PROVIDENCE, R.I. — Public Financial Management Inc. has been building out its Rhode Island presence over nearly three years as it looks to compete against the dominant First Southwest Co..
PFM, which set up in the Ocean State in December 2011, points to clients that have avoided state oversight, some receiving bond-rating upgrades, as signs of progress.
"PFM's biggest advantage is a larger toolbox of services," senior managing consultant William Fazioli said in an interview in the financial district of capital city Providence.
Services include multiyear financial forecasting, OPEB, or other post-employment benefit overhaul, and labor arbitration services.
Philadelphia-based PFM opened its 35th office in fall 2011, just as the Rhode Island legislature held a special session to debate unfunded pension liability. In addition, Moody's Investors Service in 2011 downgraded eight Rhode Island municipalities, citing acute economic weakness, stagnant revenues and soaring pension expenses.
The state that year passed the sweeping pension overhaul known as the Rhode Island Retirement Security Act, although five public-sector unions are challenging the law in court.
Fazioli and fellow senior managing directors Stephen Maceroni and Peter Scoliard staff the Providence office, along with analyst Jennifer Arndt. Fazioli and Maceroni came from First Southwest, the state's financial advisor since 2001. Scoliard arrived from PFM's Boston office after joining there in 2010. Arndt joined from First Southwest in March 2012.
"People are looking for an alternative," said Fazioli, a former East Providence city manager who now serves as acting chairman for the city's Waterfront Redevelopment District. "Rhode Island communities are facing the difficult consequences of the recession."
North Providence, a PFM client, has received upgrades of Baa2 to A3 from Moody's and BBB-minus to A from Standard & Poor's. Johnston went from BBB to AA-minus and. Little Compton became Rhode Island's first AAA-rated facility.
Cranston, Westerly and Coventry have also improved their financial pictures, according to Fazioli.
"It's very simple. The bond-rating agencies are looking for a stable financial picture and openness," he said.
Shortly after opening its Providence office, PFM conducted a seminar on fiscal stability in Cranston. Speakers included managing director and Pittsburgh financial advisor Dean Kaplan, and senior managing consultants Vijay Kapoor and Mark Yasenchak.
Managing director Michael Nadol, who is coordinating Baltimore's 10-year financial plan, has also worked with Rhode Island.
PFM made several trips to the rating agencies in New York on behalf of Coventry, a 34,000-population town that adopted a pension funding improvement plan. In early April, Moody's removed its negative outlook while affirming its A1 rating on Coventry's $21 million of general obligation debt.
"It made sense to make sure that Moody's understood what the town was doing," Fazioli said. "If we had made conference calls, a phone message would not have been as forceful."
PFM's Providence office also works with Connecticut cities New Haven and Bridgeport, and some issuers in New Hampshire.
The firm also bid through a request-for-proposals process to serve as Rhode Island's financial advisor, but Gov. Lincoln Chafee and General Treasurer Gina Raimondo in March chose to keep First Southwest.
"Great to have another [financial advisor] with an R.I. office, but tough to make change in a transitional year," state officials said in
Rhode Island will have a new governor and treasurer next year, with Chafee not seeking re-election and Raimondo running for governor as a Democrat.
"PFM was disappointed with the outcome, but we were pleased to have the opportunity to respond to the RFP," said Fazioli. "We would welcome the opportunity again."
The evaluation, which state officials released last month, praised PFM for "interesting new ideas," including a hybrid competitive and negotiated bond structure. It also described PFM's fees as slighly lower than First Southwest's.
The renewal of First Southwest generated some controversy among Rhode Island officials. The state, through the Rhode Island Commerce Corp., is suing First Southwest and other parties over the roughly $100 million in state debt that evolved from the failure of video-game company 38 Studios. Commerce Corp., when it was the Rhode Island Development Commission, issued 38 Studios a $75 million loan guarantee in 2010, backed by the state's moral obligation.
"First Southwest is gratified that the state has selected us, after a competitive process, to continue to serve as its financial advisor and to continue to support the state in its ongoing projects," First Southwest said in a statement.
