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  #1821  
Old 12-05-2018, 09:37 PM
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IOWA

https://reason.org/commentary/iowa-p...m_medium=email

Quote:
The Iowa Public Employees Retirement System Needs More Than a Year of Solid Returns
IPERS’ unfunded accrued liability grew from $441 million in fiscal year 2001 to $6.97 billion in fiscal year 2017.
Spoiler:
Recent reports of strong investment gains for the Iowa Public Employees Retirement System (IPERS) are good news but shouldn’t be interpreted as a sure sign of future solvency. Although exceeding investment expectations in any given year improves the health of a pension plan, a single year, or even a few years of solid returns, are not enough to completely balance a retirement system that is expected to pay out benefits to retirees for decades to come. Likewise, investment returns are volatile—impressive gains in any given year can easily be offset by future loses.

To address the issue of volatility within pension investment portfolios, pension managers and actuaries employ asset smoothing. This method allows investment gains and losses to be spread out over multiple years, substantially reducing the impact of returns from a single year on overall solvency. Applying this method can help prevent wild swings in the required year-to-year contributions.

A quick look at the 2016 IPERS valuation report (see page 3) illustrates the volatile nature of investment gains. For example, fiscal year 2015 ended with $514 million in deferred investment gains. However, the same valuation report showed a 6.65 percent actuarial rate of return in fiscal year 2016, which was below the long-term assumed rate of return of 7.5 percent. This underperformance eliminated positive investment gains from the years before, creating a deferred investment loss of $708 million.

In the most recent 2017 IPERS valuation report (see page 4), the plan boasted a 7.86 percent actuarial rate of return, outperforming the assumed rate of return. This is good news. The strong investment performance resulted in a gain of $102 million, offsetting some of the losses from previous years.

However, this sort of near-term volatility should not be the basis on which Iowa stakes the retirement future of its public servants. What is essential to pension plan managers, and consequently public workers and taxpayers, is the overall health and long-term stability of the pension system.



A standard measure of pension health called the funded ratio compares a pension plan’s current assets to the value of benefits a plan has promised to pay out (the accrued liability). As shown in Figure 1 above – IPERS’ unfunded accrued liability—or the value of future pension benefits promised but not currently funded—grew from $441 million in fiscal year 2001 to $6.97 billion in fiscal year 2017. In fiscal year 2017, the funded ratio for IPERS was 81.4 percent, which is well below the peak of 97.2 percent funding the plan experienced in fiscal year 2001. Furthermore, the American Academy of Actuaries’ Pension Practice Council recommends a funded ratio of 100 percent, a condition which would imply all currently invested plan assets are sufficient enough to earn the assumed rate of return needed to provide the benefits promised to future retirees.

Although investment experience has an impact on the funded ratio and accrued pension debt, it is just one of several factors. Statutory limits on contribution rates have arbitrarily limited required payments into the system, resulting in frequent contribution deficiencies. Missed assumptions such as unexpected demographic changes have also played a role. Similarly, IPERS has adopted more conservative assumptions for future investment returns, which affects the valuation of plan liabilities.

The aforementioned issues are illustrated below in Figure 2. From fiscal year 2001 to fiscal year 2017, underperforming investment returns accounted for $1.96 billion in accrued debt. During the same period. During the same period, contribution deficiencies accounted for $1.19 billion in accrued debt. This massive growth in unfunded pension liabilities is also evident in the steady decline of the plan’s funded ratio (see Figure 1).



Fortunately, the U.S. is in the midst of one of the longest ongoing economic expansions in American history, the benefits of which have been well noted in financial indices, manifesting into notable gains for private and institutional investors nationwide. Pension funds are no exception to this.

However, strong investment gains are not guaranteed and cannot indefinitely mask structural issues. The Iowa state government has a duty to uphold its obligations made to state workers. Retirement benefits are a form of deferred compensation and represent an earned benefit. To ensure the retirement security of public servants, state legislators should explore those factors that have and could continue to impact the fiscal solvency of the system in the long run if left unchecked.


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  #1822  
Old 12-06-2018, 11:14 AM
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NEVADA

https://www.npri.org/press/pers-file...-court-ruling/
Quote:
PERS files motion to overturn recent Nevada Supreme Court ruling

Spoiler:
Apparently, not even repeated losses before the state Supreme Court will make some government officials comply with the Silver State’s public records law.

It’s another example of why lawmakers need to add teeth to the Nevada Public Records Act.

In October, the Nevada Supreme Court reaffirmed that the public is entitled to information regarding taxpayer-funded pensions paid to government retirees.

Yet rather than accept the Court’s clear and well-reasoned decision, the PERS Board instead chose to extend the legal battle — at taxpayer expense — by voting 4-2 last month to file a petition for rehearing.

Rehearing petitions allow parties to ask the Court to reverse itself on the grounds that its previous ruling contained a significant error of fact or law.

“PERS conflates its dissatisfaction with the Court’s ruling with actually having a legitimate legal basis to petition for rehearing,” argues NPRI Policy Director Robert Fellner.

In the petition, the agency merely repeats the same meritless arguments they have made at every turn throughout this multi-year legal battle, rather than identifying any actual error of fact or law within the Court’s ruling.

However, while it is unlikely that the petition will succeed in convincing the Court to reverse itself, it has allowed PERS to, once again, delay production of the requested public records by several months.

“Despite having the most favorable outcome possible at every stage of the legal process, taxpayers are still unable to view the records first requested by Nevada Policy in 2015,” Fellner says.

The delay tactics used by PERS highlights just how prohibitive it is for the average citizen to enforce their rights under the law, according to Fellner.

“How many ordinary citizens can afford to engage in such a lengthy legal battle? Taxpayers wishing to understand how the government spends their money should not be forced to spend years in court just to get the government to comply with its own transparency law,” Fellner said.

It’s for this reason that lawmakers need to treat Nevada’s public records law the same as every other law and add penalties for those who choose to violate it.

Unfortunately, the lack of penalties for violating the public records law has created a culture in Nevada government where officials are often quick to deny a legitimate public records request.
It’s a problem that extends far beyond PERS.

The Incline Village General Improvement District’s refused to provide its own Board Treasurer with copies of basic financial records.
The Clark County School District (CCSD) denied a request for a copy of an employee directory.
CCSD denied a request to provide information related to its decision to bar a school trustee from district property.
CCSD refused to release any emails sent by a staff executive, claiming every single one of them contained confidential information.
Metro denied to release records relating to the 1 October shooting — creating a level of secrecy and uncertainty that contributed significantly to the wild speculation and fearmongering that unfortunately followed the tragedy.
The Washoe County School District hid a taxpayer-funded investigation regarding allegations of bullying and harassment within its special education department.
“And the list could go on and on,” says Fellner. “This trend is evidence of the pressing need for the Legislature to add teeth to Nevada’s open records law.”

Doing so, however, requires a legislative fix.

“Lawmakers must amend Nevada’s public records law to give courts the ability to hold government officials who violate the law personally liable for the requester’s fees,” explains Fellner.

“After all, what good is a law, if there is no penalty for ignoring it?”

For a complete chronology of the legal events and arguments regarding the ongoing PERS lawsuit, please click here.

And to learn more about Nevada Policy’s work on the importance of a transparent and accountable government, please click here.


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  #1823  
Old 12-07-2018, 10:48 AM
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ILLINOIS

https://www.illinoispolicy.org/happy...ension-crisis/

Quote:
HAPPY BIRTHDAY: THE SOLUTION THAT NEVER WAS TO ILLINOIS’ PENSION CRISIS

Spoiler:
Illinoisans should know lawmakers in the past made big moves to fix the state's worst-in-the-nation pension crisis. It’s politically possible. They just need a little reminder of our history.

