Name: Paul J. Tavares
Position: General Treasurer, State of Rhode Island
Background: Employed in the banking industry for 27 years; member of the East Providence City Council (1986-1992); elected as a Democratic state senator from East Providence in 1992; vice-chairman of the Senate Committee on Corporations; member Rhode Island State Investment Commission; member Rhode Island Public Finance Management Board; serves on the Board of Directors of the International Institute of Rhode Island; member Catholic Diocese of Providence Finance Council; member Portuguese American Scholarship Foundation; founder of the East Providence Children’s School; presented in 1993 with the “Portuguese Communities Gold Medal,” by then-President of Portugal Mario Soares.
Education: East Providence High School, 1970
Age: 47
Residence: East Providence
Family: Married, five children
Paul J. Tavares: “We have a fiduciary responsibility to protect the assets that we are entrusted.”
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How do you define your role as general treasurer?
The general treasurer is the state’s banker. That encompasses a lot of what we do. We are responsible for the safekeeping and investment of all state funds. That includes federal money and whatever money comes in or out of the state. For the time it is here, we are responsible for it.
How many employees do you have?
Eighty-six-and-a-half.
I assume that includes a wide range of professionals and support staff. How is the department organized?
A lot of people don’t know what happens in treasury – the office itself. Although people may not be aware of what we do, if we do not do it well, there can be a real negative impact. We divide the department into different areas. The first is the investment area. When I say we are responsible for the state’s money, it is primarily the pension fund — close to $6.5 billion invested long-term. That funds the retirement system for state workers, public school teachers and many municipalities. We have 102 separate retirement systems under our umbrella. In that investment area, there is the responsibility for short-term cash. The state has to pay its bills and payroll. We have $300 million invested daily in short-term vehicles. This area is also responsible for monitoring state debt. We are extremely active, along with the administration, in preparing credit rating presentations. In fact, we are proud that Rhode Island received an upgrade – about six weeks ago – from Moody’s and Fitch. It is infrequent that a state receives an upgrade from two agencies at once. Another area of the department is the retirement section. We are responsible for the record keeping of the 102 systems, distribution of payments and management of the system. We are in the beginning stages of an aggressive plan to computerize that department. I often say to people that the good news is that the retirement system is Y2K compliant, the bad news is that we have all these manila folders. That’s why we are Y2K compliant. Another area is the administrative section. It is responsible for the reconciliation of all bank accounts. You can imagine the volume of accounts going through here. They all have to be reconciled, as well as the distribution of checks. We put out more than two-and-a-half million paper checks a year. That’s not counting wire transfers and automatic deposits. We also have a department for precious metals. It keeps track of precious metals sold in pawnshops. We share that information with law enforcement.
How did it come about that the treasurer’s department was involved in this?
It pre-dates me. I’m not sure about its inception.
Do treasury departments do this in other states?
I don’t believe anyone else does. I think it was unique to Rhode Island in the sense that because of the jewelry industry there was a lot more exposure to precious metals.
What can you tell us about the “Unclaimed Property” list you distribute on a regular basis?
That is an area we are trying to make far more visible. There is about $60 million in the possession of the state. We are trying to reunite as much of that as we can with its rightful owners.
So many of us are familiar with that notice that goes out regarding the property. Do many people respond to it, and actually get their money?
Rhode Island has one of the highest return rates in the country. We attribute that in part to our being aggressive. But also, Rhode Island being Rhode Island, when that publication comes out, people look through it and recognize names. They get to play Santa Claus by calling someone up and telling him or her their name is on the list. We’re trying to be far more aggressive. We have a Web site where you can look up the name of a person and their last known address. The amount of money isn’t there for security reasons. We go out on a regular basis and talk to senior centers and others. We try to get people in the habit of checking the list on a regular basis.
Where does the majority of that money originate?
Bank accounts are a primary source. In Rhode Island. If you don’t use a bank account for more than three years, they will send something to your last known address. If there is no response, those accounts come to us. In addition to that, there are stock certificates. Security deposits on utilities. A lot of money comes in from unclaimed insurance policies. There are un-cashed checks and safe deposit boxes. We have gold coins, watches. We even have two authenticated letters by Charles Darwin. We’re going to be holding an auction later this month. If there is a watch belonging to a John Smith and we auction it for $200, we credit that account. We just can’t hang on to the property. The benefit to the state is that we utilize the money for our general fund. It helps the cash flow. But the liability never disappears.
Much has been made of your efforts to resurrect the “Crime Victim Compensation Program.” What is its status?
