Public Pensions and Finance Round-up: Saturday, Feb 20
by meep
Listing the pension (and public finance and governance) stories that get caught up in my searches….
BLOG ROUNDUP
Yesterday’s post wsa more about news stories, but let’s make sure we don’t miss the blogs.
Pension Pulse (Leo Kolivakis) notes Canadian Pensions Defy Volatile Markets. He links to this Reuters story at the Financial Post: Canadian pension funds defy volatile markets to achieve 5.4% annual return in 2015.
Here are Leo’s comments:
…the findings of the report confirm that Canada’s large well-governed DB pensions are able to navigate through volatile markets investing directly in public and private markets.
And now that the federal government is courting Canada’s Top Ten to invest in greenfield infrastructure projects, there will be even more opportunities to escape volatile public markets which are here to stay in an ultra low rate/ low return/ highly volatile environment which even top funds find challenging.
In the next few weeks we will learn the 2015 performance on the Caisse, Ontario Teachers, OMERS and HOOPP. I expect it to be in the mid to high single digits but on average, I’m sure they all performed decently.
What’s interesting to note is that the 5.4% annual rate RBC is quoting is for all large Canadian DB pensions, not just Canada’s Top Ten mega pensions which now rank among the largest in the world.
It’s tough finding stable returns that are high enough to cover the valuation assumptions for many public pensions.
Burypensions (John Bury) has two posts since Pension Tsunami went on hiatus.
In chronological order: Christie’s Specious Posturings on Pensions and Health Benefits:
Aside from parading an ignorance of the time value of money in an argument used previously with teachers and different numbers ($195,000 in with $2.6 million out) the issues with this assertion:
- Employee contributions are irrelevant. It all comes form taxpayers anyway. Would it make any difference if employees did pay $2.4 million over their working lifetimes into the systems which they would get from higher negotiated salaries?
- An average government employee might also get $3 million in salary over 30 years with no contributions from them for that salary. Is that too a scandal?
The point is that if we accept $2.4 million as what benefits cost then that should be what is funded for but because of a perverted funding system for pensions (and no funding for OPEBs) the money is not being set aside. This does not make the promised benefits any less or more expensive. It only makes the likelihood of default (through whatever specious reasoning) inevitable.
Lots more in the post. Check it out.
Second, 2017 NJ Budget and Pension Propaganda:
Yet that $6.275 billion that Christie brags about contributing [to the NJ pensions] over seven years totals less than 2/3rds of what the plans are paying out annually right now. Of course there are other sources of funds (local governments and employee contributions) but as…
-real reform are off the table,
-salaries increase,
-retirees keep living longer than expected, and
-if COLAs return…one can make the argument that the Christie years will have seen the largest dollar increase in unfunded pension liabilities foisted on a populace by any other government in the history of the planet.
I agree with Bury that this exhibit on pension contributions is interesting.
It’s pretty much the numbers behind this:
But as Bury mentions, it’s still too little.
Not exactly a pension story but… from Mish at MishTalk: Oregon Liberals Concerned 49 Cent Stamp Will Reduce Voter Registrations
A case came up just today regarding voter registrations and the cost of a stamp. The liberals in question are concerned that the cost of stamp will hamper voter registration.
The solution, amazing enough, is to spend $1.08 to save voter registrants the agony of spending $0.49 to register to vote.
……
Reader Andy who emailed the story commented “Oregon’s public employee retirement fund is underfunded by nearly 22 billion and our representatives are concerned about a 49 cent stamp!”
And the “fix”, of course, is to spend more money.
FOUNDATIONS AND INSTITUTES
These aren’t exactly blogs, but not regular news media, either.
A few from Illinois Policy Institute: ILLINOISANS HAVE NATION’S LOWEST TRUST IN STATE GOVERNMENT BY FAR and
EDUCATION LABOR BOARD TO CHICAGO TEACHERS UNION: NO STEP-AND-LANE RAISES.
