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FLORIDA

http://www.palmbeachpost.com/news/st...AyBFDtNuVOlQI/

Quote:
Bill hikes pension contributions for state agencies, local governments

Spoiler:
Florida counties would have to contribute an additional $66 million to the state pension fund in the new budget year, according to legislation that has started moving in the Senate.

As a result of a decrease in the assumed rate of investment return on the $160 billion pension fund, counties, school boards, state agencies, universities, state colleges and other government entities will have to increase their contributions in the 2018-2019 budget year to make sure there is enough money to pay retirement benefits in the long term.

RELATED: Florida government and politics in The Post
The increased payments total $178.5 million, including $66.4 million for county governments, according to legislation (SB 7014) approved by the Senate Governmental Oversight and Accountability Committee last week.


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School districts, whose employees represent about half of the 627,000 active pension participants, will have to contribute an additional $54.4 million.

State agencies will have to contribute another $31 million. Universities will have to contribute $11.8 million and state colleges an additional $4.8 million.

A handful of cities and special districts that participate in the state retirement system will face a $10 million contribution increase.

County governments, which face the largest contribution increase, will have to accommodate the added expense as they shape their 2018-2019 budgets.

“Counties are closely monitoring the FRS (Florida Retirement System) contribution but remain committed to a program that provides retirement security to our dedicated public servants,” said Cragin Mosteller, a spokeswoman for the Florida Association of Counties.

The bulk of the other contribution increases are part of overall budget challenges facing House and Senate members as they craft the 2018-2019 state budget, which takes effect July 1.

The $54 million increase for school districts, for example, will be in the mix as lawmakers address overall public-school funding. Lawmakers are already having to accommodate an increase of more than 27,000 new students next academic year, and the House and Senate remain at odds over using increased local property tax collections to boost school spending

Senate Appropriations Chairman Rob Bradley, R-Fleming Island, said the state pension fund in the Senate budget bill will be “fully funded with the new assumptions.”

“It’s an obligation of the state,” Bradley said. “And we are comfortable with the current level of (pension) benefits in the Senate, with the understanding that when you change the assumptions, that requires more money to go to that area.”

The Florida Retirement System Actuarial Assumption Conference lowered the projected rate of return on the pension fund’s collection of stocks, bonds, real estate and other assets from 7.6 percent to 7.5 percent last fall.

It was the fourth year in a row that analysts have lowered the assumed rate of return on the fund.

The decision came after new evaluations from independent financial consultants projected a 30-year rate of return for the pension assets in the range of 6.6 percent to 6.81 percent.

With a 7.5 percent assumed rate of return, the Florida pension fund is expected to be able to pay 84.4 percent of its future obligations, with a $27.9 billion long-term unfunded actuarial liability, according to the consultants.

Public employees who participate in the pension plan have been required to contribute 3 percent of their annual salaries to the fund since 2011.


http://www.orlandosentinel.com/news/...116-story.html

Quote:
Florida counties, schools face higher state pension contributions

Spoiler:
TALLAHASSEE — Florida counties will have to contribute an additional $66 million to the state pension fund in the new budget year, according to legislation that has started moving in the Senate.

As a result of a decrease in the assumed rate of investment return on the $160 billion pension fund, counties, school boards, state agencies, universities, state colleges and other government entities will have to increase their contributions in the 2018-2019 budget year to make sure there is enough money to pay retirement benefits in the long term.

The increased payments total $178.5 million, including $66.4 million for county governments, according to legislation (SB 7014) approved by the Senate Governmental Oversight and Accountability Committee last week.

School districts, whose employees represent about half of the 627,000 active pension participants, will have to contribute an additional $54.4 million.

State agencies will have to contribute another $31 million. Universities will have to contribute $11.8 million and state colleges an additional $4.8 million.

A handful of cities and special districts that participate in the state retirement system will face a $10 million contribution increase.

County governments, which face the largest contribution increase, will have to accommodate the added expense as they shape their 2018-2019 budgets.

“Counties are closely monitoring the FRS [Florida Retirement System] contribution but remain committed to a program that provides retirement security to our dedicated public servants,” said Cragin Mosteller, a spokeswoman for the Florida Association of Counties.

The bulk of the other contribution increases are part of overall budget challenges facing House and Senate members as they craft the 2018-2019 state budget, which takes effect July 1.

The $54 million increase for school districts, for example, will be in the mix as lawmakers address overall public-school funding. Lawmakers are already having to accommodate an increase of more than 27,000 new students next academic year, and the House and Senate remain at odds over using increased local property tax collections to boost school spending

Senate Appropriations Chairman Rob Bradley, R-Fleming Island, said the state pension fund in the Senate budget bill will be “fully funded with the new assumptions.”

