June 7, 2008

Capitalizing The Lot

Monique Chartier

Under Marc's post "Lima Gives some budget hints", commenter Ken says:

there appears to be a proposal made by NEA Walsh to GA to sell RI Lottery gaming futures netting a supposed ESTIMATED $4-4.4 billion

This idea is a complete non-starter.

First and principally, it is the end of the line when an entity, government or otherwise, begins selling fixed assets to pay for recurring operating expenses - in this case, pension contributions. Whether or not such pensions were too generous to begin with is a separate issue. In point of fact, the elected officials who promised these pensions needed to properly fund them over the last decades. They failed to do so.

Secondly, to address such a failure by selling fixed assets is completely unacceptable - simply as a principle as outlined above - and because if such a practice is intiated, there will be no end. Elected officials lacking the will to properly structure a budget or, as appears now to be necessary, to restructure existing contracts, will capitalize and then sell the entire state out from under us in a matter of years.

Think I'm exaggerating? How long did it take the General Assembly to capitalize and then blow through the tobacco settlement?

Capitalization, especially of assets which do not belong to you, is so easy and convenient. It is also a very bad method indeed of addressing a gap in an operating budget.

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You are 100% correct.

Without some major policy revisions, little will be accomplished.

The sale of assets will only cover temporary problems. Next year, the state will still be broke! Unless addresed, the major structural deficiencies in the budget will still be there.

Nothing will change until the state gets a whole new business plan to stimulate its moribund economy and provide for its long term goals. This can only involve: lowering taxes, cleaning up government, reducing spending, reducing social service spending in particular, cleaning up welfare fraud, getting voter initiative, reducing the very negative role of the public sector unions, attracting desireable businesses and investments, etc.. --all things the General Assembly is loathe to do.

It looks bleak. Look at how much resistance the Governor got to his immigration order, another essential reform.

Posted by: Citizen Critic at June 7, 2008 12:33 PM

Spot on Monique.

The State selling assets to raise cash is like a reverse mortgage, but even worse - for unlike a senior who "merely" has to not outlive the revenue stream, the State is here "forever."

So once that short-term revenue stream is exhausted, and there are no more assets to sell, what then?

I wish I harbored optimism that the General Assembly will do the responsible thing, but given its track record ...

I sure hope that my cynicism is proven to be misplaced!

Posted by: Tom W at June 7, 2008 2:53 PM

A non-starter? We shall see, but as you have seen in the press, the actual proposal is getting the serious consideration it deserves.

My proposal was not to sell the lottery, but to contribute a portion of the equity in the lottery to the pension system. An outline of the proposal was posted on RI Future a few days ago.

Also, analogous to the point Mac Owens makes in a different entry above, the proposal was made by me as an individual as opposed to on behalf of any of the groups with which I am associated, although several may embrace it.

What many of the folks who post here seem to realize, especially the anonymous snipers without the courage to put their names behind their statements, is that to actually be involved in moving the state forward, meaningful participation in the exchange of ideas is required. The first step in that process is to take the time to study and understand a proposal before attacking it.

And, to TomW - I am generally against the sale of assets to solve short term problems - if we ever sold the entire pension system, which I would e skeptical about, the funds should go directly to reduce the unfunded pension liability, pay down bonded indebtedness, or to acquire other long-term assets.

To H., you clearly miss RI - why not move back and reengage?

Posted by: Bob Walsh at June 7, 2008 3:55 PM

Sell the lottery, sell the bridges, sell the reservoir.. heck, why not sell Narragansett Bay? That seems to be your most valuable asset.

Then, what? What will be left to sell? You will still have all the entitlements and all the structural deficits and all the holes in the dike-- and your feeder streams will be less than ever --as people like me run for the hills.

"Walshian assumptions?" You'd be better to focus on *reality* instead of dubious assumptions. The reality is you are on a sinking ship and you need to do things much differently if you want enjoy any semblance of prosperity. And, you need long term solutions instead of quick fixes. You need to closely examine the welfare fraud which is probably still costing you a king's ransom.

It's true. I love Rhode Island, but I also hate Rhode Island. Out here in Idaho, I have found nothing to hate.
Even Rhode Island politics is now bearable to me --the salving effect of 3,000 miles is amazing.