On that second one:
The Illinois Educational Labor Relations Board, or IELRB, ruled in favor of the Chicago Public Schools Board of Education on Feb. 18 when it said the district was not required to pay “step and lane” salary increases to members of the Chicago Teachers Union, or CTU. The value of the salary increases is estimated at $26 million.
The CTU wants its members to get raises this year despite having no labor contract in place. The most recent contract expired in June 2015, and the two parties have yet to reach a new agreement. The CTU rejected Chicago Public Schools’, or CPS’, most recent contract offer in early February.
Steps and lanes are part of a complex, arcane and convoluted compensation system for government workers, including CPS employees, that often misleads the public into thinking government workers get smaller raises than they actually do.
That may be related to the first item from IPI.
From the Pew Charitable Trusts, Making State Pension Investments More Transparent: Accountability varies widely and could be improved
This relates to alternative assets – or, more specifically, non-publically traded assets so it’s hard to determine how much they’re worth. I’ve written about this many times.
A lot of the brou-ha-ha has been over fees charged, as with investigations conducted by Ted Siedle. It’s good to ferret out any skullduggery, but it doesn’t require overcharging on fees for these assets to cause concern.
Pew’s recommendations:
In many cases, current disclosure policies make it difficult for policymakers, stakeholders, and the public to gauge the actual performance of these funds. To help interested parties develop a more complete understanding of both the results and the costs of different investment strategies, this brief highlights some specific steps to improve transparency through greater disclosure. States and funds should:
Adopt comprehensive fee-reporting standards, such as those proposed by the Institutional Limited Partners Association’s Fee Transparency Initiative.
Make investment policy statements transparent and accessible.
Disclose bottom-line performance, both net and gross of fees.
Expand reporting to include longer-term performance results.
Report results by asset class, net and gross of fees.
I want to note on the bolded: that’s a problem I have with some of the reports I look at. I really only care about performance net of fees, but I don’t know if they’re giving me the gross numbers. If the fees are wiping out any gains, which they have done in some of these alternative asset set-ups, then that is the real result.
Truth in Accounting: The Governments (plural) of Chicago
For anyone interested in good, old, stuff, the reference desk at the Chicago Public Library is a great resource. A few days ago I walked in and asked for a way to try to look at Chicago in 1960. The librarian immediately walked into the back shelves, and came out with a great book called “The Governments of Chicago,” from 1958.
…..
The average Chicago citizen is walking around on real estate with a number of different, overlapping governmental jurisdictions, each of which poses financial implications for any single taxpayer. The City of Chicago, the Chicago Public Schools, Cook County, and the State of Illinois are all examples of overlapping entities, each providing costly services. Calculating the full ‘Taxpayer Burden’ for a Chicago citizen requires analysis and assessment of his or her exposure to the multiple layers of government that are borrowing money, with future tax implications.There are a number of great sources of perspective in this book, which we aim to use as part of a broader assessment of Chicago today. Written in 1958, the first thing to note is that the Illinois State Constitution of 1870 laid the legal foundation at the time, which has since been supplanted by the Constitution of 1970. The evolution in the legal environment framing city and state finances is worth looking at as part of any assessment of city finances today.
This is the sort of thing I love — digging back decades to get the origin story.
REGULAR OLE MEDIA ROUNDUP
Some of this is opinion, some straight news stories.
NEW YORK: PENSIONS FOR CORRUPT POLS
On the corrupt officials getting their pensions in NY, the NY Post Editorial Board has something to say: Carl Heastie’s pension-protection racket
Gov. Cuomo is right that the enormous taxpayer-funded state pensions just granted to convicted felons Sheldon Silver and Dean Skelos “add insult to injury” — and also to point the finger of blame squarely at Silver’s successor, Assembly Speaker Carl Heastie.
State Comptroller Tom DiNapoli confirmed Wednesday that Silver will be getting a $79,222 annual pension despite his conviction on public-corruption charges. Skelos, the equally guilty Senate ex-leader, will rake in even more — $95,831 a year.
And they both have Heastie to thank for it.
That’s because the speaker and his fellow Democrats have refused for well over a year to pass a measure — already approved by the GOP-controlled Senate — to retroactively strip corrupt pols of their pensions.