Illinois was born 200 years ago this week. But another significant birthday should provoke pause, because it points the way forward for our struggling state.

Five years ago, on Dec. 5, 2013, then-Gov. Pat Quinn signed into law a suite of pension reforms passed by Democratic supermajorities in the Illinois House and Senate.

They weren’t perfect. Lawmakers didn’t take pensions out of political hands entirely. Some thought the changes didn’t go far enough to protect taxpayers. And ultimately, reformers were either willfully blind or did not foresee the harsh treatment they would receive from the Illinois Supreme Court.

But the reforms were historic.

Barring their judicial demise, they would have brought about the most significant improvements to Illinois’ fiscal health in generations – changing the course of the state entirely.

How could something as tedious as pension reform stand among the most important legislative actions in Illinois history? Here’s how:

The state’s number crunchers estimated the pension reform bill would have saved taxpayers between $1.1 billion and $1.4 billion in each of the budget years under Gov. Bruce Rauner. Savings of that size would have made the budget impasse between Rauner and House Speaker Mike Madigan much less likely.

No social service cuts. No racking up unpaid bills. No record-breaking income tax hike. All of this, without cutting a dime from current pension benefit checks for retirees and protecting every single active employee’s earned benefits.

With Democratic supermajorities and a Democratic governor set to take office in 2019, it’s worth revisiting what made those reforms so important.

First, what did they do? And second, how can lawmakers tackle them again without running afoul of the courts?

The most important thing to know about the 2013 reforms is that they protected already-earned retirement benefits. But they changed the accrual of future benefits.

Changes to future benefits focused on three areas: The first was increasing the retirement age for current state workers younger than 45. The second was capping workers’ maximum pensionable salary, with future growth in the cap pegged to inflation. And the third was to eliminate 3 percent guaranteed post-retirement raises in favor of a true cost-of-living increase tied to inflation.

These might seem like small changes on their own. But taken together, they would be extraordinary.

Actuarial projections at the time showed the state’s entire pension debt would have been eliminated or nearly eliminated by 2045, all while increasing the funding target for the largest state pension funds to 100 percent from 90 percent, and slightly decreasing the contributions employees had to make to their own retirement.

Today, pensions consume more than a quarter of the state’s general funds budget. That, or worse, will remain the case for decades without changes.

Under the 2013 reforms, that share would have fallen to just over 1 percent by 2040.

So why did the Supreme Court stand in the way?

The majority opinion cited the pension clause of the Illinois Constitution, stating pension benefits may not be “diminished or impaired.” It controversially considered promises of future benefits as part of that clause. In other words, if you’re hired as a young worker in 1970, you have the right to an automatic 3 percent raise in your retirement check in 2020.

This extreme reading of the constitution again was upheld by the justices as the reason Illinoisans must pay 23 Chicago union leaders an estimated $56 million in inflated pension payments based not on their public salary, but on their union salary.

Lawmakers passed the perk into law, were ridiculed, and then changed the law back.

Ah, ah, ah … “diminished or impaired.” A promise is a promise. The Illinois Supreme Court ordered Nov. 29 that the state honor this outrageous benefit.

That’s why a constitutional amendment is so necessary. And it doesn’t have to eliminate the pension clause in order to allow cuts.

A solid amendment simply needs to allow for changes in future benefits, while protecting what has already been earned by public employees. Voters could approve the amendment as early as 2020, and lawmakers could pass specific reforms that trigger the morning after Election Day.

Those changes need to be a bit more substantial than in 2013, because the problem has grown tremendously since then. But the principles can remain the same.

Illinois’ worst-in-the-nation pension crisis causes despair. It’s a massive problem, constantly bemoaned, that appears unsolvable.

But Illinoisans should know lawmakers in the past made big moves to fix it. It’s politically possible. They just need a little reminder of our history.
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Old 12-07-2018, 11:00 AM
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CHICAGO, ILLINOIS

https://chicago.suntimes.com/feature...-54-million-go


Quote:
MAYOR'S NEPHEW, BACKER GOT $9 MILLION IN FEES, MOST OF THAT FOR MANAGING DEALS THAT TANKED
Spoiler:
If there ever was any hope that five Chicago city workers pension funds would make any money by investing $68 million with then-Mayor Richard M. Daley’s nephew and one of his key political supporters, it didn’t last long.
Only months after the deals were made a dozen years ago, problems began to emerge.

The nephew, Robert G. Vanecko, and his business partner Allison S. Davis, a developer who gave campaign money to Daley and was appointed by the mayor to head the Chicago Plan Commission, started investing in a series of property deals that, by the time the last of them are unwound by the end of December, will have cost the city workers pension funds 80 percent of the $68 million they put in — $54 million in all.

Vanecko and Davis set up a company, DV Urban Realty Partners, and bought an apartment building that was riddled with code violations.

They invested in a vacant building that once housed the Chicago Defender, even as City Hall inspectors threatened to tear it down unless repairs were made.

They put city employees’ pension money into an old warehouse that sat on land so poisoned with arsenic and lead that the pension funds had to help pay $2.6 million for cleanup just to be able to unload it at a huge loss.

The pension properties
A 344-unit South Loop tower | The former Chicago Defender building | A West Loop office building | A South Shore apartment building | 35th and State storefronts | Former postal workers union HQ | A site on polluted land | A new Mariano’s in Lake View
They lent millions of dollars to developers who personally guaranteed to repay the money but never did, costing the pension funds more than $5.6 million.

DV Urban broke a contract to buy a building in the South Loop, a decision that cost the pension funds another $4 million.

And somehow they even lost money — more than $11 million on the deal that built a busy Mariano’s supermarket in the North Side neighborhood of East Lake View, a location that has 90,000 people living within a one-mile radius.

As the investments made with Vanecko and Davis plummeted in value, the pension funds still had to live up their commitments to keep putting in the money they promised to DV Urban — which listed Davis, a developer who is African-American, as the 51 percent majority owner. That provided the pension funds with some cover for doing business with the mayor’s family, allowing them to say they had hired a minority-owned company, which historically they seldom had done.

Vanecko pulled out of DV in June 2009, as federal investigators were nosing around, issuing subpoenas regarding the pension boondoggle first exposed by the Chicago Sun-Times in September 2007. But that wasn’t until after he had played a key role in setting up all of the deals that cost the pension funds most of the money they invested, even as they guaranteed DV Urban a steady flow of management fees no matter how well or poorly the investments fared.

And Vanecko wasn’t the only Daley family member involved. Daley & George, the law firm headed by the mayor’s brother Michael Daley, worked on some of the projects. So did another mayoral nephew, Patrick Daley Thompson, a lawyer who is now alderman representing the family’s longtime power base, the 11th Ward.

After the first Sun-Times report appeared, headlined “Mayor’s nephew cashes in,” Daley’s press secretary said he had nothing to do with giving the city business to his nephew, saying, “He doesn’t do things like that. It’s just not his way.”

But three top city officials in Daley’s administration had a role in handing the millions of dollars in city employees’ retirement money to Vanecko and Davis. They had seats on four of the pension fund boards that agreed to invest with DV Urban.

Even now, years after the pension debacle was set in motion, representatives of the pension funds are reluctant to discuss what happened and whether they might still be able to recover any of the lost money.

One pension official is afraid the funds could be sued for breaching their fiduciary duty to their members — hundreds of thousands of retired and current Chicago teachers, police officers, garbage collectors, bus drivers and other city workers.