Come back? LOL. Rhode Island would have to undergo a major reformation for me to return. I'll never say never, but it is very unlikely. I deeply distrust the people who run RI, with cause.

Even if you fixed all the political problems, which seems very remote, I don't know if I would ever want to reside in an urban area again. Life is too good out here with the hummingbirds and the moose and the bald eagles. Life is too good without the: stress, high taxes, high utilities, pollution, constant government intrusion, etc.. However, visiting for a few weeks might be fun.

Bob, sure I understand how your job and the self interest of the unions drives many of the decisions. However, sometimes I think you should try to save RI, instead of bleeding it as hard as you do. Perhaps you are killing your own golden goose.

You should reverse your position on voter initiative, and work to prohibit conflicts of interest on the school boards, and work to improve things for the common good. It would establish you as a good guy and give you alot more credibility. You and your union members might also enjoy the rewards of lower taxes and better quality of life.

Right now the unions are not to be trusted. The unions are sleeping with dogs, and it has given them fleas.

Posted by: Citizen Critic at June 7, 2008 6:49 PM

As I understand it, Walsh has proposed that the state cede a portion of the lottery to the unions, like a royalty. If the pensions are $300m in the hole, and the lottery is worth $900m, then the union would receive the rights to 1/3 of the lottery. The state would still own it, and control it, but the asset and revenue value is given to the NEA. Kind of like the deal GM passed - pay off the union with a lump value.

No idea if there is a time limit, a revenue cap, or guaranteed basement. I also don’t know if it is expected to cover future funding needs or if the state is still responsible.

Bob, answers? Do you propose that the lottery become the funding generator for the complete pension?

If so, that would be one positive in that it would make the union responsibility for future pension funding - assuming they don't 'negotiate' a different deal in the future.

If not, it’s just a band-aid to the problem, another short-term fix that takes the legislature off the hook for blowing the money in the first place. Taxpayers pay the bill and legislators pass the buck. NEA is held harmless and the pressure to create real reforms are removed until the next fiscal crisis.

Posted by: William Felkner at June 7, 2008 7:30 PM

As I said before-I like this idea. Sell the whole lottery. The swag (er-revenue) should last 6-8 years. Years without tax increases.
Meanwhile the sane of the populace (us) will have sold our houses and made off to places like Idaho BEFORE the swag runs out and $750 million plus deficits rollin.

Posted by: Mike at June 7, 2008 9:09 PM
"the proposal was made by me as an individual as opposed to on behalf of any of the groups with which I am associated"
This is really becoming tiresome Bob. You and Pat seem to jump roles as it suits you. Did you use any on-the-clock time or NEA resources to research your budget proposal. Did you discuss it with anyone at the NEA or at the State House as the head of the NEA? And why was it Pat Crowley who posted your plan on RI Future? You could have done so yourself. Was he just doing it as a friend rather than as an NEA employee?

You are the head of the NEA in RI. When it comes to state government, you cannot divorce yourself from this position when it suits you.

Posted by: mikeinRI at June 7, 2008 9:10 PM


Another one of your moronic ideas, like the Walshian Assumptions.

Here is a BETTER idea. Let's pay our Union teachers a fairer and more sustainable compensation package.

No more paying employees at rates that are within the Top 10 states in the nation when they continually fail to improve their product beyond the Bottom 10 states in the nation.

No more paying a individual teacher significantly more than the income of many ENTIRE house-holds in the state.

An even better idea would be to simply pay you to go away and to take with you your hairbrained entitlement minded "ideas" that are destroying the state. I'll support a tax increase for that, Bob.

Posted by: George Elbow at June 7, 2008 9:26 PM

In a nutshell, here is Bob Walsh's approach - "As long as I got mine - screw the rest."

Until the state takes back control of things from the unions, don't expect anything to change.

We need to eliminate about 5,000 state jobs to be right-sized. And no union should be able to tell us just how we are going to do it.

Just think of how the unions have decimated the airline industry, the steel industry, the auto industry. They are doing the same thing to our schools, and every aspect of public services. The only reason they haven't bankrupted us is the endless pursuit of taxpayer money to mask their inefficiencies. If these were private operations, they would have been put out of business decades ago.
Now, does anybody wonder why the Bob Walsh's of the world are so fearful of charter schools or tuition vouchers? Nobody knows more than he that the putrid public schools will get their union asses handed to them if they had to be accountable.

