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  #51  
Old 01-10-2018, 01:34 PM
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Mary Pat Campbell
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ILLINOIS

http://www.dailyherald.com/news/2018...ension-systems

Quote:
Biss: Illinois suffocating under too many pension systems
Spoiler:
Merging Illinois' more than 600 pension systems could reduce inefficiencies and save money, state Sen. Daniel Biss said Tuesday during an interview in which he also hinted at his income tax plan and revealed "micromanaging" by House Speaker Mike Madigan.

The 40-year-old running for governor in the March 20 primary said only consulting firms benefit from duplicative public pension funds. Biss, one of six Democratic candidates for governor, met Tuesday with the Daily Herald editorial board.



Biss admitted he and others passed a flawed law in 2013 intended to reduce pension debt. The law was struck down in 2015 by the Illinois Supreme Court, which said raising the retirement age for younger employees, capping the salary eligible for a pension and limiting cost-of-living increases violated the state Constitution.

"The state's got awful budget problems, and state pension debt is an awful part of it," said Biss, a co-sponsor of the 2013 legislation. "I do think there was kind of an obsessive hysteria about it a few years ago that led a lot of people in the legislature, myself included, to act irresponsibly. That bill was unconstitutional."

Biss says consolidating pension systems is one way to cut costs. Illinois "has 628 different pension systems," Biss said. "For almost every community in the Daily Herald area there are two pension systems, one for police officers and one for firefighters ... that are served by the same investment and legal consultants. We've built a system whose investment returns cannot be what they should be and that allow politically connected consultants to reach their hands into 628 different pockets and come out with taxpayer dollars."

He also advocates allowing buyouts for pension plan participants.

The former math professor is running against Democrats Madison County Superintendent of Schools Bob Daiber, Chicago activist Tio Hardiman, Kenilworth developer Chris Kennedy, Chicago billionaire businessman J.B. Pritzker and physician Robert Marshall of Burr Ridge, who will meet the editorial board in upcoming sessions.

Biss, who grew up in Bloomington, Indiana, has a bachelor's degree from Harvard University and taught mathematics at the University of Chicago.

A key issue for Democrats in the primary is demonstrating their independence from Madigan. Biss said he pushed back against the speaker after winning a House district Madigan and Democratic leaders thought would be targeted by Republicans in 2010.

"If they think you're a target, then they try to micromanage your every move. They tried to tell me how to vote, and I fought them tooth and nail," Biss said. "They tried to tell me how to do constituent services, and I fought them tooth and nail.

"They tried to put -- at no cost to myself -- a staffer in my district office to help me, and I needed help, but I didn't want a spy, so I turned that down. They tried to get access to my calendar so they would know what I was doing in my district, but I declined. We butted heads all the time."

Most Democrats running for governor support a graduated income tax. Asked for specifics on his plan, Biss said, "As a kind of indicator, we should look at neighboring states like Wisconsin and Iowa."

Wisconsin's top tax rate is 7.65 percent, and Iowa's is 8.98 percent.

"I wouldn't start by saying, 'There's got to be four brackets,'" Biss said. "I would start by saying, 'Let's acknowledge that the middle-class and working poor people of Illinois have been overpaying. Let's acknowledge that the wealthiest residents have been underpaying."

He noted that Illinois is one of a few states with a flat income tax system and said it suffers in comparison with its Midwestern neighbors. "All we need to do is to be as good as Ohio," he said.
https://www.bondbuyer.com/news/new-s...cross-illinois

Quote:
Illinois public safety pension funds outside Chicago fare no better

Spoiler:
The unfunded liabilities of local government public safety funds outside Chicago nearly doubled over the last decade, eroding funded ratios to below 60%.

The data is in a December report from the Illinois General Assembly’s Commission on Government Forecasting and Accountability that reviewed the status of the 653 police and firefighter funds that cover public safety workers in municipalities outside Chicago. For fiscal 2016, the report examined 356 police and 297 firefighter funds.


The report – along with one from the state auditor general’s office – underscores the sweeping pension burdens that are pressuring Chicago and Cook County area governments, the state, and downstate municipalities.

The COGFA public safety report offers a 26-year view of the funds. Combined, the police and firefighter funds “had $953 million in unfunded liabilities in fiscal year 1991. By fiscal year 2016, that figure had jumped to $9.93 billion,” it says.

Unfunded liabilities reached that peak of $9.93 billion in fiscal 2016 from $5.17 billion in fiscal 2007.

“Police and fire funds ended fiscal year 1991 with aggregate funded ratios of 75.09% and 76.40%, respectively,” the report says. In fiscal year 1999, the funded reached peaks of 76.37% and 78.57%, respectively, but then a year-over-year downward trend began. “Police and Fire pension funds bottomed out in the low 50’s in the wake of the 2008 stock market downturn, but have gradually increased each year since 2009.”

Combined, the funds were 57.58% funded in fiscal 2016, down from 62.55% in fiscal 2007, but up from the low of 51.13% in fiscal 2009 which reflected the market downtown during the financial crisis. Combined, they peaked at 77.31% in 1999.

Under a 2011 law, local governments have shifted from a statutorily based payment to an actuarially based contribution level that puts their funds on a path to a 90% funded ratio by 2040.

The previous COGFA review was published in May 2015 and was based on fiscal 2013 data. The December report adds three years of data.

Under the new law, beginning in fiscal 2016 pension funds could begin intercepting a portion of their local government’s state grants if a municipality was delinquent in contributions. This year, the amount that can be intercepted hits 100%. However, funding intercept rules have not yet been adopted that would allow such action.

The public safety funds outside Chicago account for just a small piece of the statewide pension quagmire, but the funding pressures -- especially given the state mandate -- have impacted the credit profile of some local governments.

“We’ve downgraded approximately 15% of our portfolio of Illinois cities in 2017,” said Moody’s Investors Service analyst David Levett. “Among cities we’ve downgraded, pensions have been the primary ratings driver.”

The collective funded ratios of all Illinois public pension funds falls under 50% with the collective liabilities of public pension funds statewide at $185.2 billion in fiscal 2016 compared to $168.2 billion in fiscal 2015.

The collective funded ratio deteriorated to 47.9% from 49.4%, according to the biennial report released in October by the Illinois Department of Insurance. It assessed the health of all 671 of the state’s public pension funds.

Of the $185.2 billion unfunded tab based on fiscal 2016 figures, large funds make up $175.3 billion. The state’s five funds alone account for $126.5 billion. The state has since disclosed its fiscal 2017 results which put its unfunded liabilities now at $128.9 billion.

The other large funds include Chicago’s four funds, the city’s sister agencies' and school district’s funds, Cook County’s two funds, the Chicago area water district, and the Illinois Municipal Retirement Fund which covers municipal employees outside Chicago.

The Dec. 28 report from Auditor General Frank Mautino offers the views of state actuary Cheiron which conducts an annual review of the state’s five funds. It found current investment returns “reasonable” but warned of solvency concerns in event of a market downturn. The actuary also now reviews the Chicago Teachers’ Pension Fund.

The funded ratio of the six ranged from the Chicago teachers' fund high of 51.3% to the General Assembly fund’s low of 14.9%.

“Cheiron has concerns about the solvency of the systems if there is a significant market downturn and recommended the systems include stress testing within the valuation reports,” the report said.

All systems are or will be experiencing negative cash flows -- measured by contributions after benefits and expenses are subtracted -- which may impact the interest rate returns that are realized, the report further warned.

Cheiron also recommended shifting the funding schedule, which now aims to reach a 90% funded ratio by 2045, to target 100%. “Continuing the practice of underfunding future accruals increases the risk of the systems becoming unsustainable,” the report said.

Such a move is unlikely. Gov. Bruce Rauner and lawmakers agree that further efforts are needed to solve the state’s pension mess, which along with the two-year budget impasse that ended in July dragged the state’s ratings down to lowest among states and to the verge of junk status. The courts have ruled that benefits are protected by the state constitution and other measures that would trim liabilities have stalled.

The Illinois Municipal League this year plans to press lawmakers to ease the path for consolidation to help ease strains with benefit cuts off the table.

“The General Assembly should reduce long-term pension costs by consolidating the administrative and/or investment functions of the over 660 municipal public safety pension funds to achieve greater administrative efficiency and investment return opportunities,” the league wrote in a report this month about its legislative agenda.