“It’s an obligation of the state,” Bradley said. “And we are comfortable with the current level of [pension] benefits in the Senate, with the understanding that when you change the assumptions, that requires more money to go to that area.”

The Florida Retirement System Actuarial Assumption Conference lowered the projected rate of return on the pension fund’s collection of stocks, bonds, real estate and other assets from 7.6 percent to 7.5 percent last fall.

It was the fourth year in a row that analysts have lowered the assumed rate of return on the fund.

The decision came after new evaluations from independent financial consultants projected a 30-year rate of return for the pension assets in the range of 6.6 percent to 6.81 percent.

With a 7.5 percent assumed rate of return, the Florida pension fund is expected to be able to pay 84.4 percent of its future obligations, with a $27.9 billion long-term unfunded actuarial liability, according to the consultants.

Public employees who participate in the pension plan have been required to contribute 3 percent of their annual salaries to the fund since 2011.

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NEW MEXICO

https://www.ai-cio.com/news/facing-p...nsion-changes/

Quote:
Facing Police Shortage, NM Considers Pension Changes
As Santa Fe expands city turf, it co-sponsors supportive resolution.
Spoiler:
New Mexico’s Republican Gov. Susana Martinez said she will back bills that support police officers being able to return to work while earning pension pay, and it’s causing a ripple into the cities.

On Wednesday, the City Councilors in Santa Fe co-sponsored a resolution expressing support if state legislation allowed police officers to return to work while still collecting retirement benefits. Councilman Chris Rivera said the change could help the ongoing shortage of police officers in the city.

“We’re in a dire crisis and we really need to diversify our options,” Rivera told CIO.

Santa Fe city is expanding, and annexing more land, which widens the area for police officers to cover, a spokesman told CIO. Currently, police officers are retiring at a young age and still want to work, said Rivera, and laws could allow it if they limited high salaries and upper rank progression to post retirement re-hires.

In New Mexico’s largest city, Albuquerque, the mayor has stated that he wants to add 400 police officers to the force. Albuquerque police officers can retire after 20 years with 70% of their pay.

Pensions for people returning to government work were frozen in New Mexico in 2010 out of fear that ‘double dipping’ would increase costs to taxpayers if people came back to work and were re-promoted to the high salaries they retired from. But there is a strong push by public safety for laws to change back to stem the ongoing shortages of police and fire personnel. Changing the return to work policy was brought up last year but “didn’t get far” in the legislature, said Rivera.

“The legislature is concerned with return-to-work provisions because they negatively impact the pension funds,” Ann Hanika-Ortiz, principal analyst, Legislative Finance Committee of the State of New Mexico, told CIO in a phone interview. “Using the pension funds to solve recruitment and retention issues is probably not a good idea over the long term, especially when you have underfunded pension systems, which we do in New Mexico.”

However, a scenario that would not negatively impact the fund would be to create parameters that kept police officers from accruing additional benefits while they’re re-employed, and to require them to suspend their cost of living adjustment (COLA) while they’re re-employed. New Mexico provides a 2% fixed compounded COLA, and all other return-to-work public employees have to suspend it, said Hanika-Ortiz.

In 2013, the pension reforms included an incentive to delay retirement that increased the maximum pension amount from 80% to 90% of one’s average final salary. According to analysis by the Public Employee Retirement Association, “the incentive could mean an additional half-million dollars in lifetime retirement benefits by working an additional five or six more years,” said Hanika-Ortiz.


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NEW JERSEY

http://www.nj.com/opinion/index.ssf/...editorial.html

Quote:
No surprise here: N.J. pension-grab bill signed | Editorial

Spoiler:
You could say that the king for a day, Chris Christie, picked his queen for a day during his final 24 hours as governor. That would be former Camden mayor Dana Redd.

Don't worry about Redd having to wear a heavy crown, like Queen Elizabeth II, who recently complained about that and her carriage's horrible ride in recalling her coronation. Redd will be well compensated later for her troubles.

On Monday, Christie signed what has been dubbed the "Get Dana Redd a Better Pension Act." It's even worse than we imagined while this clunker was making its way through the lame-duck Legislature.

Christie signs bill giving ex-Camden mayor bigger pension
Christie signs bill giving ex-Camden mayor bigger pension

The measure will increase the pensions of former Camden Mayor Dana Redd — a Democratic ally of Gov. Chris Christie — and some other elected New Jersey officials.