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Some of those involved have laid blame for the financial losses on a factor they say was outside anyone’s control: the drastic downturn in the economy and the real estate market that hit as Vanecko and Davis started their business.

But insiders say there were other problems.

“This was a combination of bad deals and bad timing and not great management,” one says. “A basic thing you do when you manage a fund is you have audited financial statements, you have tax returns that you file with the investors. They didn’t file two or three years of tax returns or financial statements.”

That’s one reason it’s difficult to unravel the real estate deals Vanecko and Davis made and pinpoint how these five drastically underfunded city pension funds lost so much money.

There’s no question about what happened to $9 million of it: It went to Davis and Vanecko in fees, primarily for managing the pension funds’ money that they largely lost.

For more than a decade, the Sun-Times has been reporting on what an early story called “Daley nephew’s risky pension business.”

Now, based on thousands of pages of financial reports, property records, bankruptcy case files, lawsuits and other public records, here is a detailed look at the nine real estate deals Davis and Vanecko made with the pension funds’ money and, as much as it’s possible to determine, where the money went.

1212 S. Michigan Ave.
A 344-unit apartment building with stunning views of Lake Michigan
1212 S. Michigan Ave. | Victor Hilitski / Sun-Times

Map of 1212 S. Michigan
Daley’s brother-in-law, Dr. Robert M. Vanecko, a former chief of staff at Northwestern Memorial Hospital, introduced his son to Davis, according to a deposition the younger Vanecko gave in a lawsuit filed over a pension fund deal.

The son, now 53, had been a lawyer with the firm Mayer Brown and an investment banker. Davis, now 79, ran a small law firm where future President Barack Obama got his first job after Harvard Law School and later became a developer of subsidized housing.

After securing investments of $68 million from five city pension funds — the Chicago Teachers’ Pension Fund, Chicago Policemen’s Annuity & Benefit Fund, Chicago Municipal Employees’ Annuity and Benefit Fund, Chicago Laborers’ Annuity and Benefit Fund and the Retirement Plan for CTA Employees — Davis and Vanecko made their first deal.

It was to buy a high-rise apartment building that had been sold less than two years earlier for $43.6 million.

Davis and Vanecko paid $65.2 million in September 2006 to buy the building. In addition to using $9.9 million of pension money, they got a $56 million loan from General Electric Capital.

Over the next five years, DV Urban reported, it sunk $16 million in pension money into the property, hiring a company owned by Davis’ son, Cullen Davis, to manage it.

In November 2011, DV Urban sold the building for $65.5 million — slightly more than it paid five years earlier.

According to a knowledgeable source, DV Urban turned a $6 million profit on the deal.

But the pension funds didn’t get a dime, losing at least $9.9 million on the building.

Five months ago, the building again was sold — for $92.5 million.


2400 S. Michigan Ave.
The former headquarters of the Chicago Defender in the historic Motor Row District
The former Chicago Defender newspaper building at 2400 S. Michigan Ave. | Victor Hilitski / Sun-Times

Map of 2400 S. Michigan
This vacant building ended up in DV Urban’s portfolio after a pair of unusual transactions that inflated the price of the property by $413,000 in a single day.

It started with the estate of Lev Stratievsky, a Russian mobster who died while awaiting trial on charges that he was involved in money laundering for Ukrainian drug deals. The estate sold the property for $3,720,000 on June 8, 2007, to a business owned by Jeffrey Duerwachter, then 39, of Wilmette.

Duerwachter immediately flipped the property for $4,133,000 to a company owned by Matthew O’Malley, a friend of the Daley family who had been given sweetheart deals from City Hall to operate the Park Grill and Chicago Firehouse restaurants, and his partner, Brian J. O’Connell, a developer from La Grange.

O’Malley and O’Connell bought the building with a $3.3 million loan from First Chicago Bank & Trust, a $500,000 loan from Joseph Peterchak and Jeanne Picerene and $1 million in pension money from Davis and Vanecko. DV Urban guaranteed to repay the bank loan, while O’Malley and O’Connell personally guaranteed to repay DV for the $1 million loan as well as a second loan of $1,590,850 they got in May 2009 to repay Peterchak and Picerene.

Those two loans had an interest rate of 18 percent and have been in default since April 2011, with a total of $2,848,149 unpaid, according to yearly audits for the pension funds. There doesn’t appear to have been any attempt to collect on the personal guarantees made by O’Malley and O’Connell and recover money for the pension plans.

Three months after O’Malley and O’Connell defaulted on the pension fund loans, First Chicago foreclosed on the bank’s loan, resulting in a years-long court fight that ended when O’Malley and O’Connell sold the property in February 2014 for $4.26 million to repay the delinquent mortgage.

The sale came as City Hall filed another lawsuit against the property, demanding that the building be torn down if “the dangerous and unsafe conditions” weren’t corrected.

The five Chicago pension funds got $475,000 from the sale — about 18 percent of the pension money DV Urban put into the deal.

It’s unclear what O’Malley and O’Connell did with the money they borrowed from DV Urban. They never made any improvements to the former Defender headquarters, now known as Revel Motor Row and hosts private events.


217 N. Jefferson St.
A six-story office building in the West Loop
217 N. Jefferson St. | Victor Hilitski / Sun-Times

Map of 2400 S. Michigan
When the Uhlich Children’s Advantage Network moved out, Davis and Vanecko invested $2,650,000 of pension money in the property in July 2007, teaming with Terrapin Properties, an investment group that already owned half the building.

“They put up enough that we made them our co-general partner,” says Jake Geleerd who headed Terrapin with Michael Ezgur. “They were a co-general partner with us for the whole building.”

DV Urban ended up investing $4,495,555 in the building, and the partnership obtained several mortgages from a Highland Park bank, including one for $11.7 million in 2009.

Things got complicated in 2012, when the pension funds ousted Davis, leading to a court battle that continued until this summer.

The pension funds brought in Newport Capital Partners to take over DV Urban, with instructions to liquidate all of the real estate investments Davis and Vanecko made.

When Newport put the property up for sale, it discovered that Bank of America had a $2.7 million loan that needed to be repaid.

Eventually, the building was sold in March 2015 for $14.5 million. The pension funds got $4.5 million.

The money the pension funds got included $796,000 to cancel $2,730,094 in loans DV Urban had made to Terrapin, whose investors personally guaranteed to repay the money but didn’t.

Davis and Vanecko let the loans go into default in May 2008. They remained in default through 2017, according to an audit.


7100 S. South Shore Dr.
A 162-unit apartment building
7100 S. South Shore Dr. | Victor Hilitski / Sun-Times


This vintage apartment building had a history of housing code violations when Davis and Vanecko bought it for $11.5 million in July 2007, including $6.5 million in pension money.

The code violations continued after they bought it, records show, with City Hall suing, seeking fines of $8,000 a day until repairs were made.

The building was managed by DV Property Management, run by another Davis son, Jared Davis.

By the time the pension funds dumped DV Urban in 2012, their investment in the property topped $9 million. Newport Capital sold the building in March 2015 to a New York company for $6,750,000.

The five pension funds lost all of their original investment — plus $173,082 more to pay off a loan from Private Bank.


3508 S. State St.
Storefronts in a Chicago Housing Authority development
3508 S. State St. | Victor Hilitski / Sun-Times

Map of 3508 S. State
After Daley tore down the Stateway Gardens housing project, his CHA board and its management firm, The Habitat Company, hired Allison Davis in 2001 to redevelop the property with townhomes and stores. The taxpayer-funded deal was to pay Davis — Daley’s plan commission chairman — and his company $2 million in development fees.