The Democratic legislative majorities and Rauner and his fellow Republicans did agree in the fiscal 2018 budget package to establish a new tier of pension benefits but that’s yet to come to fruition. Another measure that phases in the impact of actuarial assumption changes – such as a lowering of assumed investment return rates -- has trimmed near-term contributions but will add to long-term strains.

The actuary’s recertification of contributions to the funds trimmed $900 million off the original $8.8 billion figure for fiscal 2018. The actuary certified total payments of $8.67 billion for the next fiscal year that begins July 1. The state’s budget totals $36.1 billion.

With much attention being paid nationally to investment return rates used by public funds and other actuarial assumptions, Cheiron offered a generally positive assessment of the current status of the state and Chicago teachers’ funds.

Cheiron “reviewed the actuarial assumptions used in each of the six systems’ actuarial valuations for the year ended June 30, 2017, and concluded that they generally were reasonable with two exceptions, both of which applied to the Chicago Teachers’ Pension Fund,” the report said.

The Chicago teachers’ fund made the recommended changes in December.

Cheiron highlighted the national trend of lowering assumed return rates to reflect concerns over the low-interest-rate environment. In 2001, 105 of 127 major public funds surveyed assumed 8% return rates, according to data cited from the National Association of State Retirement Administrators. Only 17 funds used an 8% rate as of November with the median assumption now at 7.5%. Twenty-five plans use a rate of 7% or lower.

The actuary recommended that the Chicago teachers’ fund lower its assumed rate of return to no higher than 7.25% and its wage inflation assumption be lowered to 3.25% from 3.50%. The fund adopted the recommendations in December. The fund had previously lowered its rate to 7.5% from 7.75% investment return rate for calculations through fiscal 2016.

Over the last few years, all the Illinois funds have lowered their assumed rate of returns with TRS and the State Employees’ Retirement System now at 7%, the State Universities Retirement System now at 7.25%, and the Judges’ Retirement System and General Assembly Retirement System both at 6.75%.

Cheiron was selected to serve as state actuary under a 2012 law and is charged with reviewing state contribution requests from the various pension funds and identifying recommended changes to actuarial assumptions that the boards must consider before finalizing their certifications.

A sweeping overhaul of public school funding signed by Gov. Bruce Rauner on Aug. 31 added the Chicago Teachers’ Pension Fund to the list of five state funds that must submit information to the actuary as the legislation provided more state funding for the district.


http://cgfa.ilga.gov/Upload/2017Fina...PoliceFire.pdf
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  #52  
Old 01-10-2018, 01:35 PM
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https://www.marketwatch.com/story/ne..._share_twitter

Quote:
Opinion: New tax law means fighting over unfunded state pension plans is about to get worse
Illinois, Kentucky, Connecticut, and New Jersey will be hit particularly hard


Spoiler:
The recently enacted U.S. tax law restricts federal deductions for state and local taxes (SALT) to $10,000 — including local property and sales taxes as well as local income taxes. While this new restriction will have many implications, it will have a particularly draconian impact on states with large unfunded liabilities for pension benefits and retiree health care, in particular the residents of Illinois, Kentucky, Connecticut, and New Jersey.

Unless states can implement effective ways to circumvent the SALT restriction, they will face much higher political barriers to meeting their unfunded benefit obligations through increased tax revenues. Instead, states will be forced to severely cut spending on public services and/or adopt major reforms of their benefit plans.

A state has payment obligations from three main sources — interest on its outstanding bonds, unfunded liabilities for pension benefits, and unfunded liabilities for health care payments to state retirees (before Medicare at age 65). The interest on outstanding state bonds is relatively easy to estimate; the total outstanding amount of all state bonds was $500 billion in 2016. With the advent of improved accounting rules, it is now possible to compute the unfunded pension and retiree health care liabilities of each state.

The table below summarizes the situation for each of four states with the highest unfunded liabilities relative to their revenues in 2016 — Illinois, New Jersey, Connecticut and Kentucky. The data in the table come from the Investment Strategy Team at JP Morgan Asset Management.


The table shows the “current obligations ratio” for each state — the percentage of its revenues currently devoted to paying down its unfunded pension and retiree health care obligations plus interest on its state bonds. The table then compares that ratio to each state’s “full accrual obligations ratio.” This latter ratio was calculated based on two reasonable assumptions — first, that state should pay down their unfunded pension and retiree health care liabilities over 30 years, and, second, that annual investment returns of states would average 6% over this period.

As the table shows, the gap between the two ratios could be filled by increases in state tax revenues. To cover the gap, however, states would have to raise local taxes by an eye-watering amount — ranging from 14% in Connecticut to 26% in New Jersey.

These large increases in state revenues are not feasible, as illustrated by Illinois. To cope with its mammoth unfunded benefit obligations, Illinois has sharply raised tax rates on both individuals and businesses over the past few years. But higher tax rates in Illinois have backfired — driving local residents and firms to other states. In 2015, for example, Illinois lost $4.75 billion in adjusted gross income to other states, according to IRS data.


Financial Instability, Debt and the American Dream
The new federal restrictions on SALT deductions ring the death knell for this strategy of raising state taxes to meet unfunded benefit obligations. For instance, middle-class residents of these four states are already paying effective tax rates of 9% to 12% — from local income, property and sales taxes. Since Congress has now limited SALT deductions to $10,000, residents of high-tax states are likely to push hard on their elected officials to lower local income and property taxes.

States could also deal with unfunded benefit obligations by making substantial cuts in non-retirement spending — between 13% and 24% of state revenues according to the table. But local voters will vociferously object to substantial cuts in public services in areas such as education, transportation, and police protection.

That leaves one more avenue for states to pursue — enacting benefit reforms. According to the table, if the funding gap were closed entirely by increases in worker contributions, that increase would have to be monumental — by at least 400% in each of the four states. Such an increase would not be acceptable to public unions, and further would not be legally permissible in many states because of constitutional protections for accrued pension benefits.

Yet there is a light at the end of this tunnel. The U.S. Supreme Court has opined that health care benefits of retirees may be legally modified at the expiration of the collective bargaining agreement – unless expressly guaranteed for life. So the scope of health care benefits and premium sharing by public retirees will become a subject of political negotiation between elected officials and public unions.

Reform of public pensions will be much more difficult. Although states may establish a different retirement system for their newly hired employees, this will take years to have much of a financial impact. Already accrued benefits are sacrosanct in most states — with the notable exception of reduced adjustments for costs of living, which have been allowed by many courts.

The big question: Will courts allow modifications of pension benefits with respect to future years of work by public employees? Historically, California has led the way in blocking such forward-looking pension changes. However, two California courts have recently allowed such changes as long as public employees still receive a “substantial” and “reasonable” pension.

In short, the new federal restriction on SALT deductions will open up a new window on reforming state benefit plans with large unfunded liabilities. As voters absorb the financial implications of the new restriction, they will probably oppose tax increases and service cuts to deal with these liabilities. Instead, they will pressure elected officials to renegotiate benefit plans to the extent legally permissible.

Robert C. Pozen is a senior lecturer at MIT Sloan School of Management and a non-resident senior fellow of the Brookings Institution.



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  #53  
Old 01-11-2018, 08:57 AM
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CALIFORNIA
BENEFIT CUTS

https://www.bloomberg.com/news/artic...ts-in-downturn

Quote:
California's Brown Raises Prospect of Pension Cuts in Downturn
By Romy Varghese
January 10, 2018, 4:28 PM EST
Supreme Court is set to consider if benefit cuts permissible
Ruling could provide relief to cash-strapped localities
Spoiler:
California Governor Jerry Brown said legal rulings may clear the way for making cuts to public pension benefits, which would go against long-standing assumptions and potentially provide financial relief to the state and its local governments.

Brown said he has a "hunch" the courts would "modify" the so-called California rule, which holds that benefits promised to public employees can’t be rolled back. The state’s Supreme Court is set to hear a case in which lower courts ruled that reductions to pensions are permissible if the payments remain “reasonable” for workers.

"There is more flexibility than there is currently assumed by those who discuss the California rule,” Brown said during a briefing on the budget in Sacramento. He said that in the next recession, the governor “will have the option of considering pension cutbacks for the first time.”


