Pryor attacks Diossa over controversial transfer from Central Falls pension fund

PROVIDENCE, RI (WPRI) — The race for Rhode Island’s treasurer general is getting heated, with Democrat Stefan Pryor’s campaign attacking rival James Diossa over a controversial pension fund decision four years ago.

With less than two weeks to go until the Sept. 13 primary election, Pryor says the former mayor of Central Falls mismanaged parts of the local pension system as the city recovered from bankruptcy.

“Once Mr. Diossa regained budgetary control, he made significant miscalculations,” Pryor spokesman Anthony Cherry wrote in a press release this week.

One of the Pryor team’s charges relates to $500,000 that was transferred from the city’s pension fund to its general fund in the 2017-18 fiscal year. Such transfers can cause problems for governments, since pension money is only supposed to pay for pensioners’ benefits; if transferred to a general fund, the money could be used for other expenses such as roads or garbage collection.

On Wednesday, Diossa’s campaign acknowledged the transfer took place, but insisted the decision was made unilaterally by a rogue state-appointed financial adviser, and that Diossa approached her immediately after the transfer. to have discovered.

“James was not informed of the decision and – upon becoming aware of it – James ordered that the funds be returned and relieved the financial adviser of his responsibilities,” Diossa spokeswoman Alisha Pina said. in a press release.

Pina also hit back at the Pryor campaign, arguing that the former trade secretary’s team is simply trying to make political hay in the run-up to the election.

“This is a purely political attack launched amid an overwhelming show of municipal support for James this morning and is a distraction from Mr Pryor’s own lackluster record,” Pina said, referring to a conference call. press that Diossa held earlier this week with other mayors.

The firefight comes amid a close primary for treasurer. A 12 News/Roger Williams University poll last month showed the two Democrats neck and neck, with 61% of primary voters undecided. Pryor established a financial advantage over Diossa, in part through support from outside groups.

The winner of the Democratic primary for treasurer will face Republican James Lathrop in November.

Politics aside, however, the 2018 pension transfer casts an unflattering light on a city that has had to recover from bankruptcy — in part after local leaders cheated the city’s pension fund.

Diossa’s campaign declined to provide details on the reasons for the transfer. But a 2018 memo obtained by Target 12 shows financial adviser Leonard Morganis made the transfer because the city’s general fund had paid out millions for retiree benefits following the bankruptcy. He argued that the money should have been reimbursed by the pension fund.

“Without informing the mayor, or consulting anyone else…I made a fiduciary decision to recover a small portion of that money [$500K] [sic] in the form of a withdrawal to the city at the end of fiscal year 2018 since I have always believed that its rightful owner was the city of Central Falls,” Morganis wrote in the note dated August 30, 2018.

“In hindsight, I obviously should have communicated my actions and for not having done so, I sincerely apologize,” he added.

Morganis did not immediately respond to a phone call seeking comment on Thursday, but he wrote at the time that the money would be returned to the pension fund. This transaction was reflected in a 2017-18 fiscal year audit of the city’s finances reviewed by Target 12.

Diossa tried to distance himself from Morganis this week. In his statement, Pina described Morganis as an “appointed financial adviser reporting to the Director of the State Department of Revenue.”

RI Department of Revenue spokesman Paul Grimaldi said his department – which oversees the Municipal Finance Division – was unaware of the $500,000 transfer and never issued instructions to anyone to do it. He also distanced the department from Morganis.

“Morganis was not an employee of the Department of Revenue,” Grimaldi said. “He was a city employee. If he did transfer funds from the pension to the general fund, we doubt that the instruction came from us. The city’s chief executive (i.e. the mayor) would have had authority over Len’s actions, not the department.

It’s unclear if the transfer – now that it’s been made public – could have any negative repercussions for Central Falls. Pina was adamant that “there was no – I repeat, no – impact on the pension fund”.

But the IRS has already penalized state or local governments that tried to use pension money for other purposes. This was clarified after Rhode Island’s banking crisis in the early 1990s, when the IRS accused the state of trying to use retirement money for other budget items.

The man Pryor and Diossa are seeking to replace — incumbent Treasurer General Seth Magaziner, now a Democratic candidate for Congress — has avoided weighing in.

Asked by Target 12 whether the 2018 Central Falls pension transfer was illegal or otherwise prohibited, Magaziner spokesperson Ben Smith replied in one sentence, “It’s a municipal matter.”

Smith did not respond to any follow-up calls or texts.

Eli Sherman ([email protected]) is a Target 12 investigative reporter for 12 News. Connect with him on Twitter and on Facebook.

Dolores W. Simon