Posted by: Mike Cappelli at June 7, 2008 10:35 PM

You hit the nail on the head.

Bob Walsh & Co. don't exist, but for the public tit.

They have NEVER been productive members of society. They don't PRODUCE. Rather they are merely leeches going along for the ride, sucking off those that do produce, demanding entitlements, handouts and a redistribution to themselves of what others produce.

Indeed, it is a pathetic existance the Bob Walsh's lead, unable to make it in the world on their own, so dependent upon the tit of the taxpayer, so frightened to let the free market determine their worth.

Posted by: George Elbow at June 7, 2008 11:00 PM

While I think the personal attacks in this thread are ridiculous, I do agree sales of revenue-producing assets just aren't the answer. Once the immediate crisis is over, you need a future to look forward to.
Just getting each side of the budget debate to admit we've all got to tighten our belts a bit is more than half the battle. I don't see either side doing it yet.

Posted by: rhody at June 7, 2008 11:43 PM

As a budget side note:

We were just advised on Hawaii TV news to prepare for $5 per gallon gasoline before end of summer and possibility $6 per gallon before Thanksgiving.

This could accelerate on mainland with a hurricane in Golf of Mexico shutting down refineries and off-shore oil rigs.

Lucky we have mass public transportation which cost $40 a month unlimited rides less than one car gasoline tank fill up in Hawaii.

Mainland is about 2 weeks behind Hawaii on gasoline prices

What is really going to hurt New England and RI is asphalt product prices have jumped over 25% and continues to rise.

If State of RI or cities/towns did not plan or are not paying attention, there could be no road pothole repair this year due to high cost of asphalt leading to more blown out tires, broken shocks, tie rods and struts on cars.

Posted by: Ken at June 8, 2008 2:12 AM

For the record, State of Hawaii does not allow gambling within the state or territorial waters (we just fly to 9th island Las Vegas on discounted week long all inclusive packages).

If my memory serves me right, RI state lottery when first initiated in1973. It is written the original purpose of the Rhode Island Lottery was to make up for the revenue lost from allowing the value of a trade-in automobile toward the sales tax liability on a new automobile. The RI state lottery was expanded on the promise to reduce property taxes and later to provide school aide to cities and towns. Only problem is the receipts go into the general fund which is a big black hole of no GA return.

Due to the very high number of lottery terminals and sales agents blanketing RI neighborhoods, in 2006 RI was ranked #1 in the nation for lottery sales per household spending $4,256.73 a year which also included gross VTL sales (cash in).

A lot of you might ask why RI has such a high welfare and assistance rate. Well $4,256.73 a year just might let me sing with lady luck so I can get off welfare. Why are more and more RI senior citizen requiring heating assistance and meals on wheels? Look at Twin Rivers pocking lot and count the senior vans because $4,256.73 will build a better life for my kids if I hit just once.

The lottery is another tax but aimed at the poor and disadvantaged of the State of RI. Remember in gambling, the house always wins.

At least RI is #1 for something and it's not high taxes; just screwing the poor public!

Posted by: Ken at June 8, 2008 3:05 AM

If State of RI or cities/towns did not plan or are not paying attention, there could be no road pothole repair this year due to high cost of asphalt leading to more blown out tires, broken shocks, tie rods and struts on cars.

I think you may have been away from
RI for too long. The asphalt prices will not affect RI as we already pay some of the highest prices in the Union for road paving (when it does occur)anyway.
As for attending to the conditions of our horrible roadways, it is almost non-existent.

Posted by: Bob C at June 8, 2008 8:58 AM

Hey Rhody,

With all due repect ...wake up, open your eyes and start calling a spade a spade.

The ONLY side not interested in tightening their belts is the side Redistribution Bob Walsh is on.

Name us ONE single belt tightening idea Redistribution Bob Walsh has put forth?

How about increasing the number of teaching steps from the current legislated limit of 12 to at least 15? How about ALL Public Employees pay at least 25% of THEIR healthcare costs? How about Collective Bargaining Reform and a Right to Work State? How about school choice & vouchers?

No to all of them.

