The capital markets reacted favorably Monday to news that the U.S. Department of Justice allowed Rhode Island communities East Providence and North Providence to use some of their shares of a $500 million federal settlement in 2011 with online search engine Google Inc. to replenish police pension funds.
“It’s a nice kind of thing to fall out of the sky. I ran some of the numbers and it’s good for both of them,” said Alan Schankel, managing director for Janney Capital Markets in Philadelphia. “It puts North Providence even, although they still have a little liability on the fire side. In East Providence, which has a combined fire and police pension, it gets it to about two-thirds.”
Each city received $60 million last April after assisting the Justice Department in a federal investigation into online ads distributed by Google for Canadian pharmacies that were illegally marketing prescription drugs to Americans. After the award, both communities asked to spend the money for purposes outside of DOJ’s guidelines for the program, which generally limit use of “equitable sharing” funds to expenses such as police training, equipment and the improvement of facilities.
On Friday, Attorney General Eric Holder called Rhode Island’s U.S. senators, Jack Reed and Sheldon Whitehouse, saying he issued a waiver from the policy. He said he was limiting his decision to Rhode Island, where pension funding has become a hot-button economic and political issue.
East Providence may use $49.2 million of its allotment for police pensions and North Providence may use $20.6 million. They must use the balance of the allotment within existing rules. Current estimated funding ratios are about 33% in East Providence and 43% in North Providence. The Pew Center on the States considers 80% acceptable.
“It’s not just pouring money in. It’s reform,” said Schankel, who contrasted Rhode Island with Pennsylvania, which is several years removed from making maximum pension-fund contributions.
Gov. Lincoln Chafee, who served in the U.S. Senate, and state revenue director Rosemary Booth Gallogly lobbied Washington for the change.
“There must have been a tremendous amount of political pull for them to do this in Washington. It’s testament to the clout of the Rhode Island delegation,” said Anthony Figliola, vice president of Empire Government Strategies in Uniondale, N.Y., who noted Holder’s statement calling the move an “extraordinary exception.”
James Briden and Charles Lombardi, the mayors of East Providence and North Providence, respectively, applauded the move. North Providence received some positive news in October from Moody’s Investors Service, which revised the town’s outlook to stable from negative, citing its “narrow but improving financial position,” while affirming its Baa2 rating.
Moody’s rates East Providence Ba1. East Providence is under a budget review panel, a step short of receivership under Rhode Island’s three-tiered intervention program for distressed communities.