That would be a major shift in California, where municipal officials have long believed they couldn’t adjust the benefits even as they struggle to cover the cost. They have raised taxes and dipped into reserves to meet rising contributions. The California Public Employees’ Retirement System, the nation’s largest public pension, has about 68 percent of assets needed to cover its liabilities. For the fiscal year beginning in July, the state’s contribution to Calpers is double what it was in fiscal 2009.

Across the country, states and local governments have about $1.7 trillion less than what they need to cover retirement benefits -- the result of investment losses, the failure by governments to make adequate contributions and perks granted in boom times.

"In the next downturn, when things look pretty dire, that would be one of the items on the chopping block," Brown said.
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Old 01-12-2018, 03:10 PM
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http://www.washingtonexaminer.com/fi...rticle/2645630

Quote:
Financial performance, not politics, matters most to America's pension holders
Spoiler:
Every January, the New Year sees millions of Americans make a host of resolutions; to give something up, exercise more, and of course most common of all, be more financially responsible. We look at our bank account and non-pension investments knowing that the more we save today, the more comfortable we will be when we retire.

But new research suggests that the financial cushion we spend years building up, may not be what be enough. According to a study released last week by Spectrum Group, many pension members are unaware that a significant number of public funds are underperforming and underfunded, partly at least, because they are increasingly focusing on socially or politically motivated investment strategies.


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Spectrum’s study examined public pension members’ awareness of two of the nation’s largest and most politically active funds – the California Public Employees’ Retirement System (CalPERS) and the New York City Employees’ Retirement System (NYCERS). Conducted last November, the survey revealed that 63 percent and 80 percent of members respectively, “believe their funds are fully funded, even though both funds are underfunded.” Perhaps that unawareness can be explained by the fact that some of the shortfalls are covered by taxpayers: Annual taxpayer contributions have risen from $7.2 billion to $12.3 billion over the past 10 years in California and from $1.4 billion to $9.3 billion in New York since 2002.

Unsurprisingly, the research showed that pension members were not happy about these deficits when this was explained. Nearly three-quarters of CalPERS and two-third of NYCERS respondents said that managers should focus on maximizing returns and ensuring funds were able to cover their liabilities. Nationwide, members believe managers should spend only 9 percent of their time using public resources to “advance worthy political and/or social causes” and instead devote two-thirds of their efforts to meeting financial performance targets.

Ultimately, members reiterated that they want the performance of their funds to be financially driven, strongly preferring to maintain personal control over any charitable donations or socially motivated investments. That focus on financial performance is the biggest and most important takeaway from the Spectrum research – pension members simply don’t see their funds as a political tool to advance social issues and causes.

Sadly, large funds are increasingly being used for activism, with members' retirement treated as a subordinate concern. For example, CalPERS and NYCERS have both embarked on strategies investing heavily in alternative energies at the expense of more traditional energy resources, despite the fact that many renewable energy stocks continue to underperform. According to a recent report by the American Council for Capital Formation (ACCF), four of the nine worst performing funds of 238 private equity investments in the CalPERS portfolio in March 2017, focused on Environment, Social and Governance (ESG) ventures. In contrast, none of CalPERS’ 25 top-performing funds were in the ESG asset category.

As the ACCF report notes, “Over the past ten years, CalPERS has increased its ESG investing and activism while converting a $3 billion pension surplus in 2007 to a $138 billion deficit today. This performance lag comes as the value of the S&P 500 index has increased by more than 275 percent over the past eight years.”

A similar picture emerges in New York, where pension managers have consistently increased holdings in the Developed Environmental Activist class over the last three years, despite those investments consistently underperforming overall market returns. Indeed, the 12 worst-performing private equity funds in the New York City Retirement System in 2016 focused on renewable and clean energy assets.

Understandably, pension members are concerned about the investment allocations that play such a critical part in determining the quality of life in retirement. Managers have a responsibility to be transparent and accountable about the strategies behind their investment decisions, and make maximizing returns a priority. Members should be given a say in how their money is being invested and be able to challenge their managers on the decisions they make.

Spectrum’s research shows that all too often that’s simply not the case. It highlights an alarming trend among America’s large public pensions, where managers are increasingly using the funds entrusted to them for their own political agendas, with dangerous financial consequences for entire generations of workers.

As people around the country resolve to be more careful and responsible with their day-to-day finances this year, CalPERS and NYCERS managers should remind themselves of their own fiduciary responsibilities. A good New Year’s resolution for them would be to give financial performance the highest priority, and not political activism. The future of America’s public pension members depends upon them doing so.

Mark J. Perry is a scholar at The American Enterprise Institute and professor of economics at the Flint campus of The University of Michigan.

If you would like to write an op-ed for the Washington Examiner, please read our guidelines on submissions here.
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Old 01-12-2018, 03:19 PM
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NEW YORK CITY
DIVESTMENT

https://www.ai-cio.com/news/nyc-pens...-fossil-fuels/

Quote:
NYC Pension System to Divest $5 Billion from Fossil Fuels
Seeking climate change-related damages, city files lawsuit against five major oil companies.
Spoiler:
New York City plans to divest roughly $5 billion in fossil fuels reserve holdings from its $189 billion pension system—the largest of any US municipality to date, city officials announced Wednesday.

In what the comptroller’s office is calling a “first-in-the-nation” step towards the five-year divestment goal, Mayor Bill de Blasio and Comptroller Scott Stringer will submit a joint resolution to pension fund trustees. The resolution will allow trustees to analyze strategies on responsibly divesting from fossil fuels in ways that meet fiduciary obligations.

“This is a first-in-the-nation step to protect our future and our planet—for this generation and the next. Safeguarding the retirement of our city’s police officers, teachers, firefighters, and city workers is our top priority, and we believe that their financial future is linked to the sustainability of the planet. Our announcement sends a message to the world that a brighter economy rests on being green,” Stringer said in a statement. “It’s complex, it will take time, and there are going to be many steps. But we’re breaking new ground, and we are committed to forging a path forward while remaining laser-focused on our role as fiduciaries to the systems and beneficiaries we serve.”

Once trustees from each of New York City’s five pension funds have been given an analysis of the proposed divestment, and the risk and return characteristics of the portfolio have been addressed by the Office of the City Comptroller’s Bureau of Asset Management (BAM), they will seek legal opinion regarding whether the divestment would comply with fiduciary duties to beneficiaries. If approved, the BAM will be given the go-ahead to complete the divestment through various steps and timelines. Due to the nature of the move, the Comptroller’s office suggests transactions would “likely be carried out in stages in order to reduce transaction and implementation costs.”

This coincides with Gov. Andrew Cuomo’s proposal last month, in which he called for the New York State Common Retirement Fund to cease future fossil fuel investments. In order to see his vision through, Cuomo also announced that he will also team up with Comptroller Thomas DiNapoli, who runs the fund, to form an advisory committee.

In addition, the Mayor also announced the city has filed a lawsuit against oil companies BP, Chevron, ConocoPhillips, Exxon Mobil, and Royal Dutch Shell, seeking damages to recoup billions of dollars which New York will spend to shield its inhabitants from the effects of climate change. The city has already begun to help its residents recover from past (Hurricane Sandy) and future climate change issues by implementing a $20 billion-plus resiliency program. Money regained will help fund the program.

“New York City is standing up for future generations by becoming the first major US city to divest our pension funds from fossil fuels,” de Blasio said in a statement. “At the same time, we’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits. As climate change continues to worsen, it’s up to the fossil fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient.”

http://www.dailyherald.com/article/2...news/301109993

Quote:
NYC taking steps to divest pension funds of fossil fuels
Spoiler:
NEW YORK -- New York City officials are citing climate change as their motivation to join a growing number of investors ridding themselves of financial interest in fossil fuels.

Democratic Mayor Bill de Blasio and Comptroller Scott Stringer are set to announce plans on Wednesday to divest the city's five pension funds of roughly $5 billion in fossil fuel investments out of its total of $189 billion. They say the divestment is the largest of any municipality in the U.S. to date.


"Safeguarding the retirement of our city's police officers, teachers and firefighters is our top priority, and we believe that their financial future is linked to the sustainability of the planet," Stringer said.

Clara Vondrich of the DivestInvest campaign says the city joins a movement that started about six years ago. She says hundreds of institutional investors managing assets of over $5.5 trillion have taken their money out of fossil fuel investments.