Davis and Vanecko bought the storefronts in August 2007 for $4.2 million in a deal that included $3.5 million from the pension funds.

DV Urban rented out the storefronts, which included a Starbucks and Jimmy John’s, but had difficulty keeping some of the stores leased. And Starbucks had concerns about violence in the area, a block from Chicago police headquarters, but eventually renewed its lease.

Newport Capital sold the stores for $2.4 million in December 2016. After repaying a bank loan, the pension funds got $1.1 million, a fraction of their original investment.


1411 S. Michigan Ave.
Former headquarters of the National Association of Letter Carriers
1411 S. Michigan Ave., right, a high-rise has been built on the site of former postal workers union headquarters. | Victor Hilitski / Sun-Times

Map of 1411 S. Michigan
Hoping to cash in on booming development in the South Loop, the union decided to move, building a new home in Bronzeville that would largely be financed by selling the two-story building and surrounding parking on Michigan Avenue just south of O’Malley’s Chicago Firehouse, a restaurant close to Daley’s home.

On the union’s behalf, Ernest Sawyer, former Mayor Eugene Sawyer’s brother, reached out to see whether Davis was interested.

He was. Davis and Vanecko submitted the highest bid, a deal negotiated by two attorneys from the Daley & George law firm: Allan Kelly Ryan IV, husband of Vanecko’s cousin Anne Daley, whose father runs the law firm, and Dennis Aukstik, former brother-in-law of William Daley.

The Daley firm also worked on several other pension fund deals for DV Urban, according to Vanecko’s deposition.

Under the contract Davis and Vanecko signed in August 2007, DV Urban agreed to pay the postal workers union $8.5 million for the property, including nearly $4.7 million from the pension funds.

DV Urban gave the union a “predevelopment” loan of $400,000, earnest money of $850,000 and a $2.9 million line of credit — money the union needed to build its new headquarters and move.

Under the deal, DV Urban could back out if the newly elected alderman of the Second Ward, Robert Fioretti, didn’t OK their unspecified plans, which they said might include a hotel, condos or apartments.

In a deposition, Davis said he spent months trying without success to reach Fioretti before the alderman said he wasn’t prepared to sign off on their project.

The deal was still up in the air in June 2009 when Vanecko pulled out of the DV Urban partnership because the pension fund deals were causing strife in the mayor’s family.

A few weeks later, Jared Davis asked the postal workers to renegotiate. But the union refused, prompting him to send a letter canceling the deal and asking it to return the pension funds’ money.

The union refused. It sued DV Urban for breach of contract, a lawsuit that dragged on for years while the pension funds wrested control of DV Urban from Davis, turning the real estate fund over to Newport.

While DV Urban and the postal workers were fighting in court, the union sold its now-vacant headquarters for $3.1 million in October 2012 to a developer, who resold it in the spring of 2015 for $5.6 million.

Today, a 199-unit apartment building is going up on the property, which includes 40,000 square feet of commercial space that Rush University Medical Center has leased for $12 million in a 10-year deal.

After five years of litigation, the union’s lawsuit against DV Urban ended in September 2014 when the union and Newport Capital reached an out-of-court settlement. The deal returned just $41,844 to the pension funds.

“That’s what happens when you breach a contract,” says Elvin Charity, an attorney for the union. “DV wanted to renegotiate the price. They didn’t try to get the zoning. They didn’t know what they wanted to do. They tried to use the zoning issue to get out of the deal. I can’t speculate as to why they did it.”


3348 S. Pulaski Rd.
A decrepit warehouse on land that was tainted by arsenic and lead
Using city workers’ pension money, DV Urban bought this warehouse that sat on polluted land at 3348 S. Pulaski Rd. | Brian Jackson / Sun-Times

3348 S. Pulaski Rd.
Since then, a new developer cleaned up the property and built this warehouse. | Victor Hilitski / Sun-Times

Map of 3348 S. Pulaski Road
A week after the Sun-Times reported that Daley’s nephew and his partners had been paid nearly $500,000 in rent by City Hall for the Pulaski Road property, Vanecko announced in June 2009 he would walk away from DV Urban, leaving the company to be run by Allison Davis and Jared Davis.

Vanecko said he was turning over his 49 percent stake to the Davis family. None of those involved ever disclosed how much money, if anything, Vanecko got for that.

Vanecko’s decision came amid reports of tension in the Daley family.

At one point, the mayor publicly rebuked his sister’s son: “While many of you have speculated that somehow I knew about Bob’s business relationship, I did not. When I found out, I made it very clear it was not a good decision, and he should end the business relationship immediately. But as an adult, Bob made a different decision, which leads to a very painful string of news stories that have indeed caused tension in my family.”

DV Urban’s investment in the Pulaski Road warehouse grew to $5.2 million in the fall of September 2011, a few months before the five pension funds ousted the Davises.

Newport got three bids for the property, including a $5.4 million offer from a joint venture of the California teachers pension fund and Panattoni Development in California. Panattoni hired Vanecko’s cousin, Patrick Daley Thompson, an attorney who then served on the Metropolitan Water Reclamation District of Greater Chicago, to lobby City Hall for a property tax break to develop the land.

After Ald. Rick Munoz (22nd) agreed to support the tax break, Newport sold the warehouse and surrounding land to PanCal in July 2014 for $5.4 million.

Newport settled an outstanding mortgage on the property while $2.6 million went into a fund to help PanCal to clean it up.

The pension funds reported they received $1.7 million.

PanCal agreed to pay Thompson and his law firm $100,000, according to city records, for obtaining the 10-year tax break, which could cut the property tax bill by $4.1 million.

PanCal tore down the warehouse, removed 70 tons of poisoned soil and built a new, 316,000-square-foot warehouse on the site that it sold to an arm of Prudential Insurance in December 2015 for $29.7 million.


3030 N. Broadway and 3012 N. Waterloo Ct.
Site of a Mariano’s grocery store, a Starbucks, a health club and a bank
3030 N. Broadway. | Victor Hilitski / Sun-Times

Map of 3030 N. Broadway
It could have been Davis and Vanecko’s biggest deal, one that would make millions for the pension funds and offset losses from their bad investments.

Instead, it turned out to be DV Urban’s biggest flop, losing money building an upscale grocery store in one of Chicago’s richest neighborhoods, just blocks from Lake Michigan.

What’s now a Mariano’s once was the site of a Dominick’s that burned down in June 2005. Jon Zitzman of JFJ Development Co. and Michael O’Connor of Dionysus Development bought the land for $16 million, with plans to build 55 condos and a store that Dominick’s agreed to lease.

In January 2007, Zitzman and O’Connor got a $15 million loan from Vail Capital LLC, headed by Sheldon “Red” Mandell, chairman of National Wrecking Company, according to documents filed with the Cook County recorder of deeds.

But Mandell says he was never involved in any deal on this property and denies making any loans on the deal.

The Vail Capital loan was modified in February 2008 when Davis and Vanecko entered the deal, records filed with the county show. Using $3 million from the pension funds, Davis and Vanecko bought the Waterloo Court portion of the property that was part of the collateral on the loan Zitzman and O’Connor got from Vail.

Davis and Vanecko also tapped pension money to lend $912,930 to a company controlled by Zitzman and O’Connor, who personally guaranteed to repay the loan, which carried a 30 percent interest rate.

This loan, never repaid, has been in default since March 2009, according to a 2017 audit of DV’s investments.

At the time Vail agreed to the sale, Davis and Vanecko were taking over the $15 million loan from Zitzman and O’Connor in a deal negotiated by DV attorney Ryan, a son-in-law of Michael Daley.