He and his ilk are all about MORE taxes, fees and "revenues" to pay for their neverending, unsustainable compensation demands.

No operating budget deficit, no Pension deficit, no healthcare liability is ever too big for Redistribution Bob Walsh & Co.

Their answer is always "raise revenues" (i.e. Taxes), as if the Taxpayers have an unlimited capacity to overpay our Union hacks (who, by the way, in Redistribution Bob Walsh's case ...teachers ...continue to put forth crappy performance with no accontability / consequences relative to pay).

Look at the "ideas" put forht: Toll Roads, Sell the Lottery, Sell the Providence Water system, etc. When do you finally wake up and look at the root cause and say "why are we forced to even consider these dumb ideas", which is an unsustainable cost structure created by the same people that bring us the dumb ideas to sell assets to pay for it all.

And I am with you: I am tired of the PERSONAL attacks on my welfare and quality life by the likes of Redistribution Bob Walsh & Co., who, while I am hard at work, is hanging around the Statehouse like a freak'n spider putting forth more "ideas" & legislation that are attacking and destroying our great state.

I am tired of Resdistribution Bob Walsh & Co. misleading the Public with crap such as "the cost of teaching has risen slower than overall inflation", as was done when Pat "I don't understand basic math" Crowley told us that whopper back in Dec/Jan when he blanketed the state with one of his typically factually incorrect manifestos.

In fact, education costs have risen at a rate of almost 45% MORE than inflation. The "idea" people at the NEARI compared 5 years of Spending to 7 years of Inflation. These are the morons who's "ideas" are behind the massive deficits that have been foisted upon the taxpayer's back.

Indeed, Redistribution Bob Walsh & Co. are the masters of misinformation, as they have all day to conjure up crap while the rest of us are busy working to pay for it all.

So again, ask yourself Rhody, has Redistribution Bob Walsh & Co. put forth a SINGLE belt tightening idea? NOT ONE. See their infantile NEA-RI Teeshirt below if you want to know what Redistribution Bob Walsh & Co. stand for.

These people don't even own a belt. They are so fat from feeding at the public trough, they got rid of their belt long ago, as it was becoming an object of discomfort during their feeding frenzy.

Posted by: George Elbow at June 8, 2008 8:58 AM


You are right about the need to downsize RI government by approximately 5,000 workers. I have been saying that for the last few years. The private sector would never tolerate so much dead wood, especially in such lean times.

Posted by: Citizen Critic at June 8, 2008 9:02 AM

I couldn't agree with you more. Bob Walsh and Co. propose that the best way to keep the train rolling, after there is no more fuel, is to tear up the cars to keep fueling the engine. Eventually there will be no cars left and all we have is worthless engine.

Posted by: Bob C at June 8, 2008 9:07 AM

Fortunately, those with the ability to actually implement some of my suggestions are taking the time to study them as opposed to wildly distorting them.

And, as I often say, as long as you're picking on me, you're leaving someone else alone.

Bill F. - since I don't think it would be prudent to sell the lottery (no real secondary market has yet developed to give us the highest and best value), and it would represent too much of a concentration of assets to move it entirely into the pension system, I have not proposed that, although that is where my thought process started. Ideally, we would cap the expected lottery return in the state budget, and over time reduce it through ideas such as the ones I have suggested so far. You may be surprised by the folks who see merit in the idea, and it will be interesting to see how it evolves in the next few years.

Posted by: Bob Walsh at June 8, 2008 10:15 AM

Yea Bob,

Great idea. Let's burn the furniture to heat the house, rather than close the windows are buy a smaller house.

Didn't your ilk already tell us the Lottery was going to fund education? That worked out well, didn't it?

Has it occured to you that the simple fact that you have to come up with these proposterous ideas in which you mortgage the state's future, and that of our grandchildren's, that we have an UNDERLYING problem that needs to be addressed. Specifically, the PENSION system and the over-the-top benefits it pays to your dues-paying union members is UN-F'ing-SUSTAINABLE.

Address the ROOT cause Bob and stop putting band-aids on the problem so that your members can "get theirs" and it will fall to our children & grandchildren to solve.

The problem with you and your ilk is that you have ZERO respect for the notion of "living within your means". You are so contemptous of the Taxpayers, you ignore that notion and come up with "ideas" to mask the underlying problems.