Last month, Democratic New York Gov. Andrew Cuomo announced plans to have the state pension funds also divest from fossil fuel investments. He and state Comptroller Thomas DiNapoli are creating an advisory committee to examine the way to proceed with divestment.

In November, Norway's central bank urged the Norwegian government to consider divesting oil and gas company shares held in the $1 trillion oil fund.

Vondrich said other cities and entities divesting of fossil fuel interests have included Washington, D.C., Berlin and Cape Town; insurance companies Swiss Re, Axa and Allianz; and educational institutions such as the University of Oxford in Great Britain, Stanford University in California and Trinity College in Ireland.

Philanthropies have included the Wallace Global Fund and the Rockefeller Brothers Fund, notable because the late John D. Rockefeller grew his wealth as an oil baron.

"The Rockefeller Brothers Fund is proud to stand alongside Mayor de Blasio and Comptroller Stringer in their historic commitment to divest the NYC pension funds from fossil fuels," Stephen Heintz, president of the Rockefeller Brothers Fund said in a statement.

Brian Youngberg, a senior energy analyst at Edward Jones Investments, noted divestment is not entirely altruistic over the issue of climate change. Fossil fuel securities are underperforming and officials say the outlook for fossil fuel investments continues to be negative.

"One issue facing the industry is peak oil demand," Youngberg said. "Growth will slow over the next several years."

Kyle Isakower, vice president of the American Petroleum Institute, has previously said that divestment is a "tactic of misinformed activists" that is incompatible with job creation, affordable energy, and economic prosperity."

"Millions of retirees and pension holders depend on income from oil and natural gas investments to live," he said." Government pension fund managers have a fiduciary responsibility to ensure the greatest return for their investors. Divestment from energy stocks is likely to reduce investment returns and is therefore not in agreement with their fiduciary responsibility."

New York's two largest pension funds, New York City Employees' Retirement System and Teachers' Retirement System, will immediately pursue divesting by 2022, officials said, "consistent with prudent practice and in line with their fiduciary responsibilities." The other three major pension funds will be encouraged to begin divestment as quickly as practical.

Fund trustees also will seek a legal opinion to confirm that carrying out divestment actions would be consistent with trustees' fiduciary duties to beneficiaries.

De Blasio also is expected to announce a lawsuit against five major oil companies, seeking damages for the costs of infrastructure improvements to contend with the effects of climate change.


http://www.insidesources.com/de-blas...#comment-22890

Quote:
De Blasio Divests NYC’s Pension Funds: Public Employees Likely to Be Hurt
Spoiler:
The divestment movement has come to the east coast. On Wednesday, New York City Mayor Bill de Blasio (D) announced that his administration was stepping up to lead the fight against climate change. In a speech on Wednesday, De Blasio announced a federal lawsuit against five oil companies: BP, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell. He also announced that the city plans to divest its five pension funds from fossil fuels.

“We’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits,” de Blasio said. “As climate change continues to worsen, it’s up to the fossil fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient.”

Fossil fuel investments total about $5 billion out of the five pension plans’ $189 billion in total investments. De Blasio claims that this would be the largest divestment of its kind, though other cities, including Washington, D.C. and Berlin, have already announced divestment plans.

De Blasio’s announcement raised concerns from both the energy industry and manufactures.

“Instead of focusing on politics, de Blasio should be focusing on his fiduciary duties to the employees of New York. New York City needs to improve the financial situation of its pension plans and the mayor needs to stop playing politics with the retirement funds of police officers, firefighters, and teachers,” said Chris Netram, vice president of tax and domestic economic policy at the National Association of Manufacturers.

Netram said that divestment would be a bad idea even if the pension plans were fully funded. However, the city’s pension funds are already struggling. As annual pension costs are rising to levels that had not been seen since the city faced an economic crisis in the 1970s, de Blasio’s 2018 budget added $9.6 billion in payments to the pension funds. The city’s own reports found that the funding status for the various funds ranges from between 57 percent to less than 70 percent funded, well below the 80 percent funding level that analysts consider healthy.

The lack of money reflects both increasing payouts to retirees and mixed performance from the city’s investment portfolio. City budgets plan on a 7 percent return on investment, which many have called unrealistic. In recent years, the city has been inconsistent in terms of meeting this goal. While the funds closed fiscal year 2017 with returns over 12 percent, the previous year had seen returns of less than 2 percent.

The money that the city pulls out of fossil fuel investments would need to be reinvested and Netram questions if it will be able to get comparable returns. A report released late last year by the Suffolk County Association of Municipal Employees found that, if the state of New York were to divest from fossil fuels, its pension funds would lose $2.8 billion over the next 20 years.

“Given the unique role of the energy sector in the economy, investors that chose to remove traditional energy from their investments reduce the diversification of their portfolios and thereby suffer reduced returns and greater risk. Investor costs are further compounded when considering the additional costs of transactional fees, commissions, and compliance costs that are unavoidable when divesting,” the report said.

“During a period when many pension funds, are underfunded, divestment has real financial implications that jeopardize their the long-term health and solvency,” it concluded.

The report shows that divestment has serious effects on governments’ pension liabilities and, potentially, the incomes of pensioners. Divestment has financial consequences for the city and, so far, has been of questionable efficacy. Despite ever more public pushes for divestment, energy development continues.

In fact, New York remains divided over the best way to advocate for better climate policies. De Blasio and Governor Andrew Cuomo (D) are both working towards divestment. However, the state’s comptroller, Thomas DiNapoli, had previously argued that the state’s pension funds could exercise greater influence over energy companies by staying invested.

“The reality of this proposal is that divestment won’t do anything to cut greenhouse gas emissions,” said Netram. “All it does is result in the passage of stocks from one shareholder to the other. It will not result in the mayor achieving what his stated goals seem to be.”
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NEW JERSEY
LOTTERY
http://www.governing.com/week-in-fin...alifornia.html

Quote:
Is the New Jersey Lottery a Fix-All?

Spoiler:
After a successful bond refinancing last week that netted New Jersey $15 million in savings, State Treasurer Ford M. Scudder took the occasion to highlight the state's bipartisan Lottery Enterprise Contribution Act (LECA). Scudder credits the act, which pledged the $13.5 billion state lottery enterprise as an asset to state pension funds, with reducing the pension system's $49 billion unfunded liability and providing the system with a $1 billion annual funding stream.

Scudder notes that last month's bond refinancing generated a huge response from investors: The state was only offering $170.5 million in bonds; it received orders totaling more than twice that amount. "The strong response by investors to New Jersey's most recent bond issuances," he said in a press release, "is proof that New Jersey's fiscal future is brighter today following LECA's enactment."

The Takeaway: The lottery act is certainly creating more funding stability for New Jersey pensions than they’ve since the last century. But it’s a stretch to credit LECA with saving taxpayer dollars on bond refinancings. A far more plausible reason is historically low interest rates.

Regardless, New Jersey’s pension situation is still very much a drain on how it is perceived in the municipal market. Moody’s Investors Service rated the bonds in the recent sale one notch below the state’s A3 rating. Moody’s said its rating for New Jersey -- which is much lower than the average state rating -- was weighed down by “its significant pension underfunding [and] large and rising long-term liabilities.”

That lower rating also generates a cost to taxpayers. A look at the yield on New Jersey’s bond sale compared with an Aa2-rated children’s health system in Texas last month shows that the New Jersey bonds gave investors anywhere from a half percentage point to nearly a full point higher return than the Texas ones.



http://www.njspotlight.com/stories/1...-pension-fund/

Quote:
TREASURY PAID BOA $34M TO SHIFT LOTTERY TO STATE EMPLOYEE PENSION FUND
Spoiler:
Administration claims money was well spent, says Lottery initiative has helped drive down borrowing costs by boosting investor confidence in recent bond issues
bank of america
Gov. Chris Christie’s administration paid Bank of America’s Merrill Lynch division nearly $34 million in consulting fees for work the firm did last year on the complicated transaction that turned the state Lottery into an asset of the troubled public-employee pension system.

The administration has been crediting the Lottery initiative for helping to drive down state borrowing costs by increasing investor confidence in recent state bond issues, and Christie personally praised the policy change during his final State of the State address in Trenton earlier this week, as he touted his own record on pension funding. The effect of the initiative was to shift monies that would have been used in the general budget to the pension system.