…..
Heastie — echoing complaints from government-workers unions — claims the GOP version is too broad and should be limited only to political officials.Why? The amendment would strip the pension of anyone “convicted of a felony related to public office.” Any such person deserves to lose his or her pension — no matter how high or low their office.
Cuomo calls Heastie’s claims “insulting to the public” and is urging people to tell their legislators to “revoke the pension of any person convicted of a crime in office, period.”
But but but… what if a teacher is convicted of a felony for something they did with a student… why should they lose their pension? WHYYYYYYYY?
My own thought: given the Skelos & Silver cases, some of those politicians are scared of losing their own pensions. I mean, have the Assembly come up with their own, more-focused bill?
In looking for that answer, I came across this: Albany squabble threatens pension-stripping plan:
Gov. Andrew Cuomo has called it “perverse.” Both the state Senate and Assembly have approved measures that would allow for pension stripping, albeit in different forms. And 84 percent of New York voters say it should happen, according to a Siena College poll last week.
…..
The Legislature has to start the constitutional-amendment process this year for it to take effect at the start of 2018. If it doesn’t, the earliest it could happen is 2020.“I more than understand that there’s nothing guaranteed in Albany, but I do think a great many of my colleagues understand that 2016 is the year that this needs to get done,” said Assemblyman David Buchwald, D-White Plains, who sponsors a pair of pension-forfeiture bills.
I wrote about Buchwald’s bill in November.
What I wrote then:
My prediction: the Assembly will continue to stonewall. After all, they’re there to protect corrupt officials, not the voters.
Back to the LoHud article:
Late last March, Cuomo and the leaders of the Republican-led Senate and Democratic-led Assembly appeared to strike a deal on pension stripping as part of a last-minute agreement on the state’s $142 billion budget.
But the apparent agreement quickly fell apart.
While the Senate gave first approval to an amendment March 31, the Assembly wrapped up its budget votes in the early hours of April 1 without voting on it.
When the Assembly did approve a pension-stripping amendment in June, it varied greatly from the Senate version — laying out in much greater detail what types of workers would be affected in what situations.
“We had a three-way agreement, and the Senate passed what was agreed-upon,” Senate Majority Leader John Flanagan, R-Suffolk County, said last month. “The Assembly chose not to. They need to do better.”
On Tuesday, Assembly Speaker Carl Heastie, D-Bronx, said the chamber’s Democrats are looking for “clarity” in the amendment.
The Assembly’s majority wants the specific changes to be laid out in the constitution itself — which would make it harder to change in the future.
The version passed by the Senate, Heastie noted, allows for specifics to be plugged in by law, an easier process than altering the constitution.
Oh boo hoo.
The article has a handy list of corrupt pols:
Here’s a list of former state lawmakers collecting a pension after they were convicted of a felony:
Sheldon Silver, D-Manhattan, Assembly speaker. $79,223 a year. Convicted in 2015 of fraud and extortion.
Thomas Libous, R-Binghamton, Senate deputy majority leader. $57,744 a year. Convicted in 2015 of lying to the FBI.
Dean Skelos, R-Nassau County, Senate majority leader. Filed for retirement, but pension data not yet publicly available. Convicted in 2015 of fraud and extortion.
Alan Hevesi, D-Queens, state comptroller and assemblyman. $106,301 a year. Pleaded guilty to official misconduct in 2010.
Malcolm Smith, D-Queens, Senate majority leader. $24,246 a year. Convicted in 2015 of conspiracy, extortion and fraud.
Gloria Davis, D-Bronx, assemblywoman. $63,162 a year. Pleaded guilty in 2003 to bribery-related charges.
Pedro Espada, D-Bronx, senator. $7,346 a year, but payment is intercepted for restitution. Convicted of embezzlement-related charges in 2012.
Efrain Gonzalez Jr., D-Bronx, senator. $37,193 a year. Pleaded guilty in 2006 to mail fraud.
Diane Gordon, D-Bronx, assemblywoman. $10,653 a year. Convicted in 2008 of bribery and official misconduct.