Vail’s $15 million loan was reduced to $3 million and fully repaid a few months later, records show.

After Davis and Vanecko took over the Vail loan, Zitzman and O’Connor got a $10 million mortgage from First Bank. DV Urban gave them $7,925,969 in pension money to develop the build condos and a store on the Broadway property, next to the Waterloo Court site where DV Urban planned to build condos.

But the Broadway deal fell apart in June 2009 when Zitzman and O’Connor filed for bankruptcy as First Bank prepared to foreclose on the $10 million loan.

A bankruptcy court judge allowed DV Urban to buy the property in December 2010 for $8.5 million.

The deal was closed in Thompson’s law office. Now the 11th ward alderman, Thompson is a first cousin of Vanecko, who by this time had left DV Urban.

DV got a $6.5 million loan in March 31, 2011, from a Chinese company called Wanxiang America Real Estate Group, using the Broadway and Waterloo properties as collateral.

DV Urban already had invested $11.4 million in pension money in the project, according to a report Davis made to the pension funds.

The pension funds fired Davis a few months later.

Wanxiang foreclosed on the loan in September 2012, which could have cost the pension funds their entire investment.

With the Broadway project in jeopardy, Newport asked the pension funds to put in more money to try to save the original investments made by Davis and Vanecko. Four of the pension funds refused. The Chicago Teachers’ Pension Fund kicked in an additional $5 million, which allowed Newport to pay Wanxiang and keep the property.

Newport teamed with a developer, the Taxman Corp. of Skokie, landed a lease with Mariano’s and got a $45.9 million construction loan in February 2015 to build a four-story shopping center with two levels of parking. Mariano’s opened the following year.

The shopping center was sold in January 2017 for $81 million to an Ohio company, which reported gross income of $2.5 million during its first five months of ownership.

The sale netted $5.8 million for the five pension funds, records show — about one-third of the $16.9 million they had invested in the property since 2008.

The teachers pension fund got an additional $6.7 million from the sale because of the extra $5 million it invested to help Newport rescue the project.

3013-17 N. Waterloo Ct.
3013-17 N. Waterloo Ct. | Victor Hilitski / Sun-Times

More losses, little effort to recover lost money
Besides losing $54 million of the $68 million they invested with Davis and Vanecko, the five city workers’ pension funds had to pay $1.7 million to Newport and affiliated parties to manage and liquidate the properties DV Urban acquired.

They also lost the ability to invest the money in other ways that might have proved to be profitable.

And beyond all of that, they had to hire lawyers to fight the lawsuits that Davis filed when he and his family were fired by the pension funds in 2012. Those legal bills ended up costing the pension funds $2.6 million.

Now, the pension funds say there isn’t much they can do to try to recover any of the lost money — including the $1.9 million in development fees that Davis and Vanecko collected on projects that never got off the ground, like the redevelopment of the letter carriers union’s former headquarters.

Or the $9 million in management and development fees the pension funds paid Davis and Vanecko — including $6 million for managing their money-losing investments.

Or the loans DV gave to developers who promised to repay the money but never did.

“The loans were made by the general partners,” DV Urban, says Charles Burbridge, who became executive director of the Chicago Teachers’ Pension Fund years after the retirement fund invested $25 million with Davis and Vanecko. “I don’t know if anything can be done to recover it.”

Regarding the management and development fees DV Urban collected, Burbridge says, “That’s kind of water over the bridge. That was part of the litigation.”

Burbridge says the pension funds have never considered conducting a forensic audit to examine the investments DV Urban made or the liquidation deals Newport Capital made to determine whether the pension funds could recover additional money.

“Given the timeline and the contractual relationships, it would be unusual,” Burbridge says. “Some of the implications you presented are interesting, but as an investor on this side of the agreement, it’s not typical practice to do that kind of investigation on an investment that didn’t pan out.”

Derrick McGavic: “The litigation costs far outweigh what can be recoverable.”
Derrick McGavic: “The litigation costs far outweigh what can be recoverable.” | LinkedIn

Derrick McGavic, managing partner of Newport Capital Partners, says, “The litigation costs far outweigh what can be recoverable.”


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Old 12-07-2018, 11:20 AM
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ILLINOIS

https://www.chicagotribune.com/news/...y.html#new_tab

Quote:
Editorial: Even pension loopholes are protected? Then amend the Illinois Constitution.

Spoiler:
Former Chicago labor boss Dennis Gannon worked almost 20 years for the Department of Streets and Sanitation before taking a leave of absence in 1991. He got a refund of his pension contributions and pivoted to the private sector, first at International Union of Operating Engineers Local 150 and eventually as president of the Chicago Federation of Labor, an umbrella union organization.

But there was a blip on his resume. During his leave, the city rehired him for one day in 1994, then released him again to his union leadership job. Ten years later, he was able to retire at age 50 with a city pension based on his union salary of at least $240,000. He began receiving more than $150,000 a year from a $56,000 city job he had left a decade earlier.

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It was an unintended consequence — many would say abuse — of the state’s pension code exposed in a 2011 Tribune/WGN-TV investigation that drew the attention of federal prosecutors. Government employees who left to work for their unions could count that time toward their pensions. But the practice of applying their private sector union salaries toward their pensionable income, instead of calculations based on what they earned as city workers, was not the intention of the pension code. Even labor-friendly Democrats in the legislature almost unanimously voted to tighten up the law following the journalists’ investigation. In 2012, legislators passed, and then-Gov. Pat Quinn signed into law, a strict prohibition on government workers applying union salaries toward final pension calculations.

Public pension funds are strained as it is. Why should private sector workers, just because they work for unions, be eligible for lofty pensions from a city and taxpayer-subsidized pension fund?

That law ushering in reforms, however, is now history. The Illinois Supreme Court on Nov. 29 ruled it unconstitutional. A handful of workers for the city of Chicago and Chicago Public Schools who also went on leave to work for their unions had sued. The plaintiffs in the case were Rochelle Carmichael, June Davis, Zeidre Foster, Oscar Hall, Anthony Lopez, Kathleen Mahoney, Joseph Notaro, Michael Senese, David Torres and the unions representing them. The court sided with them.

The justices ruled that even if lawmakers didn’t intend to allow union salaries to be applied toward public pensions, they couldn’t go back and change the rules. The court said the law was “ambiguous on the question of whether the union salary while on leave of absence could be used as a basis for calculating the pension.” And ambiguity entitled the justices to rule liberally that the practice should be constitutionally protected.

That’s an extreme interpretation of the pension protection clause of the Illinois Constitution. The court’s ruling suggests that even pensions gained through an obscurity, or loophole, or mistake, or abuse are protected as long as the workers got away with it.

In another pending lawsuit, an Illinois Federation of Teachers lobbyist who substitute-taught in a Springfield classroom for one day became eligible to participate in the Teachers Retirement System. The legislature tried to fix that loophole too. But we fear the justices, if they eventually rule on the case, will deem the lobbyist’s pension a constitutional right.

Put short: Sub for a day. Pension for life.

In recent years, the justices also upheld as a constitutional right state employees’ access to certain taxpayer-funded health care coverage for life, and unionized workers’ level of benefits from their date of hire until their deaths.

The solution to the state’s multifaceted pension crisis should be crystal clear to taxpayers. The Illinois Supreme Court isn’t going to budge. The pension clause needs to be amended. In a Dec. 2 editorial we urged Chicago Mayor Rahm Emanuel to coalesce state leaders around a constitutional amendment before he leaves office.

