PROVIDENCE, R.I. (WPRI) – General Treasurer Seth Magaziner on Tuesday called for a major overhaul of the way Rhode Island handles billions of dollars in public debt, saying the current system is disjointed and costing taxpayers money.
In testimony before the Senate Oversight Committee, Magaziner said research by his staff shows more than 100 different entities in Rhode Island have the authority to borrow money. They range from the state and 39 municipalities to 12 quasi-public agencies and nearly 100 special districts, such as fire districts and housing authorities.
Magaziner, a Democrat who took office in January, cited a number of examples that he said exemplified the “history of poor debt management” in Rhode Island, including the notorious $75-million loan to the failed video-game company 38 Studios; Woonsocket’s ill-invested 2002 pension bond; and RIPTA’s decision to sell 20-year bonds to pay for buses that only last 12 years.
Magaziner also said the state “pays more to Wall Street underwriters than necessary” when it sells bonds; suffers from a lack of oversight of public debt at the state and local levels; and has relied too often on outside financial advisors with potential conflicts of interest.
While the R.I. Public Finance Management Board produces an annual report that documents state and local debt, it does not account for borrowing by various special districts. The board’s latest report showed at least $11 billion in public debt in Rhode Island, with state debt totaling $9.4 billion and the 39 municipalities’ debt totaling $1.7 billion as of June 30, 2014. (Those figures also exclude billions of dollars in unfunded liabilities for retiree benefits.)
Magaziner offered a trio of recommendations that he said state lawmakers should act on in the new year to improve how the state of Rhode Island handles public debt.
His first recommendation: create an Office of Debt Management at the state level that would oversee all public borrowing in Rhode Island and play a lead role in the state’s debt issuance. He said Rhode Island doesn’t have a single employee dedicated full-time to debt management, while California has 54, Massachusetts has eight and Delaware has one.
His second recommendation: require that the Public Finance Management Board, a low-profile panel that he said has been underutilized, approve any borrowing that has not been approved by either voters or state lawmakers based on an analysis by the proposed Office of Debt Management.
His third recommendation: require the state’s financial advisor to have no other business relationships in Rhode Island, which he said was addressed last month when he replaced First Southwest, the state’s longtime financial advisor, with a new firm, Public Resources Advisory Group.
The Public Finance Management Board is scheduled to meet Friday morning, and its agenda includes a vote on state debt practices – as well as the approval of minutes from its meeting on Dec. 5, 2014, a telling sign of how infrequently the board gathers.
Magaziner appeared before the committee as part of its ongoing series of hearings to examine what went wrong with the failed 38 Studios deal.