General treasurer has innovative plans
Kudos to General Treasurer Seth Magaziner for coming up with 2 great proposals, one of which would strengthen municipal pensions and the other which stimulates loans to small Rhode Island businesses. The municipal pension plan would require legislative action. The "Bank Local" program was initiated by the Treasurer’s office and already has at least 5 small financial institutions participating in the program. Here are the details:
Strengthen municipal pension systems
The Treasurer’s Healthy Local Pensions (HELP) proposal would allow cities and towns with locally administered pension systems to improve performance and reduce costs through the state’s Municipal Employees Retirement System (MERS). At present more than 75 percent of municipal pension plans are already in the MERS system. Of the remaining pension plans in the towns and cities most are seriously underfunded with 19 below 60 percent funded and 12 below 40 percent. A couple of municipalities had higher pension returns at present but, like Providence (which is only 27 percent funded), are still woefully underfunded. The recent higher return led firefighter union head, Paul Doughty, to eschew joining the state program.
Beneath the surface of his opposition based on the argument of a higher return, however, lurks the fear that some of the more outrageous benefits offered by the City’s pension board would be curtailed. MERS requires strict and sustainable criteria so I suspect that the “party may be over” mentality is really behind the opposition. Providence’s pension system is a basket case and it seems like Mr. Doughty and others want their fiefdom to continue despite the dismal security ratio of assets to obligations. "Turf" considerations and special interests may try to block the treasurer’s proposal albeit it is one that is optional for municipalities. The General Assembly should pass the legislation since it will lower administrative costs and stabilize the pensions for present workers. There will also be savings as well for towns and cities since they need not have the infrastructure to monitor the local pensions.
Bank local program
The General Treasurer has implemented a community deposit program, moving millions of dollars in state deposits only (no pension fund money) into local small banks and credit unions in order to encourage loans to Rhode Island small businesses. The state deposits its money in the local bank as a match for the small business loans underwritten by the smaller institutions. The state’s money is insured and collateralized at 102 percent of the deposit, so it is safe. Many smaller financial institutions give a better interest rate than the large banks who have heretofore been the only beneficiaries of the deposits, so the state stand to gain more money. It’s a win/win/win for the smaller banks, the small business owner, and the state. To date at least 5 smaller institutions have joined the program and collectively, they have given out $5 million of small business loans. The treasurer doesn’t pick the recipients since the bank or credit union does, using its own criteria for the loan. This is a very creative way to use the treasurer’s office to encourage economic growth and job creation.
So, while sometimes politicians might make the public furious, let’s give a “hat’s off” to the creative ideas put forth by Treasurer Magaziner.
Arlene Violet is an attorney and former Rhode Island Attorney General.