Emanuel plans to present a pension solution to the City Council on Dec. 12. The squeeze of retirement costs is strangling Illinois and its taxpayers. We urge him and other state leaders to back that change.


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Old 12-07-2018, 11:33 AM
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ILLINOIS

https://wbbm780.radio.com/articles/i...n-debt#new_tab
Quote:
Illinois Policy Institute Wants To Work With Pritzker To Solve Pension Debt
Spoiler:
CHICAGO (WBBM NEWSRADIO) -- A free-market group that was both an ally and a foe of Illinois’ Governor is now saying it wants to work with the next Governor to solve the state’s biggest financial challenge, it’s pension debt.

It’s been five years to the day since former Governor Pat Quinn signed the Senate Bill 1 pension measure that the Illinois Policy Institute and CEO John Tillman had opposed as a good first step, but only a half-measure.

Tillman admits he was wrong about SB1. It would have been good if it stayed in place, he said.



"It turns out it wasn't just one good step, maybe it was five or six very good steps. If you look at what would have happened since that bill was passed and if the Supreme Court had not ruled it unconstitutional," Tillman said.

So, now, the controversial think tank, at the center of some turmoil under Governor Rauner, is suggesting a bipartisan effort under JB Pritzker to change the Illinois Constitution and create a two-option pension system that, he said, won’t affect benefits earned by current workers or retirees. He is not expecting an easy sell.

"The most important thing to do is to fix the problem now and that's why we are using the anniversary day of the 2013 reform to hold ourselves accountable and to encourage the General Assembly to look back at what they did in a bipartisan fashion and say hey there's a lesson there," Tillman said.

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Old 12-07-2018, 11:34 AM
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LOS ANGELES, CALIFORNIA
DROP

https://www.latimes.com/local/lanow/...205-story.html

Quote:
Controversial L.A. police and fire retirement plan more expensive than promised to voters, report says

Spoiler:
The controversial retirement program that pays Los Angeles police and firefighters their salaries and pensions simultaneously at the end of their careers has not been “cost neutral” — as was promised to voters when they approved it in 2001.

That’s the conclusion of a study called for by Mayor Eric Garcetti and City Council members earlier this year after a Times investigation found that more than 1,200 participants who entered the Deferred Retirement Option Plan had then taken injury leaves at essentially twice their usual pay.

The finding contradicts years of claims by city officials that the program — a favorite of the politically powerful police and firefighters unions — doesn’t cost taxpayers any extra money. Garcetti and leaders of the City Council have clung to that argument despite a 2016 study that came to the same sobering conclusion, and the experience of other California cities that experimented with DROP programs and abandoned them due to the expense.

Like previous actuarial reports on DROP, the study finished last week noted that the program could become cost neutral in the future if participants forgo certain benefits, but it did not take into account the added expense of cops and firefighters collecting two large checks — salary and pension — while out on extended leaves.

The average absence from those leaves was 10 months, The Times found, but hundreds took more than a year off, typically for bad backs, sore knees, carpal tunnel syndrome and other ailments that afflict aging bodies regardless of profession.

The list includes a former firefighter who took almost a year off for a hurt knee after entering DROP. Less than two months after the injury, he crossed the finish line of a half-marathon in Portland, Ore., in a brisk 2:05:23. A married couple, a police captain and a detective, joined DROP then filed claims for carpal tunnel syndrome and other cumulative ailments and took about two years off. They collected nearly $2 million while in the program and spent some of their time off recovering at their condo in Cabo San Lucas, Mexico, The Times found.

Under the city’s administrative code, a determination that DROP is not “cost neutral” gives elected officials a chance to eliminate the program or renegotiate its terms with leaders of the police and firefighters unions. But there has been little appetite among city leaders to do that.


Controversial retirement program for L.A. police and firefighters would be reformed under new proposal
AUG 24, 2018 | 4:50 PM
In an email on Tuesday, Garcetti spokesman Alex Comisar wrote that the mayor is “encouraged” by the possibility DROP could become cost neutral in the future, but did not address the reality that it hasn’t been so far. Comisar added, “Mayor Garcetti is reviewing this report in detail, and looks forward to discussing it with his colleagues at the Executive Employee Relations Committee meeting later this week.”

In August, Garcetti proposed suspending the pension payments to cops and firefighters in DROP who miss significant time due to injury or illness. They would still collect their salaries, tax-free, while they are off work recovering from their ailments. The City Council passed the measure 12-0 on first read Tuesday. It would have to clear another vote, scheduled for January, before becoming final.

Allowing employees to take long stretches of paid time off while in DROP runs counter to the rationale police union leaders offered when they proposed the program in 2000 — keeping experienced and savvy veterans a few years longer to serve the public and mentor new recruits.

Then-Mayor Richard Riordan backed the program and voters approved a 2001 ballot measure that promised DROP would create “no additional cost to the city.” Riordan has since called the plan — which has paid out more than $1.7 billion in early, extra pensions checks — a mistake. He called the widespread taking of prolonged injury leaves while in the program “total fraud.”

The plan could be cost neutral, in theory, because employees agree to freeze their pension amount when they enter DROP. That means any raises they receive during their five years in the program would not increase the size of their pension payment. They’d get more pension checks over their lifetime – up to an extra five years’ worth — but those checks would be a bit smaller, so the cost to the city could balance out over time.

But that’s not what has happened, according to the report. It noted that raises given to city cops and firefighters during the recession beginning in 2008 were much smaller than expected. That meant the value of freezing pensions before retirement was diminished.

Battling treacherous office chairs and aching backs, aging cops and firefighters miss years of work and collect twice the pay »
The overall assessment of whether DROP is a good deal for taxpayers depends on many other factors, however, including how long the employees live in retirement and whether they enter DROP having already reached their maximum pension — 90% of their salary, plus city subsidized healthcare, guaranteed for life.

Other cities, including San Diego and San Francisco, experimented with DROP only to decide the program was prohibitively expensive.

Last week’s report is not the first time city leaders have been told the program is too costly.

In a closed-door meeting with Garcetti and City Council leaders in February 2016, former City Administrative Officer Miguel Santana presented the results of a previous actuarial study of DROP, which also showed the program was not, and never had been, cost neutral.

Santana urged city leaders to eliminate or drastically amend the program because it had never worked the way voters had been promised it would.

One of the original arguments for creating the program, a feared exodus of senior Los Angeles Police Department officers to retirement or other departments after the Rampart scandal — which exposed widespread corruption within the LAPD — was no longer a threat, Santana argued.

And there had never been a reason to include firefighters in the program because the city has no problem recruiting or retaining them, he added.

Garcetti and the City Council members ignored Santana’s advice and left the report in the files of the Executive Employee Relations Committee, which are not public.

When The Times obtained a copy of the report and Santana’s accompanying analysis in March, City Councilman Paul Koretz called Santana’s presentation “half-baked” and “not that compelling.” Koretz said that he often ignored suggestions from Santana, who, he said, “wasn’t a particularly pro-labor CAO.”

Koretz’s deputy chief of staff, David Hersch, said the councilman needed more time to study the report before commenting.

Garcetti said he chose not to act after the 2016 report because it included the years following the recession during which employees did not get regular raises. He said he wanted to wait for a more up-to-date report.

Garcetti, council members ignored 2016 report finding waste, flaws in police and fire retirement program »
But DROP “is not an entitlement,” Garcetti said in March. “This is something we’ll keep if it works for our city and our public safety system, not simply because it has been there in the past.”