The fees totaling $33.89 million that were paid to Bank of America for its consulting services on the Lottery initiative were not previously disclosed by the state Department of Treasury. What’s more, these were not fees paid as a commission but for time and work spent on completing the project.

NJ Spotlight learned of the payment earlier this week after being provided with documents from Treasury in response to a public-records request.

‘Commensurate with private-sector transactions’
Asked to detail the services that were provided by Bank of America yesterday, Treasury spokesman Willem Rijksen cited the firm’s “research and expertise,” and said Bank of America’s fees were “commensurate with private-sector transactions of similar size and scope.”

“Bank of America was selected to assist with the Lottery Enterprise Contribution because it had previously completed over five years of research evaluating and structuring various asset-transfer transactions for the State of New Jersey,” Rijksen said.

“In addition, it should be noted that the fee agreement was success-based so that the state would only have to pay the majority of the fees in the event that the transaction was successful and the state accordingly reaping the benefits,” he went on to say.

A Bank of America spokesman declined comment yesterday, citing company policy.

The state hired Bank of America as a financial advisor early last year, and Christie first proposed the idea of dedicating Lottery revenues to benefit the pension system in his February 2017 budget address. With nearly $1 billion in annual revenue, Christie, a Republican, said at the time that the Lottery could be better leveraged by the state to help prop up a pension system that had been recently named by Bloomberg as the worst-funded state retirement plan in the country.

Christie under pressure
The proposal also came as Christie continued to face pressure to improve the pension system’s financial standing after failing to live up to a major pension-funding promise made during his first term, when he pledged to ramp up state contributions to the full amount required by actuaries over a seven-year period. Instead, Christie stopped following the ramp-up schedule after three years, and revenues that had been earmarked for worker retirements were used to plug budget holes in both 2014 and 2015.

While Christie, who leaves office next week, eventually resumed ramping up pension payments, the current budgeted contribution of $2.5 billion is about half the amount that actuaries have said is needed to restore the system to good health, and the condition of the pension system remains a regular concern raised by credit-rating agencies.

The Christie administration officially proposed the 44-page Lottery Enterprise Contribution Act last spring as lawmakers were putting together a budget for the 2018 fiscal year. The Lottery itself was valued at approximately $13.5 billion, and under the Christie administration’s projections, it will generate a total of $37 billion in revenue for the pension system over the next 30 years. At the end of the 30-year term, the Lottery will no longer be tied directly to the pension system, and if future governors make required contributions, the system’s funded ratio will have improved from below 50 percent to 90 percent, according to the administration’s projections.

The Lottery proposal ultimately won support from Democrats who control the Legislature, and last year state pension officials said they were expecting the Lottery to provide roughly $83 million in cash on a monthly basis throughout the 2018 fiscal year, which runs through June 30, as a result of the policy change.

Dipping into general budget
Meanwhile, as a result of the completed transfer, funds from the general state budget are now being used to cover programs Lottery proceeds have previously paid for, including higher education, veterans, psychiatric hospitals, and programs for the developmentally disabled. That will make those programs more susceptible to future state budget problems.

Also complicating matters for the transfer were rules written into the state constitution that restrict how Lottery proceeds can be used. To not run afoul of those restrictions, the Lottery revenues will only benefit the retirement funds for teachers (TPAF), general state workers (PERS), and state-employed police officers and firefighters (PFRS). Under the Christie administration’s estimates, 78 percent of the Lottery revenues will go to the teachers’ fund, 21 percent to the general public-workers’ fund, and 1 percent to the police and firefighters.

While the transfer did not result in an immediate credit-rating boost for New Jersey, which has one of the lowest debt grades of any U.S. state, Treasury officials pointed to its effectiveness following the recent closing of a state refunding issue. A news release issued by the department earlier this week said the increased investor interest in state bond issues has helped to save taxpayers a total of $47 million since the transfer was enacted in July.

Rijksen also pointed to the decision by S&P Global Ratings this past summer to move the state’s credit outlook from “negative” to “stable.”

“Clearly, the benefit of LECA far exceeds the one-time fees incurred to complete the one-of-a-kind innovative transaction to bolster the state pension system with $37B in funding over 30 years,” Rijksen said.


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Old 01-12-2018, 04:37 PM
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CONNECTICUT
ELECTION

http://www.journalinquirer.com/publi...417d2647f.html

Quote:
As governor, Walker would seek override of SEBAC deal
Spoiler:
Republican gubernatorial candidate David Walker pledged Tuesday to push for a legislative override of the State Employee Bargaining Agent Coalition agreement and its anti-layoff provisions should he be elected to the state’s top office in November.

Walker, a former U.S. comptroller general, said he also wants to restrict the scope of bargaining to exclude pensions and retirement health care benefits.

The Bridgeport Republican said 70 percent to 80 percent of the state’s financial problems are due to underfunded pension and retirement health care benefits, funded at about 25 percent and 1 percent to 2 percent, respectively.


“You must restructure those,” Walker said. “You’re not going to be able to do it through collective bargaining. … These benefits are not guaranteed by the constitution of the state of Connecticut. Collective bargaining is not an inherent right.”

Overriding the SEBAC layoff freeze would enable the state to make necessary cuts, he said during an interview with the Journal Inquirer.

Walker touts himself as a nationally known expert in pension and retirement restructuring, citing his history of finding efficiencies while working at the U.S. Government Accountability Office.

“There’s no question in my mind that there’s a tremendous amount of waste in this government,” he said.

One of the main reasons people are fleeing the state, he said, is because of the tax increases required to pay unfunded liabilities, which Walker called a “disease.”

“There’s been collusion between career politicians and labor union leaders to promise the sun, the moon, the stars, and not fund it,” he said. “We can’t afford it, we can’t sustain it, you’re not going to get it. You’re not going to get it.”

He said he would not cut anyone’s current pension check or accrued benefits, but would change the future formula regarding eligibility, cost sharing, and accrual.

Those on the brink of retirement would receive what they’re expecting, but those with years to go no longer would use various factors toward their pensions, including overtime, unused sick and vacation pay, or mileage reimbursements.

“If you benefited from these abuses, you may not get anymore indexing, but I’m not going to cut your check,” Walker said.

When it comes to retirement health care, he said the state no longer would be in the insurance business.

Those with employers other than the state would be covered by their employer, and those eligible for Medicare would be covered by Medicare.

“They’re not going to get what they’ve been promised,” he said. “We can’t afford it, we don’t have it, and it can’t be sustained. … We don’t need reform, we need radical restructuring.”

Walker said that in the end, state employees would have benefits comparable to those of a Fortune 100 company, while being affordable for the state.

His plan, he said, would save the state at least $30 billion, and he’s sure some of his proposals would face litigation, but “if I’ve got to spend $100 million to save $30 billion, I’ll do it every day of the week.”

Considering the condition of the special transportation fund, which has been routinely raided, Walker said he would be supportive of installing electronic tolls on the state’s highways as a “user fee” to support infrastructure projects.

Connecticut taxpayers could receive a tax credit for the amount of the tolls paid, placing “a vast majority of the burden” on people from out-of-state.

He also said he would overhaul the state’s “grossly mismanaged” welfare system, which “creates a cycle of dependency” that discourages employment.

In order to get people out of the welfare system, Walker said, the state must provide more opportunities, examine eligibility rules, promote education and employment, and consider capping benefits.

He expressed confidence on being on the primary ballot with perhaps half a dozen opponents, and is certain he will be victorious if he were to reach the general election.

Walker’s ambitions extend further than the executive branch, saying he’s confident Republicans can flip both chambers of the General Assembly, as well as the attorney general, treasurer, and comptroller’s offices.

The year “2018 may be our last chance to save the state from further decline,” he said.

Regarding education, Walker said minimum graduation standards must be set and curriculum should be reviewed, including in the areas of financial literacy and civic responsibilities.

“We’re not doing anybody a favor if we’re telling someone they’ve achieved something they haven’t achieved,” he said. “I don’t blame the people; I blame the system.”

Walker added that school systems should be permitted to reduce school budgets as enrollment drops.

Although a strong advocate for the 2nd Amendment, Walker said he is supportive of banning bump stocks and closing loopholes that circumvent background checks.

Although he was not an early supporter of President Donald Trump, voting for Ohio Gov. John Kasich in the primary, Walker said he did vote for Trump in the general election against Hillary Clinton.