Shirley Huntley, D-Queens, senator. $7,433 a year. Pleaded guilty in 2013 to embezzlement scheme.
Gerald Johnson, R-Nunda, Livingston County, assemblyman. $40,671 a year. Pleaded guilty to attempted burglary in 2000.
Carl Kruger, D-Brooklyn, senator. $58,011 a year. Pleaded guilty in 2011 to bribery-related charges.
Vincent Leibell, R-Patterson, Putnam County, senator. $61,739 a year. Pleaded guilty in 2010 to bribery and tax-evasion charges.
Brian McLaughlin, D-Queens, assemblyman. $14,365 a year. Convicted of racketeering and embezzlement in 2008.
Clarence Norman, D-Brooklyn, assemblyman. $43,934 a year. Convicted in three separate corruption trials between 2005 and 2007.
Nicholas Spano, R-Yonkers, senator. $70,155 a year. Pleaded guilty in 2012 to underreporting his income between 2000 and 2008.
Here’s my next question: in the Assembly bill, would all of these people lose their pensions? Or only some of them?
NEW JERSEY: YOU THOUGHT ILLINOIS’S BUDGET FIGHT WAS NASTY?
A fight is coming over pensions, minimum wage, sick leave:New Jersey business groups announced Friday they’re forming a coalition to launch a campaign against Democratic-backed efforts to raise the minimum wage, mandate paid sick leave and constitutionally require hefty contributions to government worker pensions.
…..
“… These things reared their ugly heads less than a month ago and all of a sudden are destined to be on the ballot,” Bracken said. Democrats want to amend the constitution to force the state to make pension contributions and will also seek an amendment boosting the minimum wage if they can’t get it done legislatively.…..
The pension proposal, spearheaded by Senate President Stephen Sweeney (D-Gloucester) would constitutionally require the state gradually increase payments into the declining public worker pension system. The state portion of the fund is underfunded by about $40 billion. Business leaders warn that putting the payment plan into the state constitution would create a “super priority” spurring tremendous spending cuts or tax hikes.
They never made full pension contributions in the past decade. The Senate President is proposing something that the NJ Senate hasn’t managed to do in years.
Here’s one pattern I’ve showed before:
But wait, that’s not the worst:
Sure, that stops in 2012, but I went to the combined CAFR to get info. This is what it said (numbered page 53, PDF page 56):
2013 ARC for Teachers Pension and Annuity Fund: $2.3 billion
2013 actual contribution: $647 million (only 28% of the ARC)
2013 actual contribution as % of payroll: 6.6%
2013 ARC as % of payroll: 24%
2014 ARC for Teachers Pension and Annuity Fund: $2.2 billion
2014 actual contribution: $392 million (only 18% of the ARC)
2014 actual contribution as % of payroll: 3.9%
2014 ARC as % of payroll: 22%
And I believe that reduced ARC in 2014 was due to assuming the COLAs were gone. But they’re not going to be gone, as New Jersey is going to lose its case. That’s my prediction, at least.
MASSACHUSETTS: OPEN THE BOOKS
State official urges MBTA pension board to release audit results:
Members of the MBTA pension board attended their regular monthly meeting Friday with pressure mounting on the group to release results of an internal audit that is holding up the Commonwealth’s year-end reporting.
The state’s comptroller, Thomas Shack, on Tuesday released an unaudited draft of the state’s fiscal 2015 financials — minus the pension fund’s annual results — and urged the $1.6 billion T pension fund to be more transparent.
….
The pension fund for transit workers was organized as a private trust and does not hold public meetings or disclose records beyond its annual financial report and its investment return. The T pension board in December hired an outside consultant to conduct a forensic investigation of its assets and liabilities, after a critical report last June called the reporting into question.