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Old 12-07-2018, 06:08 PM
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EUREKA, CALIFORNIA
CALPERS

https://www.times-standard.com/2018/...l-governments/

Quote:
Unfunded pension liabilities looming over local governments
Eureka city manager calls costs ‘crippling’

Spoiler:
Unfunded pension liability costs tripled over two years for the city of Eureka, another factor in a growing pension crisis that local officials say needs to be addressed.

Retirement contributions by California public employers have gone up over the past decade, but the amount employees contribute from their own incomes is rising just as fast. Eureka employees funding their own retirements will pay a total of $3.6 million this fiscal year, up from less than $1 million in the 2015-16 fiscal year.

All of this is due to the California Public Employees’ Retirement System lowering its discount rate, or the amount of money it expects to make back from invested retirement funds. As the CalPERS rate drops, public employers are on the hook to put in more money for their employees’ pensions.

The effect has been “crippling” to local governments, Eureka City Manager Greg Sparks wrote in a November letter to a resident.

“It is not sustainable,” Sparks wrote. “The costs are crippling our ability to provide services and will only continue to become more exacerbated over the next 20 years.”

While Eureka doesn’t intend to renege on guaranteed retirement benefits, a decision in an ongoing lawsuit heard in the state Supreme Court could allow local governments to do so.

The “California Rule,” mentioned in court rulings since 1947, protects retirement benefits from being reduced at the whim of employers. In other words, when employees take a job, they’re entitled to the job’s retirement benefits for as long as they’re employed.

“When you start employment, there’s an implicit contract,” Sparks said today. “You get what you signed up for.”

In 2013, Gov. Jerry Brown signed into law pension reforms that disallowed employees from buying more years of pension returns than they actually worked. Attorneys are now arguing that stripping existing employees of that benefit violates the California Rule.


“Is there a point where cities say, ‘This is a real problem, we need to lower the benefits or extend the age before you can start drawing (from retirement funds)?” Sparks said. “Certainly, the City Council would never want to do that, but as cities look at the issue, there might be additional changes that can be made to make the system more sustainable.”

Some municipalities are exploring ways to offset the problem. One workaround adopted in recent years is the Public Employees’ Pension Reform Act (PEPRA), which allows employers to pay more now and wrap retirement spending sooner.

The city of Arcata, which in 2017 paid nearly 80 percent more in pension contributions than it did eight years before, is in the middle of refinancing. In the past few years, it has borrowed money to make lump-sum contributions ahead of time and reduce overall costs.

Arcata city manager Karen Diemer said today the City Council isn’t considering reneging on guaranteed benefits, but it is renegotiating contracts with employees.

“I understand the ramifications in terms of contractual obligations,” Diemer said. “As far as renegotiating, for at least the last two contracts, city employees have actually accepted higher contribution rates into their pension plans to offset costs.”

But a January study conducted by the California League of Cities concluded, “Despite the significant changes made through PEPRA, local governments will continue to face the financial conundrum of meeting their pension obligations.”

Because only new employees using CalPERS qualify for PEPRA, it will “take decades” for any money saved through the system to appear in city budgets, the study found.

CalPERS decided to cut its discount rate in 2016, deciding that retirement funds are now a riskier investment. The 2008 global economic recession decimated retirement funds for millions of Americans. Many who had been considering retirement around that time never quite recovered. Neither did pension funds.

The dire outlook a decade ago prompted the McKinleyville Community Services District to quickly reallocate funds from parks and recreation, as well as water and sewage, to pension contributions.

But as time has gone by, what seemed like an extinction-level event hasn’t been so.

“We were braced for it to be much worse than it was,” said Greg Orsini, general manager of McKinleyville’s district. “It hasn’t gone up nearly as bad.”

Shifting money around made it possible for the CSD to pay off unfunded liabilities. The early fears haven’t quite come to “fruition,” Orsini said. If the economy is dealt another blow, the CSD is at least in a position to manage for the future.

“I’m sure it’s only a matter of time,” Orsini said about a future downswing.

Bankruptcy is a real prospect for cities. Stockton and San Bernardino have declared bankruptcy in the past few years — in both cases, being handcuffed to pension contributions played a key part.

Sparks stopped just short today of speaking in an apocalyptic tone about another economic recession. But even if the next recession were only half as bad, he said, it would throw the city into a spiral.

“You know that day is going to come again,” he said. “The economy is always cyclical… even if it was a 15 to 20 percent drop, it would — but you know, I’ve never given into hyperbole. I’m not a ‘sky-is-falling’ person.”


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CALIFORNIA
CALSTRS
DIVESTMENT

https://www.ai-cio.com/news/calstrs-...on-divestment/

Quote:
CalSTRS Investment Committee Was Split on Private Prison Divestment
The vote to divest from CoreCivic and GEO Group was 6-5 during an emotional meeting.


Spoiler:
A controversial decision by the second-largest US pension plan, the California State Teachers’ Retirement System (CalSTRS), to divest its holdings in two private prison companies, became a reality by just one vote, shows a video stream of the system’s investment committee meeting.

A CalSTRS press release after the Nov. 7 decision laid out the bare details that were picked up by the national media: the $219.1 billion pension system would divest of stocks and bonds it holds in two US prison companies, CoreCivic and GEO Group, within six months.

Beyond the press release, however, was an investment committee meeting so emotional that two committee members, Board President Dana Dillon and Nora Vargas, who represents school boards, could be seen crying as they discussed their pending votes to divest from the two companies whose facilities have housed immigrant detainees caught up in President Donald Trump administration’s immigration crackdown. The vote ended in a 6-5 split decision for divestment.

“It is an emotional issue,” said Dillon at the meeting, noting that “it is going to be another 20 years before we see the repercussions of the [Trump] administration’s decision to separate children from their families.”

“But no matter what we do, I shouldn’t say that, but if we divest, those conditions are still going to exist, the policies will still be the same, the negative public opinion, it’s going to continue, the abuses will continue,” she went on.

Dillion said CalSTRS would not have a seat to attempt to influence the companies through its corporate governance program to make positive changes if it divested from the companies, but she ultimately voted for the divestment.

Neither CoreCivic or GEO Group housed immigrant children separated from their families but both companies individually ran their own shelters in the San Antonio, Texas, area, that housed immigrant children and families together that were detained under the administration’s policies.

The issue of divestment also split California State Treasurer John Chiang and California State Controller Betty Yee, both who serve on the CalSTRS board. Chiang, who has championed another divestment implemented by CalSTRS, against manufacturers of firearms and ammunition that are illegal for sale or possession in California, voted to divest from the two private prison companies.

Lynn Paquin, Yee’s chief financial advisor, cast Yee’s vote against divestment.

“It has been a really hard discussion and the controller obviously feels that there is a moral issue at stake too,” Paquin said. The controller’s representative said she was casting a no vote because Yee felt CalSTRS needed to adhere to its divestment and risk policies.

CalSTRS rules allow for divestment of companies when they are determined to be violating the pension plan’s environmental, social, and governance (ESG) investment policy or other pension plan risk factors.

A CalSTRS review by investment staff issued in November didn’t offer a specific opinion as to whether the ESG policy or other risk factors were being violated by the two private prison companies.

“Staff does not take a position on whether or not private prisons violate the ESG policy to the point of justifying implementation of the CalSTRS Divestment Policy,” the Nov. 7 written review said. “Staff realizes the operation of prisons (public or private) pose noteworthy risks under the CalSTRS ESG policy. However, in several cases, it is the contracting agency, such as the US Government, that creates and carries the risk.”

CalSTRS Chief Investment Officer Chris Ailman told the investment committee at the Nov. 7 meeting that their votes would be difficult.

