Rhode Island Debt Study to Include Pensions, OPEB

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PROVIDENCE, R.I, — Rhode Island expects to complete a debt affordability study in the first quarter of next year, said General Treasurer Seth Magaziner.

The state has not conducted such a study since 1999.

"We've been setting the same targets since the 1990s and not much has been done ever since," Magaziner said Thursday in an interview at the state capitol in Providence.

The report, he added, will include bonded debt as well as pension and other post-employment benefit liabilities. "That's what the rating agencies are doing," he said.

Moody's Investors Service rates Rhode Island's general obligation bonds Aa2. Fitch Ratings and S&P Global Ratings assign equivalent AA ratings.

According to Magaziner, the study will include municipalities and quasi-public agencies. Overall, Rhode Island has about 150 issuers.

"We're incorporating all of our issuers in the study," he said. "What we're also trying to do is set effective guidelines for quasi-public issuers and localities."

Rhode Island's $8.9 billion budget for fiscal 2017 included funding for measures that strengthen debt oversight.

"Regular debt affordability studies are conducted by a number of states and vary in scope and quality," the New England Public Policy Center at the Federal Reserve Bank of Boston wrote in a commentary. "At their best, such analyses can be a useful resource for promoting transparency and providing context to policymakers who must weigh decisions about state debt and capital planning with other governmental priorities."

On the investment side of operations, Magaziner's staff is crafting a reduction in the state's hedge-fund exposure by 50%, an initiative he announced last month called "Back to Basics." Rhode Island intends to cut its investment in hedge fund strategies by more than $500 million over two years, and reallocate these funds to more traditional asset classes.

Hedge funds now represent roughly 15% of Rhode Island's $7.7 billion pension fund. Magaziner looks to reduce that ratio to 6.5%.

"It's a pretty significant change," he said.

Magaziner is looking to propose to the State Retirement Board in the spring a reduction in the assumed rate of return from 7.5%. His staff is still studying what new rate to recommend.

Rhode Island has put five bond issues on the ballot for the Nov. 8 election. According to a poll the Bryant University's Hassenfeld Institute for Public Leadership conducted, voters support all five.

The strongest backing, 84%, is for a $27 million bond to build a veterans home and renovate existing facilities. Other borrowing before the voters include $50 million for port infrastructure projects at the Port of Davisville-Quonsett and $20,000,000 for the Port of Providence; $50 million for affordable housing, urban revitalization, and blight remediation; and $45.5 million for capital investments at the University of Rhode Island for its College of Engineering and Affiliated Innovation Campus Program

All Rhode Island state general obligation bond issues go before voters. Most pass.

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