ARIZONA: STUCK IN THE QUAGMIRE
Arizona’s Deepening Public-Pension Quagmire:
In 2011, Arizona enacted reforms to its Public Safety Personnel Retirement System (PSPRS), which at the time also included the Elected Officials Retirement Plan (EORP). The changes required active employees to contribute more toward retirement, suspended retirees’ cost-of-living adjustments (COLAs) and conditioned future benefit increases on the fund’s financial health. As a result, police and firefighter contributions increased from 7.65 percent of salary to 11.65 percent and about 200 judges saw their retirement contributions jump from 7 percent of salary to 13 percent.
A 2014 state Supreme Court ruling restored retiree COLAs, which added $1.5 billion to the system’s unfunded liability. Now a case brought by two active judges challenging the increased employee contributions has made its way to Arizona’s Supreme Court after a lower court ruled that the state must refund the increased contributions. The refunds would cost about $175 million.
Here’s where things start to get particularly interesting. While the judges’ case is before the Supreme Court, that’s not exactly who will be hearing it. Four out of the five justices recused themselves because they would benefit from any refund. The fifth, Justice Clint Bolick, was appointed after the EORP was closed to new members in 2014, so he will be part of a special five-judge panel that will hear the case. And since the EORP was part of the Public Safety Personnel Retirement System, the panel’s ruling will also affect police and firefighters.
This is one of the big problems I’ve had with these sorts of “You can’t ratchet down our benefits EVAR!” court cases — usually, the cases are being heard by people who are directly affected by the rulings they make.
And the problem is they usually can’t find anybody without that problem.
PENNSYLVANIA: MORE ON PERC
Wolf, Representatives at Odds Over Pension Commission
Two Pennsylvania representatives are suing Gov. Tom Wolf in Commonwealth Court over his discontinuation of the Public Employees Retirement Commission. Their suit makes a familiar claim regarding Wolf’s actions—that he exceeded his authority as governor.
Rep. Stephen Bloom, R-Cumberland, and Rep. Seth Grove, R-York, filed a petition for review and application for special relief Feb. 12 in the Commonwealth Court. They are seeking an injunction on Wolf’s alleged dissolution of PERC, which resulted from Wolf’s line item veto of an appropriation for PERC in the General Appropriations Act of 2015.
PERC has been tasked with reviewing proposed pension reform legislation and reviewing Pennsylvania’s municipal pension plans. The representatives contend it was created to “meet the need for a completely independent state and local pension review agency.”
In an answer to the suit, Wolf has said that was not the plainly stated intent of the law creating PERC. He said the commission’s functions can still be fulfilled.
I really have no idea if this PERC thing is something to be concerned about.
KENTUCKY: PENSIONS SUCKING FUNDS FROM OTHER PARTS OF BUDGET
Yes, that happens when you massively underfund a pension. The money has to come from somewhere.
Pension crisis threatens education funding:
It has been more than nine years since the Prichard Committee for Academic Excellence joined the Kentucky Chamber of Commerce and the Kentucky League of Cities in calling for action to curtail the escalating growth in the state’s public pension and health care costs.
At the time, our founding executive director, Robert F. Sexton, made a direct point: “There are several ways to look at the numbers on this. They’re all bad.”
Since then, the state has made some progress in controlling public employee health care cost increases. But the pension situation has continued to worsen and has now clearly reached a critical stage.
In one way, there is a direct connection between education and the pension crisis. The Kentucky Teachers’ Retirement System’s pension fund, with more than 127,000 active and retired employees, has unfunded liabilities of $13.9 billion and a funding ratio of 55.3 percent.
….
Bond rating agencies have lowered Kentucky’s credit rating several times in recent years, citing unfunded pension liabilities as a key factor. That means the state must pay more to borrow the money it uses to build public projects – like schools. This is no different from the effect our personal credit rating has on what it costs us to borrow money.A real-world illustration of the impact of higher borrowing costs on capital projects can be found in Illinois, the only state with a lower ranking on pension funding than Kentucky. A downgraded credit rating in that state increased the cost of a bond issue by an amount that would have funded the construction of 12 elementary schools.
Kentucky’s most recent credit rating downgrade came last September, and we can only expect further erosion if we fail to pay down our unfunded pension liabilities.
And that’s all I have for today!