You see, Redd was just hired as CEO of the Rowan University/Rutgers-Camden Board of Governors, a job that pays a state-pension creditable $275,000 a year. For what, we have no idea. This hybrid board was created as a consolation prize when the so-called "Rowan-Rutgers merger" was called off in 2012. The board's charge, we thought, was to set policy for medical institutions (presumably with their own CEOs or deans) that the schools were to administer jointly.

Now, Redd's frozen pension -- which Christie's John Hancock just thawed -- will triple if she hangs on to her new gig for three years, according to Politico New Jersey. To rub more salt into taxpayers' wounds, the Politico story indicated that Redd was hired Friday during a 14-minute Rutgers/Rowan board meeting where only its chairman -- Jack Collins, a former Assembly speaker -- was physically present.


Until Friday, the worst thing about the legislation was that it allowed Redd to rejoin the defined pension system after having to endure contributing to a 401(k)-type retirement plan when she became mayor. At that time, she had already qualified for a pension based on a $92,000 top salary. The 401(k) requirement came with her mayor's title, and was based on a reform intended to curb spiraling officials' pension costs.

Redd's mayoral salary was $102,000, so, until last week, her pension increase would have been relatively small if Christie had signed the bill. Our main objection in a previous editorial was the process: Here was another hurry-up, end-of-session rush job, engineered by state Senate President Stephen Sweeney, D-Gloucester, and others, to revive a bill that failed miserably three years earlier.

One sentence in that editorial was downright prophetic, if we say so ourselves:

"And, who knows what pension-padding public job she'll claim next if she's back in the Public Employees Retirement System?"

Now, we know.

We still don't know how many other elected officials who switched offices after the 401(k) law came in will benefit from the largesse of Sweeney and friends.

We're not surprised that politicians conspired with other politicians to feather their own retirement nests. But we are surprised at how willingly Christie signed the bill, since the action makes ring hollow every word he's ever uttered about the need for public pension reform.

As recently as last month, Christie warned decisively about the need for further "difficult reforms" to save the pension system, beyond the landmark changes that he and Sweeney collaborated on in 2011.

It's no wonder that every beat cop, every firefighter, even every well-compensated teacher, steams as Christie and friends continue to treat politicians as a specially protected class. The pity is that we really do need further state pension reforms. Christie, in approving Dana Redd's Monday coronation, makes riding down that path even bumpier than Queen Elizabeth's coach.


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IOWA

https://www.desmoinesregister.com/st...bt/1035979001/

Quote:
Don’t minimize Iowa’s public pension debt

Spoiler:
A few weeks ago, The Des Moines Register reported that “Iowa racked up an additional $462 million in debt in the last fiscal year.” (“Iowa’s government debt grows by another $462 million to nearly $16 billion,” Dec. 28) The article was in reference to borrowing by all state and local government entities in Iowa.

The truth is, this figure is dwarfed by a three-times-larger increase in debt that also occurred in 2017: $1.4 billion in new debt associated with the Iowa Public Employees Retirement System (IPERS).

IPERS’ unfunded pension obligations ($7 billion) now exceed the sum total of all general obligation (GO) debt in Iowa.

There is little to differentiate IPERS debt from other forms of public debt. In fact, pension debt is very much like GO debt, in that it is essentially backed by the full faith and credit of government. We don’t hear a lot about it because it’s difficult to explain, and perhaps because proponents of the status quo don’t want it to be understood.

What exactly is an “unfunded liability,” and how is it similar to GO debt?

Defined benefit pension plans like IPERS guarantee a specific retirement benefit based on each year of public service. These are like contractual obligations – they must be paid when due.

The plans work by setting aside enough money each year to eventually pay the benefit earned in connection with that year of service. Sixty percent is contributed by the employer (taxpayer) and 40 percent by the employee. The amount set aside must be invested and earn a return each year in order to eventually cover the cost of the benefit payouts. According to IPERS, investment earnings cover about 70% of benefit payments.

A plan that is 100 percent funded (no unfunded liability) is estimated to have enough dollars set aside to grow, under plan assumptions, into what will be needed to pay benefits that have already been earned when they become due.

But what happens when investment earnings fall below assumptions, or even worse, when the amount already set aside suffers a loss in its value, as happened in 2009? Now, although the benefits have already been earned (and must eventually be paid), there is no longer enough principal set aside to earn the required interest. Catch-up or extra payments are required not only to replace that principal, but also to make up for the interest that is not being earned. Regular payments, much like any other debt payments, must be made over the next 25-30 years to gradually erase the unfunded liability, or “debt,” and bring the plan back to 100 percent funding. These payments come from government budgets, and thus are essentially obligations backed by the “full faith and credit of government.”