“I don’t like his style,” Walker said of Trump, “but he is a change agent. I know Hillary Clinton; she’s no Bill Clinton and she’s not a change agent, so I voted for Trump.”

Walker, who ran for lieutenant governor 2014, said he wasn’t planning to run for governor and isn’t particularly interested in politics, but was recruited by several prominent business people because of his past successes.

“If I’m the nominee in this state, this race is going to be nationalized,” he said, with support throughout the country for the potential to flip a blue state to red. “If I’m the Republican nominee, I’ll win.”
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Old 01-12-2018, 04:38 PM
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CALIFORNIA
CALPERS

https://californiapolicycenter.org/m...s-pay-calpers/

Quote:
How Much More Will Cities and Counties Pay CalPERS?
Spoiler:
When speaking about pension burdens on California’s cities and counties, a perennial question is how much are the costs going to increase? In recent years, California’s biggest pension system, CalPERS, has offered “Public Agency Actuarial Valuation Reports” that purport to answer that question. Notwithstanding the fact that CalPERS predictive credibility is questionable – i.e., they’ve gotten it wrong before – these reports are quite useful. Before delving into them, it is reasonable to assert that what is presented here, using CalPERS data, are best case scenarios.

In partnership with researchers at the Reason Foundation, the California Policy Center has compiled the data for every agency client of CalPERS, including 427 cities and 36 counties. In this summary, that data has been distilled to present two sets of numbers – payments to CalPERS for the 2017-2018 fiscal year, and officially estimated payments to CalPERS in the 2024-25 fiscal year. In calculating these results, the only assumption we made (apart from the assumptions made by CalPERS), was for estimated payroll costs in 2024. We used a 3% annual growth rate for payroll expenses, the rate most commonly used in official actuarial analyses on this topic.

So how much more will cities and counties have to pay CalPERS between now and 2024? How much more will pensions cost, six years from now?

On the table below, we provide information for the 20 cities that are going to be hit the hardest by pension cost increases. To view this same information for all cities and counties that participate in the CalPERS system, download the spreadsheet “CalPERS Actuarial Report Data – Cities and Counties.”

CalPERS Actuarial Report Data
The Twenty California Cities With the Highest Pension Burden ($=M)



If you are a local elected official, or if you are an activist, journalist, or anyone else with a keen interest in pensions, these tables merit close scrutiny. Because they not only show costs estimates today, and seven years from now, but they break these costs into two very distinct areas – the so-called “normal” costs, which are how much employers have to pay into the pension fund for current workers who are vesting one more year of future benefits, and the “catch-up” costs, which are what CalPERS charges employers whose pension plan is underfunded.

Take the first city listed, Millbrae. By 2024, we predict Millbrae will have the highest total pension payments of any city in California that belongs to the CalPERS system.

The table presents are two blocks of data – the set of columns on the left show current costs for pensions, and the set of columns on the right show the predicted cost for pensions. In all cases, the cost in millions is shown, along with the cost in terms of percent of total payroll.

Currently, as can be seen on the table, for every dollar it pays active employees in base wages, Millbrae must contribute 59 cents to CalPERS. This does not include payments to CalPERS that Millbrae collects from its employees via withholding. The same data show that, by 2024, for every dollar Millbrae pays active employees in base wages, they will have to contribute 89 cents to CalPERS. Put another way, while Millbrae may expect its payroll costs to increase by $1.4 million, from $6.3 million today to $7.7 million in six years, their payment to CalPERS will increase by $3.1 million, from $3.7 million today to $6.8 million in 2024.

But here’s the rub. Nearly all of this increase to Millbrae’s pension costs are the “catch-up” payments on the city’s unfunded liability. In just six years Millbrae’s payment on its unfunded liability will increase by 99%, from $2.9 million today to $5.8 million in 2024.

Why?

What are the implications?

It is difficult to overstate how outrageous this is. Here’s a list:

1 – Virtually every pension “reform” over the past decade or so has exempted active public employees from helping to pay down the unfunded liability via withholding. Instead, their increased withholding – in some cases supposedly rising to “fifty percent of pension costs” (the PEPRA reforms) – only apply to the normal contribution.

2 – In order to appease the unions who, quite understandably, lobby for the lowest possible employee contributions to pension funds, the “normal cost” is calculated based on financially optimistic projections. The less time an actuary predicts a retiree will live, and the more an actuary predicts investments will earn, the lower the normal contribution.

3 – In order to cajole local elected officials to agree to pension benefit enhancements, the same overly optimistic, misleading projections were provided, duping decision makers into thinking pension contributions would never become a significant burden on cities and counties, and by extension, taxpayers.

4 – Because cities and counties couldn’t afford to pay down the growing unfunded liabilities attached to their pension plans, tricky accounting gimmicks were employed, where minimal catch-up payments were made in the present in exchange for bigger catch-up payments in the future. The closest financial analogy to what they did would be the “negative amortization” mortgages that were popular prior to the housing crash of 2008.

5 – The consequence of this chicanery is that today, as can be seen, catch-up payments on the unfunded liability are typically two to three times greater than the normal contribution. And it’s getting worse. In 2024, Millbrae, for example, will have a catch-up contribution that is nearly six times as much as their normal contribution.

6 – When a normal contribution isn’t enough, and the plan becomes underfunded, the level of underfunding is compounded every year because there isn’t enough money in the fund earning interest. The longer catch-up payments are deferred, the worse the situation gets.

Yet the normal contribution has always been represented as all that should be required for pension plans to remain fully funded. Just how bad it has gotten can be clearly seen on the table.

Take a look at Pacific Grove, fourth on the list of CalPERS cities with the highest pension burden. Pacific Grove is already paying 40 cents to CalPERS for every dollar it pays to its active employees. But in six years, that amount will go up to 75 cents to CalPERS per dollar of salary to active employees. And take a look at where the increase comes from: Their catch-up payment goes from 1.7 million to $4.4 million in just six years.

Why?

Why isn’t Pacific Grove paying more, now, so that it can avoid more years of having too little money in its pension plan, earning interest to properly fund future pensions? The reason is simple: Telling Pacific Grove to go out and find another $2.7 million, right now, is politically unpalatable. In six years, most of the local elected officials in Pacific Grove will be gone. But where is Pacific Grove going to find this kind of money? Where are any of California’s cities and counties going to find this kind of money?

One final point: These pension plans are underfunded after a bull market in stocks has doubled since it’s last peak in June 2007, and has nearly quadrupled since it’s last low in March 2009. When stocks and real estate have been running up in value for eight years, pension plans should not be underfunded. But they are. CalPERS should be overfunded at a time like this, not underfunded. That bodes ill for the financial status of CalPERS if and when stocks and real estate undergo a downward correction.

CalPERS, and the public employee unions that dominate CalPERS, have done a disservice to taxpayers, public agencies, and ultimately, to the individual participants who are counting on them to know what they’re doing. They were too optimistic, and the consequences are just beginning to be felt.


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Old 01-12-2018, 04:43 PM
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NEW JERSEY

https://www.washingtonpost.com/news/...=.780ffbf87fbd

Quote:
Chris Christie’s dubious claim he saved $120 billion in the N.J. pension system
Spoiler:
“These reforms will save $120 billion for the system over 30 years and have staved off, for the time being, the insolvency of the system. … In our eight years, we have contributed $8.8 billion in cash to the system. This represents 2 times more than the last five governors before me combined. If such contributions had been made all along, our problems would almost be nonexistent.”

— Gov. Chris Christie (R-N.J.), in remarks during his state of the state speech, Trenton, N.J., Jan. 9, 2018

(Editor’s note: Salvador Rizzo is joining The Fact Checker team. This is his first fact check. — Glenn Kessler)

It’s a rite of passage for politicians leaving office to talk about bright spots and accomplishments, even if they have to fudge a few details that get in the way of an upbeat story. But what happens when the problems are too big — say, when a governor inherits a massive financial wreck and hands off a massive financial wreck?

In Gov. Chris Christie’s case, that means a spin extravaganza on New Jersey’s pension system, which remains one of the worst-funded in the nation as Christie wraps up his eight years in office.

In his last state of the state speech Jan. 9, Christie argued that he achieved “historic reform” on the pension front and that, if the previous five New Jersey governors had done what he did, the state’s pension problems would “almost be nonexistent.” He was just as boffo in recent exit interviews with the New York Times and the Star-Ledger.

