Public Pensions and Finance Round-up: Friday, Feb 19
by meep
As Pension Tsunami has a posting hiatus, I figure I’ll post the public pension stories that have come up in my recent news alerts.
(Also, I’m realllly tired and don’t have the energy for one of my usual commentaries)
KENTUCKY: HEAD FOR THE EXITS
Kentucky has some of the worst-funded pensions in the country. I’ve written about that last year.
It’s so bad, some of the semi-private state agencies are trying to exit one of the pension plans:
Three large “quasi-public” agencies have asked to exit the Kentucky Retirement Systems, which is struggling with $16.6 billion in unfunded pension liabilities because of a long history of inadequate state funding.
The KRS Board of Trustees on Thursday approved withdrawal applications from Commonwealth Credit Union, based in Frankfort, and Kentucky Employers’ Mutual Insurance and the Council of State Governments, both headquartered in Lexington. The applications are the first under a new state law that allows for an orderly departure from KRS, but they might not be the last.
“This is hardly surprising. The handwriting is on the wall that this pension plan is bleeding red ink, and it is unsustainable,” said Jim Carroll, a member of an advocacy group called Kentucky Government Retirees.
…..
The tricky part for KRS will be asking for enough money to guarantee that Kentucky taxpayers aren’t left on the hook for other people’s employees over the next 40 years, said Chris Tobe, a Louisville financial consultant who sat on the KRS board from 2008 to 2012.KRS makes assumptions about the future when it estimates how much money it needs for the state pension fund, including an investment return of 6.75 percent and payroll growth of 4 percent. Both might be overly optimistic, especially the payroll growth, Tobe said. State government is steadily shrinking its workforce and has provided few, if any, raises in recent years, he said. Gov. Matt Bevin’s proposed two-year state budget calls for no pay raises and 9 percent spending cuts that could bring layoffs.
And we know how important assumptions are.
PUERTO RICO: VERGE OF BANKRUPTCY?
Puerto Rico Is Nearing the Brink Of Bankruptcy
Without the help it has requested, Puerto Rico is going broke.
That’s according to newly-released and unaudited financial documents for the U.S. commonwealth for fiscal year 2014. Last year, Puerto Rican Gov. Alejandro Garcia Padilla acknowledged the island is not able to service its $70 billion debt load. Now, there is “substantial doubt” that San Juan’s government can operate in the long-term.
The documents also said Puerto Rico’s Government Development Bank is at danger of missing upcoming debt payments. The island has a $49.2 billion deficit as of June 30, 2014 — or $2.5 billion more than in 2013 — so cash isn’t available to pay down its loans.
Ahead of the documents’ release late Tuesday, the White House said Puerto Rican labor leaders and business executives met with senior Obama administration officials, including Treasury Secretary Jacob Lew, and Health and Human Services Secretary Sylvia Burwell. Lew acknowledged the extent of the crisis in the commonwealth, and administration officials repeated President Barack Obama’s demand for Congress to give Puerto Rico a version of Chapter 9 bankruptcy protection. That would let the island create a process for its creditors to recoup some of the owed funding. But Obama’s push has stalled in both the House and the Senate.
Not sure if this is going anywhere in a presidential election year.
This doesn’t seem partisan so much as opening up a big can of worms when you consider state public pensions…. they’d love to go bankrupt, too.
WAYNE COUNTY, MICHIGAN: DISPUTE OVER GOVERNANCE
An appointment to the Wayne County Pension board was rejected:
Detroit — Wayne County commissioners Thursday rejected a county executive’s appointment to the pension board.
Wayne County Executive Warren Evans wanted to appoint Yusuf Hai, a Canton resident and managing director of financial services company CIG Capital Advisors in Southfield, to to the Wayne County Employees’ Retirement System Board.
But commissioners voted 13-2 to refuse Hai’s appointment. Commissioners Al Haidous, D-Wayne, and Joseph Palamara, D-Grosse Ile, voted against rejecting the appointment.
…..
The vote was influenced by a federal lawsuit retirees filed Monday against the county over changes to their health care and oversight of the county’s pension system.…..
Commissioner Diane Webb, D-Livonia, said she couldn’t support the appointment because of the lawsuit and a dispute over plans — mandated by union contracts — to add two seats to the pension board.“The outstanding legal issues need to be resolved before we appoint people to the board,” she said. “And I don’t support the reorganization of the pension board at all.”
I’ve been seeing various stories regarding pension fund governance lately.
More on the Wayne County pensions and lawsuit.
