we got off to a bumpy start for a variety of reasons,” A.H. Belo CEO Robert Decherd told investors in a conference call last week. He said some of The Journal’s promotional plans for the start of the year were hamstrung by the winter storms that hit Rhode Island.
1. The Superman building wasn’t the only important economic story in Rhode Island this week. You may recall the “Kickstarter for T-shirts” startup Teespring and its 24-year-old founder, Walker Williams, from Williams’ appearance on Executive Suite last fall. Well, a just-published New York Times article reveals Williams and his co-founder have left Rhode Island for Silicon Valley in exchange for a $100,000 investment – and priceless connections – provided by Y Combinator, the famed startup accelerator and the subject of the Times story. (Imagine: at $100,000 a pop, the $75 million borrowed for 38 Studios could have backed 750 Teesprings.) Williams is the star in the article, which reports Teespring just topped $1 million in monthly revenue and has raised $1.3 million from investors; its founders hope to make $1 billion someday. Not that Teespring has bolted Rhode Island: Williams tells me Teespring remains headquartered in Providence and still has 14 people in its local office. Yet the fact that its two founders decamped for the Bay Area shows what an uphill battle Rhode Island faces in retaining its most promising prospects, a challenge that has less to do with high taxes – California ain’t Texas – and more a lack of early-stage capital or a tech sector that can compete with San Francisco and Cambridge. Indeed, even what exists now is imperiled: Providence recently ended its $50,000 equity investments in Betaspring graduates, of which Teespring is one.
2. Food for thought: Lincoln Chafee defeated John Robitaille in 2010 by only 8,600 votes. That means the choices of fewer than 1% of Rhode Islanders – or half the population of Central Falls – determined that the governor would be a socially liberal independent rather than a socially conservative Republican. It’s no understatement, then, to say the 8,600 voters who put Chafee over the top are the reason same-sex marriage will become legal in Rhode Island on Aug. 1, 2013; Robitaille opposed gay marriage and presumably would have vetoed the bill, which might never have reached the governor’s desk in the first place without clear gubernatorial support. Elections matter.
By Dan McGowan
Providence Mayor Angel Taveras would be midway through his second term as governor before Rhode Island’s capital city could raise commercial property taxes if future city leaders follow through on his pledge to freeze those rates for seven years.
So what do the laundry list of candidates lining up to succeed Taveras think of his proposal? WPRI.com asked every candidate who has expressed interest in running for the city’s top job to weigh in on the Taveras budget proposal.
After the jump, find out what City Council President Michael Solomon, Councilwoman Sabina Matos, state Rep. John Lombardi, Victor Capellan, Lorne Adrain and Maryellen Butke had to say. (more…)
By Walt Buteau
SOUTH KINGSTOWN, R.I. (WPRI) – Accused of embezzling state grant money, Institute for International Sport Executive Director Dan Doyle was arraigned on more than a dozen charges Friday morning.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – Same-sex marriage will be legal in Rhode Island starting Aug. 1 after the R.I. House of Representatives gave final approval to the legislation Thursday, thrilling supporters who’ve been pushing the issue at the State House for 16 years.
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – Angela Romans, the top education advisor to Providence Mayor Angel Taveras, is leaving City Hall for a job with Brown University’s Annenberg Institute for School Reform, WPRI.com has learned.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – Bishop of Providence Thomas Tobin says he’s “profoundly disappointed” that Rhode Island is likely to legalize same-sex marriage on Thursday, and he’s warning Catholics to think hard before going to the weddings of local gays and lesbians.
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – Rhode Island’s capital city is on pace to end the 2012-13 fiscal year with a $10.8 million deficit, but it can balance its budget with additional help from the state, according to Internal Auditor Mathew Clarkin.
• Related: Study: RI has 3rd-most baptisms, remains most Catholic state (March 12)
Reuters’ Felix Salmon, one of the most influential finance bloggers in the nation, jumped into the discussion Josh Barro and yours truly were having about Rhode Island officials’ justification for refusing to default on the 38 Studios bonds. While Salmon agrees the state’s pensioners would seem more deserving of repayment than the bondholders, he gently chides Josh and me for a bit of “faux naïveté” regarding what’s going on:
The answer is that yes, moral obligation bonds are effectively general obligations bonds in all but name. The state has found a way of issuing bonds without having to get the approval of the legislature, but they’re still obligations of the state, and the state doesn’t distinguish the two types of obligation. And yes, Rhode Island should be paying the lower interest rate rather than the higher interest rate. But that doesn’t mean that voters should have to approve moral obligation bonds: it could equally mean that voters should stop having to approve general obligation bonds.
That is what all governors really want: to have the legislature and voters stop interfering in their borrowing strategy. And that is the real reason why Chafee is staying current on his moral obligation bonds. He wants the world to see voter approval as an anachronism, and in an ideal world he would love it if moral obligation bonds had the same legal backing — and therefore the same lower yield — as general obligation bonds. That way he’d never need to issue a general obligation bond, or get voter approval for such a thing, ever again. It’s a very attractive vision — and it’s not one he’s going to give up just because Rhode Island is suffering a fiscal nightmare these days.
As someone who spends a lot of time listening to Lincoln Chafee, I’m skeptical that the governor has truly thought through the reasons for drawing a distinction between moral-obligation and general-obligation bonds (or not drawing one). But as Salmon makes clear, this debate has demonstrated that there’s no real difference between the two types of debt when it comes to whether taxpayers will have to cover the liability.
• Related: Chafee reveals RI’s confusion about the 38 Studios bonds (May 1)
Gov. Lincoln Chafee is using some of the choicest real estate in all of American journalism – the New York Times op-ed page – to make his case about why he’ll be making the right move Thursday when he signs into law a bill allowing same-sex marriage (presuming it passes the House).
Chafee’s 1,200-word opinion piece – “Why I Am Signing Marriage Equality Into Law” – lays out clearly and succinctly the case the governor has been making since his inaugural speech in 2011: that allowing gays and lesbians to wed in Rhode Island will fit with the state’s history of tolerance and benefit its economy to boot. He also goes out of his way to praise the Rhode Island Senate’s GOP caucus for backing the bill, and makes a point of highlighting some of the brighter spots in the state’s economy.
This isn’t Chafee’s first foray onto the Times’ opinion page. In February 2010, just after he launched his successful campaign for governor, he published a piece called “Goodbye to All That” that suggested, following Evan Bayh’s disillusioned departure from the U.S. Senate, the need for a third political party.
One bit of political trivia that’s still unresolved: when exactly did Chafee actually start expressing support for same-sex marriage? Chafee notes in his op-ed that he opposed President Bush’s proposed constitutional ban on gay marriage in 2004, but at that point he only supported civil unions; during Chafee’s 2006 re-election campaign, however, he was on record supporting full marriage rights for gays and lesbians.
Whatever the case, Chafee supported same-sex nuptials long before most Democrats, let alone Republicans.