It sounds impressive, and Christie has earned praise in some quarters for charting a more responsible course on pensions. But do his numbers add up?

The Facts
Let’s start with some Pension 101. New Jersey manages retirement funds for nearly 800,000 public employees — teachers, judges, prosecutors, state troopers and others — and each year the state is required to pay enough to stay abreast of what it will owe retirees 30 years later. That’s called an actuarially determined contribution, or ADC, and it’s a lot like the minimum payment on your credit card.

But the last time New Jersey made its minimum payment was 1996, and it’s all been downhill from there. Think of it like credit card debt that has gotten wildly out of hand. Under normal circumstances, missing your minimum credit card payment might mean higher interest rates and bigger payments down the line. But when the debt is approaching $100 billion, falling short on one payment means paying billions more dollars down the line.


Over eight years, Christie and the Democratic-controlled state legislature never made a full minimum payment, and the long-term cost has been severe.

A December report from Moody’s Investors Service estimated that New Jersey’s pension liabilities would rise from $95 billion to $116 billion from fiscal years 2016 to 2017, a 22 percent increase, because of the pension-skimping maneuvers. “Despite large pension contribution increases, the state’s structural imbalance has remained steady at 11 percent, of which pension contribution underfunding is the primary source,” according to the report.

The grim result is that New Jersey’s unfunded pension liabilities grew every year under Christie’s watch. The state’s credit rating was downgraded four times by Moody’s, four times by S&P Global Ratings and three times by Fitch Ratings, reaching the worst grade of any state except Illinois. Christie is the most-downgraded governor in U.S. history, and the pension system is now ranked variously as the worst-funded in the nation or somewhere in the bottom five.


‘We have contributed $8.8 billion in cash to the system’

Although New Jersey’s state government did contribute $8.76 billion over eight years to the retirement funds under Christie, as he said, that was far less than the $31.65 billion total he faced in minimum payments. Christie averaged a 28 percent ADC over eight years. Although they paid $3.4 billion in total, the five previous governors combined averaged 21 percent from 1995 to 2010.

According to Moody’s, 28 percent is “well below the level that would allow the state’s reported net pension liability to ‘tread water’ — or remain stable from one year to the next, assuming investment return and other actuarial assumptions are met.” In layman’s terms, that means 28 percent is not enough to get back to fiscal health.

So, the Moody’s report indicates that — contrary to what Christie argued in his speech — New Jersey’s pension problems would be looming large today had his five predecessors contributed 28 percent rather than 21 percent of what was due.


The key fact missing from Christie’s speech and interviews is that pension finance is a long game; the funding gap grows exponentially each year that New Jersey skips or shorts its minimum payment. So when Gov. Donald DiFrancesco (R) skipped a $700 million contribution in 2002, the minimum payment the next year was still $700 million, in part because the pension system was funded then at a higher level.

But by the time Christie skipped a $3.1 billion contribution in 2011 and began to short subsequent ones, the system had fallen into serious disrepair, and the unfunded liabilities over 30 years grew at a much higher rate compared with DiFrancesco’s term. Christie will leave office with an ADC that grew from $3.1 billion in the first year to $5 billion in the current one. Because he had the misfortune to be the latest governor saddled with this financial calamity, Christie’s moves to short the pension payments took the biggest toll by far.

A spokesman for the Christie administration did not answer a list of questions but insisted the governor was right.

“The increase in funding is far more significant than you acknowledge,” said Willem Rijksen, a spokesman for the New Jersey Treasury Department. “Not only is it more than 2.5 times the total contributed by the five previous governors combined. … Perhaps most significantly, there is for the first time in state history a universally acknowledged strategy to reach the full annual actuarially required contribution.”

That claim, and one other by Christie, are also worth fact-checking.




‘These reforms will save $120 billion’

In his speech, Christie said New Jersey taxpayers would save $120 billion over 30 years because of several measures he signed into law in 2011. The state raised public workers’ retirement age, increased their pension costs, and froze cost-of-living adjustments for retirees. At the time, it was landmark legislation that helped Christie burnish his resume for an eventual presidential run.

But the $120 billion figure does not tell the whole story.

One of the most important parts of Christie’s 2011 plan was a seven-year schedule to ramp up the state’s pension payments by billions of dollars, until reaching the full ADC, or minimum pension payment, this year. Christie flip-flopped and scrapped that plan in 2014, three years in, because state revenue did not keep up and he refused to raise taxes to cover the difference.

What Christie ended up doing was extending the ramp from seven to 10 years. So instead of being on the hook for a full $5 billion ADC this year, he contributed only half, $2.5 billion. And instead of seeing the seven-year ramp to completion during his two terms, Christie left to his successors the tough chore of finding more than $21 billion, according to one state estimate, to finish the 10-year ramp over the next five years.

The shift came with a cost that Christie fails to acknowledge.

By switching from seven to 10 years, less money went into the pension system. Less money was invested by the state’s pension managers, and less investment returns were generated. The unfunded liabilities therefore grew more than Christie expected in 2011, when he rolled out the $120 billion savings estimate.

Yet Christie still uses the $120 billion figure, without accounting for the cost of his new 10-year ramp. His math is similar to President Trump boasting of having cut $5.5 trillion in taxes. Trump’s figure doesn’t account for $4 trillion in tax increases included in the same package, which means Trump signed a net $1.5 trillion tax cut.

The net figure for all of Christie’s changes to the pension system is unknown. A representative for Moody’s said that the $120 billion savings estimate is “partially offset by the lower-than-expected annual contributions” but that the agency could not quantify the “net savings” from Christie’s changes. But it’s clear the $120 billion is no longer valid.

The design of the pension plan — both initially and when Christie revised it in 2014 — left some of the hard decisions for later, which would make sense if a governor was hoping not to stick around for a full eight years.

“In the final analysis, Christie’s 2011 pension reforms called for a grand bargain in which state workers would make a number of sacrifices in their benefits in exchange for the state promising to make its full ADC payments,” said Patrick McGuinn, a professor at Drew University who wrote a 2014 report for the Brookings Institution recommending that New Jersey move new hires to 401(k)-style plans instead of pensions, which are more generous. McGuinn also recommended moving to hybrid plans.

“At the end of the day the workers fulfilled their part of the deal (because they had no choice) and the state did not (because it did have a choice and the choice was politically unpalatable),” McGuinn wrote in an email. “As a result, the unfunded pension liabilities in New Jersey remain enormous and create a formidable fiscal challenge for the incoming … administration and threaten to derail the many campaign promises it made regarding new investments.”

Christie does deserve credit because “his use of the bully pulpit on the issue raised its profile and increased the sense of urgency to deal with it in a serious way” and for “his willingness to work across party lines with Democrats in the legislature,” McGuinn said.

Rijksen, the state Treasury Department spokesman, noted that Christie also committed nearly $1 billion a year in state lottery revenues to the pension funds. Ratings agencies said this was an improvement, but not a huge one, because New Jersey reduced its pension contribution from the state budget by an equal amount. (The difference is that the lottery money is bound to go to the pension system no matter what happens in the state’s annual budget negotiations.)

And the governor was the adult in the room by reducing New Jersey’s assumed rate of return — what it expects to generate from its pension investments — from 8.25 percent when he took office to 7 percent, which is more in line with industry standards, Rijksen said. That may turn out to be better long-term planning, but it also means the unfunded liability will be growing, because less money is expected to go into the system.

The Pinocchio Test
Christie argues that he achieved “historic reform” of New Jersey’s distressed pension system and that there would be almost no funding issues — “almost … nonexistent” — had the previous five governors done what he did.

He notes that New Jersey contributed a record $8.8 billion to the pension funds under his watch but neglects to mention important data. The retirement system’s unfunded liabilities continued their rampant growth, and over eight years, Christie contributed 28 percent of the minimum payments the state was required to send the pension funds, compared with a 21 percent average for the previous five governors combined. According to Moody’s, 28 percent is not considered a healthy funding level.

Christie also claims that New Jersey taxpayers saved $120 billion over 30 years because of a 2011 law he signed raising the retirement age, freezing cost-of-living adjustments for retirees and increasing what public workers pay toward their retirement accounts. But Christie leaves out that by scrapping another part of that law, which required him to make bigger pension payments, he also saddled New Jersey taxpayers with an indeterminate but substantial cost over 30 years.