NEW YORK: DUDE, WHERE’S MY GOVERNANCE AND OPERATIONS?
New York City’s pensions have operational issues:
The management and operations of New York City’s public pension funds need to be brought “into the 21st century”, the city’s Comptroller said on Tuesday after releasing a report he commissioned on the bureau which runs the funds.
The report on the Bureau of Asset Management, which oversees the investments of $160 billion of New York City pension funds, concluded that the unit’s “current investment strategy presents a very high level of operational risk” and “an operational failure is increasingly likely”.
The report highlighted a number of flaws in the system, according to a summary by New York City Comptroller Scott Stringer.
These included the unit’s organizational structure being too dependent on senior management, which created bottlenecks in decision making.
Ugh.
But what about the state pensions?
NY pension fund misses investment target
ALBANY – New York’s major state pension fund was back in the positives last quarter, but missed its investment goal.
The state’s Common Retirement Fund grew to $178.3 billion from October through December, a 2.88 percent gain from the end of September. It was a noticeable swing from the previous quarter, when stock market unrest helped drop the value of the fund by 4.13 percent.
But the fund — which pays out pension benefits to retired state and local government workers — still fell short of its anticipated rate of return, which is 7 percent over the long term.
…..
DiNapoli, the sole trustee of the pension fund, dropped the fund’s anticipated rate of return in September from 7.5 percent to 7 percent.
Sole trustee. In a state that has been having issues with corrupt politicians.
Oh wait, what about the corrupt NY politicians?
New York’s governor says it adds “insult to injury” that taxpayers have to pay for pensions for elected officials convicted of corruption.
Andrew Cuomo’s comments on Thursday came after the state comptroller’s office announced that two former legislative leaders found guilty of corruption are getting pensions.
Ex-Senate Majority Leader Dean Skelos’ annual state pension is $95,831. Ex- Assembly Speaker Sheldon Silver is getting $79,222.
And a prior Comptroller pled guilty to a Class E felony.
I’m really not happy with there being only one trustee for the NY state pensions.
NY Post piece on why corrupt and convicted pols still receive their pensions.
FLORIDA PROPOSAL: TARGET TOO LOW
Curry’s plan would leave pension plans only partially funded after 30 years:
[Jacksonville, FL] Mayor Lenny Curry’s proposed pension paydown plan would dial back how much the city contributes to its pension plans in the coming years, freeing up tens of millions of dollars annually that go can to other city services.
But because the city would be paying less for many years to its pension plan, it will take much longer to strengthen those plans so they are financially healthy enough to fully fund all the long-term pension payments the city must make to retirees, according to an actuarial report done this month for the city.
…..
The actuarial report shows that on Oct. 1, 2045, the Police and Fire Pension Fund’s assets would be sufficient to pay 58 percent or 65 percent of the pension obligations earned by police and firefighters. The difference depends on the amount of contributions the city puts into the pension fund over that period.In contrast, the funding schedule currently in place calls for heftier annual payments and would get the Police and Fire Pension Fund to a funding level on Oct. 1, 2045 sufficient to cover 98 percent of pension obligations.
Jeez, that’s not much of a proposal.
PENNSYLVANIA: WHO SETS THE ASSUMPTIONS?
Battle over pension agency heads to court:
HARRISBURG — A partisan battle over the future of a state agency that evaluates distressed municipal pension plans for financial soundness is coming before a state appeals court.
Two House Republican lawmakers have filed a lawsuit saying a move by Democratic Gov. Tom Wolf to dismantle the Public Employee Retirement Commission is unconstitutional. Reps. Seth Grove, R-York, and Stephen Bloom, R-Carlisle, seek a preliminary injunction in Commonwealth Court to allow the commission to continue operating until the courts rule on the overall issue.
Wolf said the commission’s work is redundant and can be done by other state agencies, therefore saving money.
The commission performs actuarial calculations for more than 3,000 municipal pension funds. These calculations are key to determining the amounts of more than $250 million in annual state pension payments given to municipalities. The commission also provides actuarial analysis of proposed pension legislation.
“Pennsylvania law requires PERC to prepare an independent, comprehensive actuarial analysis of pension legislation,” said Grove and Bloom. “This is the governor’s attempt to block and delay the debate and enactment of urgently needed public pension reform measures.”
I’m not sure how independent PERC currently is.
And it’s not clear to me that they set any assumptions — if someone else is still setting the key assumptions (like discount rate, mortality tables) and they’re just doing the calculations, I don’t think it makes much difference if it’s a separate commission or folded into other state departments.
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