Establishing a debt management bureau within his office will make Rhode Island more self-sufficient and less dependent on outside advisors, said state General Treasurer Seth Magaziner.
Gov. Gina Raimondo, Magaziner's predecessor as treasurer, included an amount in the proposed fiscal 2017 budget.
"That will strengthen our debt oversight," Magaziner said in an interview. "I'm happy she's giving us the resources."
According to Magaziner, the move will lessen the risk of outside pressures from financial advisors and legal counsel.
"It's in the state's interest not to be conflicted in any way," he said.
His office late last year replaced First Southwest with Public Resources Advisory Group as the state's financial advisor.
First Southwest had become entangled in the controversy surrounding the failure of video game developer 38 Studios, owned by former baseball pitcher Curt Schilling. That company went bankrupt in 2012 after a state agency issued a $75 million loan, backed by the state's moral obligation.
Magaziner has called for an overhaul of state debt management, saying the 38 Studios fiasco is not the only example of poor practices.
Speaking before a state Senate committee last December, he also cited balloon debt payments that helped drive Central Falls into bankruptcy in 2011; a Woonsocket pension obligation bond that featured a 6.2% coupon on a conservatively invested portfolio; and 20-year bonds the Rhode Island Public Transit Authority issued to buy buses with a 12-year service life.
Funding for the debt management division would include the necessary technology upgrades to manage and oversee the process by which Rhode Island and all other governmental units issue public debt.
Moody's Investors Service rates Rhode Island's general obligation bonds Aa2. Fitch Ratings and Standard & Poor's rate them AA, all with stable outlooks. Bond refinancing in 2015 will save Rhode Island $100 million over two years, said Magaziner, with the start to use the savings to fund economic development and school construction initiatives.
Rhode Island has about $11 billion of bonded debt on its books.
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The bank will provide low-cost financing to municipalities, businesses and homeowners. Rhode Island has received 27 applications totaling about $60 million, for first-round funding with projects to begin next summer. Magaziner expects to issue a bond in June, though the par amount is still uncertain.
Other infrastructure bank programs include the financing of energy efficiency and renewable energy projects for commercial properties; a brownfields revolving loan fund; and an efficient buildings fund.
Magaziner is continuing his push for greater transparency in investment fees.
Last summer, he led a coalition of nationwide state and city finance officials – who oversee a combined $2 trillion in assets -- that called on the Securities and Exchange Commission to require private equity firms to reveal more about fees and expenses related to their management of public pension plans. Scott Stringer and Thomas DiNapoli, the respective comptrollers of New York City and New York State, were part of the initiative, as was California Treasurer John Chiang.
"It was one of several tactics we undertook in our push for greater transparency," said Magaziner. Trade groups including the Institutional Limited Partners Association and the National Association of State Treasurers have endorsed the initiative.
According to Magaziner, Rhode Island's pension system avoided major investment losses, losing 0.3% in calendar 2015. That compared favorably, he said, to the negative 0.38% of the plan benchmark and the negative 0.98% return of a sample portfolio consisting of 60% stocks and 40% bonds.
"We're always re-evaluating our asset allocation," he said.
The new standards of the Government Accounting Standards Board, known as GASB 67 and 68, had limited impact on Rhode Island's liability reporting, said Magaziner. "It was relatively minor for us," he said. "Other states saw very significant changes."