Apple-polishing is to be expected for a departing governor, but Christie earns Three Pinocchios for statistics that belie a rotten core.

Three Pinocchios

http://www.nj.com/politics/index.ssf...lenges_re.html

Quote:
N.J. and towns could be slammed by Christie pension move, Trump tax law and more
Spoiler:
Looks like 2018 is going to be a tough year for New Jersey's state and local governments.

A Wall Street agency said Wednesday that New Jersey and its local governments will be fighting pressures on multiple fronts as they grapple with the expiration of a key property tax control, a changing federal tax landscape and rising pension bills.

S&P Global Ratings warned that these three developments, which emerged as Gov.-elect Phil Murphy prepares to take office, risk "potentially straining both state and local budgets."

One, a reduction in the rate of return the state assumes it will make on its pension investments, will jack up state and local employers' recommended contributions to the public pension fund by $813 million next year, as first reported by NJ Advance Media.

These extra dollars going in will be a boost to the grossly underfunded system but pose yet another challenge to already tight state and local budgets.

Christie move boosts NJ pension price tag
Christie move boosts NJ pension price tag

Gov. Chris Christie's administration is reducing the pension fund's assumed rate of return from 7.65 percent to 7 percent.


Gov. Chris Christie's administration cut the assumed rate of return from 7.65 percent to 7 percent, which is in line with other large funds and is a more conservative estimate of what pension investments can achieve over the long term.

Local governments, which by law have to pay the full contribution recommended by actuaries, will have to come up with an additional $422.5 million for the fiscal year that begins in July.


"How this increase is spread across the more than 1,600 local government employers in the plans remains to be seen, but we anticipate pension costs will materially increase for some issuers," S&P said. "Municipalities and counties can exceed the property tax cap for pension costs, but they must be willing to do so."

Meanwhile, the state's contributions will be largely left to Murphy, who will introduce a proposed budget next month. If he keeps to Christie's payment schedule and kicks in 60 percent of the actuarial recommendation, Murphy will have to find another $234 million in the budget.

The second change, the expiration of a 2 percent cap on the salary increases police and firefighters can win in arbitration, "could cause municipal public safety costs to increase faster than the 2 percent local property tax increase limitation, which still remains in effect," analysts said.

The 2 percent cap expired at the end of December. Local government leaders who favored its extension said these arbitration awards, which are rare, set the tone for and helped keep raises reached through voluntary contract negotiations in check.

Prior to the cap, arbitration awards ranged from 2 percent to nearly 6 percent, according to data from the Public Employment Relations Commission.


Local government budgets are still hemmed in by a 2 percent limit on increases in spending that local government officials say will force them to slash spending or go around the spending cap to increase revenue.

In addition, analysts said, "the effects of federal tax reform will also ripple throughout the state."

S&P warned of a potential influx of reported income and tax payments but of a drop-off in corporate income tax collections as corporations seek to benefit from lower federal corporate tax rates in 2018.

"It might take time to determine what portion of the increased revenue is of a one-time versus an ongoing nature, which will increase forecasting uncertainty in the first half of fiscal 2018," the report said.

"At the local level," S&P cautioned that the $10,000 federal income tax cap on state and local tax deductions could depress home values and sour potential homebuyers.

"This could result in weaker tax bases, higher tax rates, and political resistance to levy increases at the local levels as residents in turn face higher federal and state taxes," the report said.
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Quote:
The looming pension crisis will hurt many African-Americans
Spoiler:
Democrat Doug Jones won a narrow victory over Roy Moore in Alabama's special Senate election, with write-in candidates pulling votes away from the Republican candidate and on the strength of voter turnout, especially by African-American voters.

African-Americans made up a higher percentage of voters in Alabama than during Obama's 2012 re-election. African-American women preferred Doug Jones over Roy Moore by a 98% to 2% margin. As Charles Barkley eloquently put it, "It's time for (the Democrats) to get off their a-- and start making life better for black folks and people who are poor."

In reality, it is time for politicians from both parties to address an issue that affects many Americans, but especially African-Americans.

That there is a looming pension crisis in the U.S. is well known. Pension funds have not adequately built up the reserves needed to pay their future obligations. What is less acknowledged is that this shortfall will most hurt African-Americans. And the impact will be felt beyond the individual retirees themselves.

Pension funds typically operate as follows. A pension fund collects money; in the case of federal, and state and local government, it can be collected in the form of taxes. That money is then invested in a mix of fixed income debt, equity securities and other asset classes with the aim of growing the investment to meet future financial obligations to retirees.

As a group, federal, state, local and corporate pension funds have major funding gaps. Estimates for the unfunded liabilities of corporate pensions of the S&P 500 companies fall in the $500 billion range. Federal, and state and local government pension funds are underfunded by anywhere from $2 trillion to $5 trillion. The low interest rate environment coupled with a stock market that has already risen sharply make it unlikely they will be able to close their funding gap.

The problem for state and local pensions is especially acute. State and local governments do not have the same tools that the federal government does to fix the problem. States can try and raise taxes, but residents can always move to other states; a "millionaire's tax" in Maryland was blamed for an exodus of some of Maryland's largest individual taxpayers.

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The federal government can raise taxes, and U.S. citizens have little leeway in where they can move to avoid the higher taxes. The Federal Reserve can try and stimulate inflation to drive down the real cost of the pension obligations, an option that the states do not have.

States are legally restricted from declaring bankruptcy, and many are prohibited by law from reducing their pension payouts, thus increasing the likelihood of state budgets imploding and not making their pension payments. Given the federal government's own fiscal problems with Social Security and Medicare and the magnitude of the problem at the state and local levels, the federal government is unlikely to bail the states out of their messes.

Thus the problem appears to be the most severe at the state and local level. And this is where it will disproportionately harm the African-American community.

The employment metrics for the African-American community have lagged behind the majority of the U.S. population. It has a lower percentage in the workforce and a higher unemployment rate for those in the workforce. Those who do work are on average paid lower wages.

State and local governments are major employers in the U.S. According to the BLS, state and local governments employ nearly 20 million people and account for over 13% of total non-farm employment. These jobs have tended to offer good benefits and greater job security than private sector employment.

State and local government employment has been a bright spot for African-Americans. Though the data does not fully align with BLS figures, according to the EEOC, in 2015 African-Americans held 18.5% of all state and local government jobs, despite representing just over 13% of the total U.S. population. This follows a consistent pattern of African-American employment in State and Local Government. In 2005, African-Americans held 18.9% of State and Local Government jobs.

These jobs have been a particular boon for African-American women. In 2015, African-American women alone held 10.4% of all state and local government jobs and represented 22% of all women employed in state and local government.

Because of the higher rates of employment in state and local government, African-Americans are more exposed to pension failure than the rest of the U.S. population.

This problem is exacerbated by African-American population concentrations. States vary in their level of pension funding. Wisconsin's and South Dakota's pension funds are overfunded, while Illinois' and Kentucky's are severely underfunded.

States where African-Americans comprise a high percentage of the total population, such as Mississippi, Louisiana, Maryland, South Carolina, Alabama and Virginia, rank in the bottom half of states for pension funding.

States with large African-American populations, such as Illinois, New Jersey and Connecticut, have some of the worst performing pensions.

There are bright spots. New York, Florida, Georgia and North Carolina have large African-American populations and have some of the better funded pensions. But in aggregate, across the U.S., African-Americans are centered in states whose pension positions are below average.

The implications of the shortfall in pension funding are severe. Pension payments will eventually have to either be cut or the pensions will fail. Americans on the whole have not saved enough for retirement, and retirees are at a stage in life during which it is harder to return to the workforce.

Worse, a pension collapse has implications beyond the pensioners. Pensions are a path to building family wealth and better positioning future generations. Retirees often are at a stage in life in which they are past their largest bills. Homes are paid off, kids have moved on to live independently and start their own families.

Retirees with a steady source of pension income can help their children scrape together the down payment for a home, or contribute to their grandchildren's education and extra curricular activities. The loss of pension income could flip the retirees position from being able to help their families to one in which they become burdens on their family.

That many pensions will renege on their obligations is nearly a given. The magnitude of the issue makes it a national, not just a local, problem, and a generational problem as well. Thus the health and viability of pensions deserves more individual attention and public planning than it currently receives.
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