As a member of the Senate, I heard there were problems with the program, but I didn’t know how bad they were. A month after being in office I received a letter from the Department of Justice. That letter dubbed Rhode Island’s program the worst in the nation. We did an in-house audit and found that we had 2,000 Rhode islanders waiting for $17 million. To quantify this, the national average for someone who files a claim to be paid is seven weeks from when that claim is filed. In Rhode Island, there are people waiting five and 10 years. We realized the program was broken. We were victimizing people twice. In investigating the problem, it was clear that Rhode Island was awarding more money than was coming in. The source of funding for the program is court fees, and fines. The federal government matches it at 40 percent. Rhode Island was one of just a few states that awarded pain and suffering. Our average award exceeded $10,000. Nationally, the average award was $2,500. We were awarding money that did not exist. We needed to address this, otherwise the federal government was going to pull its funding. We would have become the only state in the country without a program and we would still have a $17 million liability. And we would have blown about $7 million in federal funds. We brought all the interested parties together at a conference. We included the court system; the Attorney General’s office, the legislature, the administration and most importantly, we brought in victim’s rights groups so they could understand the challenge we faced. Out of that conference we presented legislation that would eliminate pain and suffering going forward. With the passage of that legislation we have a program that for anyone who is victim of a crime after September 1, 1999 going forward – it will be on a pay-as-you-go basis. I’m confident in the projections, that we have sufficient funds for that and we will be able to pay at the national average. That left us with a $17 million hole. We went to the General Assembly and pled our case. We were fortunate enough to get an appropriation of $2.2 million. The federal government reconfirmed that it would stay in the program with us. We are also aggressively pursuing perpetrators who we have the right to go after for funding. Although that has always been part of the law, previous administrations never did it. We have 45 court cases now pending. If everything works well, in three to four years we will have the entire backlog paid.
Are these criminals contacted by the treasurer’s office?
We go through the legal system, and check for assets. It is a litigated process.
What is your approach in investing the state’s money – is it aggressive in nature, or a more conservative approach?
We have a fiduciary responsibility to protect the assets that we are entrusted. Based on that, we rely on what is called “The Prudent Man’s Policies on Lending and Investment.” We take into account our liquidity. Because we have an older workforce, Rhode Island has more retirees than it does employees. We need to have liquidity in the system so we can fund payroll. That governs how we invest. I wouldn’t say it is aggressive or conservative. We do an asset allocation study. That determines where we need to be in terms of investing.
Perhaps you could describe the Rhode Island Higher Education Savings Trust (RIHEST) program?
This is a program that we have dedicated our office to advocate for. College education has to be one of the most troubling issues facing families. I can speak to that, personally. My wife and I have five children. Like a lot of people, we don’t know where the years went, but all of a sudden there were two in college and we had not prepared for it. We’re making month-to-month payments, and it’s hard. The expense of education has gone up 195 percent in ten years and it’s going to continue to go up. Presently, anyone going to a public school, the average cost is $10,000 every year for four years. For a private school, it is $85,000 for four years. Our numbers indicate that for a child born today, it is going to cost $200,000 to go to school. Up until now, the avenue available to people was student loans. But we’re seeing the ramifications of that. There are tremendous burdens on young people coming out of school. The better way to do that is to save and save early. We now have a vehicle that makes sense. Given the opportunity, people want to participate. The easiest way we see is through payroll deductions. Putting away small amounts every week. The state has offered payroll deduction for all of its employees, so has Narragansett Electric, General Dynamicswe’re trying to use the visibility and power of this office to get people to take note of this program. The program was offered to Rhode Islanders in 1988 and we presently have over 1,000 accounts and more than $4 million in investments.
You never went to college. What has allowed you to reach such a position, without the benefit of having a college degree?
I have been fortunate in my lifetime that people have given me the opportunity to show what I can do. If someone looks at me strictly on paper, they may come to the conclusion that I am deficient. But whether it was banking, or politically I have been afforded the opportunity to go in and show my mettle. I am a strong proponent of secondary education. I have spent countless hours on scholarship programs and there is my involvement in RIHEST. I do not in any way minimize the importance of that. I have been fortunate that I have been able to obtain knowledge through life experiences and work experiences that have allowed me to progress. There is no substitute for hard work. Hard work is the key ingredient to any recipe for success. The key for me has been that I was able to demonstrate my abilities.
You have been on the job for nearly a year – is it what you expected?
It is, and more. The volume that goes through this office, the day-to-day technicalities are exciting. I see opportunities to enhance the way we do business.
This office strikes me as being less partisan, perhaps, than others.
There are not Democrat dollars or Republican dollars. We address the issues. What is good for the state – and what isn’t?
You seem to be enjoying it.
Very much. My goal is that four years from now or eight years from now, I leave the office better than I found it.
What do you miss most about being in the General Assembly?
The camaraderie. The variety of issues. You would go to a committee meeting and talk about health care and electricity deregulation in the same meeting. I enjoyed in the Senate bringing people with different viewpoints together.
There is currently a debate regarding a proposal to give a tax break to executives earning more than $200,000 per year. The idea is that these business leaders will in turn expand operations and commit more deeply to Rhode Island. But opponents see it as a tax break for those who need it least. Where do you stand?
Tax incentives in general have been beneficial to the state. You can only give so many tax incentives and still have the cash flow to fund services for the state. I am not part of that arena, nor have I had the opportunity to look at it in detail. But when you look at tax incentives, you have look at the cost of one proposal versus the cost of another, like reducing the sales tax. What will produce the best results? There are so many different areas of taxation; you can’t just look at one piece. I am not for or against this particular proposal. I think these kinds of proposals need to be continuously on the table and we need to be aggressive in seeing how we can better our tax structure.