The good news is that through the "good works" of you and your #2 (as in s__t) Pat "I struggle with basic math" Crowley, the pupblic is waking up to your entitlement minded BS.

Posted by: George Elbow at June 8, 2008 11:17 AM

I'll be sure to consider your point of view.

Work group on tax policy has full plate

The new Tax Policy Workgroup, formed by Governor Carcieri to study Rhode Island’s tax structure, will have its work cut out for it. A report last week from the state Department of Revenue, headed by Gary Sasse, found the state ranked 11th nationwide in total tax burden, with taxpayers paying $119.79 per $1,000 of state personal income in fiscal 2006. The ranking is a slight improvement over past studies, but still puts Rhode Island well behind other New England states. The work group’s recommendations are due in December. Its members are: Mary F. Bernard, president, principal of RISCPA and Kahn, Litwin, Renza & Co.; Edward Cooney, vice president and treasurer, Nortek Inc. and chairman of the Greater Providence Chamber of Commerce; Ellen Frank, senior policy analyst, The Poverty Institute at Rhode Island College School of Social Work; John J. Gelati, president of R.I. Association of Assessing Officers and the City of Providence; John Gregory, president and chief executive officer, Northern Rhode Island Chamber of Commerce; Karen S.D. Grande, partner, Edward Angel Palmer & Dodge; Mark Higgins, dean, University of Rhode Island College of Business.

Also, Saul Kaplan, director of the state Economic Development Corporation; Leonard Lardaro, professor, University of Rhode Island; E. Hans Lundsten, shareholder, Adler Pollock & Sheehan; George Nee, secretary-treasurer of the AFL-CIO; H. Peter Olsen, partner, Hinkley, Allen Snyder; Edward P. Pieroni, JD, CFP, Andsager, Bartlett & Pieroni, LLP.

Michael Sabitoni, president of the R.I. Builders Trade Council; Sasse; John Simmons, executive director of the R.I. Public Expenditure Council; Robert Tannenwald, director, New England Public Policy Center/Federal Reserve Bank of Boston; Patricia A. Thompson, tax partner at Piccerelli, Gilstein & Co. LLP; Al Verrechia, chairman of HasbroInc.; Robert Walsh, Jr., executive director of NEA-Rhode Island; Grafton H. Wiley, IV, shareholder in charge of Rhode Island offices, Tofias.

Posted by: Bob Walsh at June 8, 2008 11:42 AM

"My proposal was not to sell the lottery, but to contribute a portion of the equity in the lottery to the pension system."

So a portion of one of Rhode Island's largest revenue streams would be dedicated to a single line on the expenditure side of the budget.

Conceptually speaking, why? Why should one budget expenditure receive preferential treatment like this?

And if it is such an important expenditure, why shouldn't we instead cut less important expenditures from the budget to meet this more important expenditure?

Posted by: Monique at June 8, 2008 2:30 PM

"but to contribute a portion of the equity in the lottery to the pension system."

P.S. And use of the word "equity". "Equity" usually can only be obtained when something is sold. Again, this brings us beyond dedicated funding, problematic in itself, and uncomfortably closer to the act of capitalizing.

Posted by: Monique at June 8, 2008 2:40 PM

The idea is to defease the unfunded liability of the pension fund. That is not a "recurring operating expense." That is a long-term liability. Using capital assets to rid oneself of a long-term liability is not a crazy idea.

Posted by: Pragmatist at June 8, 2008 11:23 PM

Pragmatist: "The idea is to defease the unfunded liability of the pension fund."

Not really. His proposal was to replace the state's normal contribution with a portion of the lottery. The unfunded liability would be unchanged comparable to where it would be otherwise. The biggest change would be that the state would be making contributions on behalf of the cities & towns, but I assume he has a plan that would get that money back.

Posted by: Mario at June 9, 2008 4:27 PM

"the unfunded liability of the pension fund. That is not a "recurring operating expense." That is a long-term liability."

Pragmatist, it became an unfunded liability because it was a recurring operating expense that did not get paid. Pension contributions cannot be deferred; Woonsocket (thanks to an imprudent Mayor) is also in the process of learning that.

Posted by: Monique at June 10, 2008 12:12 AM
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