“I understand and actually share the anger and the pain that has been caused by this current administration’s immigration policy,” he said. “As fiduciaries to CalSTRS, you have to make a decision as best you can without any emotion. And I know on this issue it’s tough.”

Ailman had begun the divestment review in July after receiving complaints about CalSTRS holdings in the private prison companies from teachers’ groups. Generally, Ailman has been an opponent of divestment, arguing that the pension plan has more influence on changing corporate policy as an investor.

CalSTRS has one of the largest corporate engagement programs in the world as it challenges companies on board diversity, sustainability, treating workers fairly, and other issues.

CalSTRS’s holdings of Core Civic and GEO Group are relatively small given the size of the pension plan, around $12 million combined in stock holdings and $2 million combined in bonds.

Some investment committee members said at the Nov. 7 meeting that the small size of the holdings helped sway their decision to divest, but investment committee member Paul Rosenstiel objected to that line of thinking, saying a series of small divestments of different securities could start adding up and have an effect on the CalSTRS portfolio. Rosensteil ended up voting no on the divestment plan.

“We’ve been trying to avoid having non-financial, non-investment arguments because God knows what goes on with these companies,” he said. “The pain and suffering that goes on in these facilities—I don’t think anyone on the board doesn’t think it isn’t tragic. We are trying to function as fiduciaries and get the returns that we need rather than turn this board into a discussion or this social issue or that social issue, which are really important social issues, but may not be what this board is about.”

Vargas, the other board member who cried while explaining her yes vote to divest, said she lived near the US-Mexico border.

“This is a really personal issue for me because I live by the border in San Diego and I see [immigrants being detained] every day, so for me it’s a very important emotional issue and it is a moral issue in addition to it being an issue that I think we have the power to make a difference.”

Both private prison companies say that they are working as government contractors and have nothing to do with setting immigration policy. They say their facilities meet all regulations. It is California educators who will be missing investment opportunities due to the divestment, they insist.

Dillon said the divestment will satisfy California teachers who were upset with CalSTRS investments in the private prison companies, but wondered if the pension system made a mistake because it will not have a seat at the corporate table.


“I think the members of our system will say I’ve washed my hands of that because my pension system is no longer invested and I’m not sure that’s where we should be,” Dillon said.


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CALIFORNIA
CALSTRS
DIVESTMENT

https://www.ai-cio.com/news/calstrs-...on-divestment/

Quote:
CalSTRS Investment Committee Was Split on Private Prison Divestment
The vote to divest from CoreCivic and GEO Group was 6-5 during an emotional meeting.


Spoiler:
A controversial decision by the second-largest US pension plan, the California State Teachers’ Retirement System (CalSTRS), to divest its holdings in two private prison companies, became a reality by just one vote, shows a video stream of the system’s investment committee meeting.

A CalSTRS press release after the Nov. 7 decision laid out the bare details that were picked up by the national media: the $219.1 billion pension system would divest of stocks and bonds it holds in two US prison companies, CoreCivic and GEO Group, within six months.

Beyond the press release, however, was an investment committee meeting so emotional that two committee members, Board President Dana Dillon and Nora Vargas, who represents school boards, could be seen crying as they discussed their pending votes to divest from the two companies whose facilities have housed immigrant detainees caught up in President Donald Trump administration’s immigration crackdown. The vote ended in a 6-5 split decision for divestment.

“It is an emotional issue,” said Dillon at the meeting, noting that “it is going to be another 20 years before we see the repercussions of the [Trump] administration’s decision to separate children from their families.”

“But no matter what we do, I shouldn’t say that, but if we divest, those conditions are still going to exist, the policies will still be the same, the negative public opinion, it’s going to continue, the abuses will continue,” she went on.

Dillion said CalSTRS would not have a seat to attempt to influence the companies through its corporate governance program to make positive changes if it divested from the companies, but she ultimately voted for the divestment.

Neither CoreCivic or GEO Group housed immigrant children separated from their families but both companies individually ran their own shelters in the San Antonio, Texas, area, that housed immigrant children and families together that were detained under the administration’s policies.

The issue of divestment also split California State Treasurer John Chiang and California State Controller Betty Yee, both who serve on the CalSTRS board. Chiang, who has championed another divestment implemented by CalSTRS, against manufacturers of firearms and ammunition that are illegal for sale or possession in California, voted to divest from the two private prison companies.

Lynn Paquin, Yee’s chief financial advisor, cast Yee’s vote against divestment.

“It has been a really hard discussion and the controller obviously feels that there is a moral issue at stake too,” Paquin said. The controller’s representative said she was casting a no vote because Yee felt CalSTRS needed to adhere to its divestment and risk policies.

CalSTRS rules allow for divestment of companies when they are determined to be violating the pension plan’s environmental, social, and governance (ESG) investment policy or other pension plan risk factors.

A CalSTRS review by investment staff issued in November didn’t offer a specific opinion as to whether the ESG policy or other risk factors were being violated by the two private prison companies.

“Staff does not take a position on whether or not private prisons violate the ESG policy to the point of justifying implementation of the CalSTRS Divestment Policy,” the Nov. 7 written review said. “Staff realizes the operation of prisons (public or private) pose noteworthy risks under the CalSTRS ESG policy. However, in several cases, it is the contracting agency, such as the US Government, that creates and carries the risk.”

CalSTRS Chief Investment Officer Chris Ailman told the investment committee at the Nov. 7 meeting that their votes would be difficult.

“I understand and actually share the anger and the pain that has been caused by this current administration’s immigration policy,” he said. “As fiduciaries to CalSTRS, you have to make a decision as best you can without any emotion. And I know on this issue it’s tough.”

Ailman had begun the divestment review in July after receiving complaints about CalSTRS holdings in the private prison companies from teachers’ groups. Generally, Ailman has been an opponent of divestment, arguing that the pension plan has more influence on changing corporate policy as an investor.

CalSTRS has one of the largest corporate engagement programs in the world as it challenges companies on board diversity, sustainability, treating workers fairly, and other issues.

CalSTRS’s holdings of Core Civic and GEO Group are relatively small given the size of the pension plan, around $12 million combined in stock holdings and $2 million combined in bonds.

Some investment committee members said at the Nov. 7 meeting that the small size of the holdings helped sway their decision to divest, but investment committee member Paul Rosenstiel objected to that line of thinking, saying a series of small divestments of different securities could start adding up and have an effect on the CalSTRS portfolio. Rosensteil ended up voting no on the divestment plan.

“We’ve been trying to avoid having non-financial, non-investment arguments because God knows what goes on with these companies,” he said. “The pain and suffering that goes on in these facilities—I don’t think anyone on the board doesn’t think it isn’t tragic. We are trying to function as fiduciaries and get the returns that we need rather than turn this board into a discussion or this social issue or that social issue, which are really important social issues, but may not be what this board is about.”

Vargas, the other board member who cried while explaining her yes vote to divest, said she lived near the US-Mexico border.

“This is a really personal issue for me because I live by the border in San Diego and I see [immigrants being detained] every day, so for me it’s a very important emotional issue and it is a moral issue in addition to it being an issue that I think we have the power to make a difference.”

Both private prison companies say that they are working as government contractors and have nothing to do with setting immigration policy. They say their facilities meet all regulations. It is California educators who will be missing investment opportunities due to the divestment, they insist.

Dillon said the divestment will satisfy California teachers who were upset with CalSTRS investments in the private prison companies, but wondered if the pension system made a mistake because it will not have a seat at the corporate table.


“I think the members of our system will say I’ve washed my hands of that because my pension system is no longer invested and I’m not sure that’s where we should be,” Dillon said.


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