IPERS’ total unfunded liability is now $7 billion, and the annual “debt” or catch-up payments will grow to $424 million next year and to $800 million per year by 2038. (This is addition to the $827 million to be paid next year to cover the benefits earned that year, for a total of $1.25 billion just in 2018-19.)

Gretchen Tegeler
Gretchen Tegeler (Photo: Special to the Register)

The payments made each year to (eventually) cover benefits that are earned that year make sense. Taxpayers are paying for the service they received during the same time period. However, payments for public pension unfunded liability, which stretch 25-30 years into the future, obligate future generations of taxpayers to pay for services that were rendered before they were even born.

While public pension debt is similar to GO debt in many ways, there’s one big difference. It’s one thing to obligate future taxpayers for something like a bridge, which will continue to serve future taxpayers who help pay for it. It’s another thing to saddle future generations of Iowans with debt simply for operations, or services that were provided by public employees many years in the past. Since when are Iowans OK with that?

Sweeping this significant debt under the rug or minimizing it by saying we’re “on track to full funding” won’t make it go away. It is an obligation Iowans have, no matter what. However, it does illuminate the serious taxpayer risk associated with these types of plans, and it raises the question of whether we should be compounding the risk by continuing to add new employees to a system that is sustainable only by shifting responsibility to future generations, if at all.

Gretchen Tegeler is the president of the Taxpayers Association of Central Iowa.


http://globegazette.com/news/iowa/io...8d7aa5d6c.html

Quote:
Iowa state employee pension system considering in-house management of retirement funds

Spoiler:
DES MOINES — IPERS officials told Iowa lawmakers it likely will be next year before they ask for legislative changes to allow in-house management oversee the $30 billion public employee retirement fund.

IPERS, the Iowa Public Employees' Retirement System, is in “preliminary discussion” of what it is calling internal investment management.

Currently, IPERS contracts for outside management of its funds. But CEO Donna Mueller and Chief Investment Officer Karl Koch told the House State Government Committee on Tuesday they believe millions of dollars could be saved annually through in-house management of investments.

+4Charles City Schools to Legislature: Keep Iowa's employee retirement system intact
Charles City Schools to Legislature: Keep Iowa's employee retirement system intact
CHARLES CITY | The Charles City School Board does not support unfavorable changes to Iowa's …

However, they added, the change would require “significant” startup investment as well as trading, accounting and control infrastructure.

Legislative changes would be needed, too. In order to attract the appropriate personnel, they explained, the state would have to compete with private management firms that typically offer managers bonuses that often are larger than their salaries.

Also, the IPERS 11-member Investment Board would need more authority and autonomy to hire and fire investment professionals, set compensation and oversee management tools and services, Mueller and Koch said.


The Investment Board includes the state treasurer and active and retired IPERS members as well as four non-voting legislators.

Pettengill: Don't believe the hype, Iowa's public employee retirement system is safe
Pettengill: Don't believe the hype, Iowa's public employee retirement system is safe
The future of Iowa Public Employees’ Retirement System, or IPERS, continues to be in the new…

IPERS has 355,600 members, with 51 percent paying into the system, 30 percent retired and receiving benefits, and 7 percent vested but not yet receiving benefits.

In fiscal 2017, IPERS paid $2 billion in benefits with $1.7 billion paid to Iowans, according to Mueller’s presentation.

Legislation pending in the Senate, Senate File 45, would create 401k-like defined contribution plans for future public employees.

However, Rep. Dawn Pettengill, R-Mount Auburn, one of the legislative members of the IPERS board, opposes the plan and says she’s finding little support for it among her colleagues.


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CHICAGO, ILLINOIS
TEACHERS

http://chicagotonight.wttw.com/2018/...s-2017#new_tab

Quote:
Chicago Teacher Pension Payday: Top Earners in 2017

Spoiler:
Chicago homeowners will pay about $225 million more in property taxes this year to Chicago Public Schools, much of that going to fund teacher pensions. We take a look at teacher pension data for 2017.

The average Chicago teacher pension is about $49,000 a year, but there are more than 1,100 teachers who take home six-figure pensions.

Here is a look at the top five pension payouts for 2017:



The highest payout went to Barbara Cameron, who took home a pension this year of more than $452,000. The Chicago Teachers Pension Fund says her normal pension is $67,000 and the rest was retroactive pay dubbed “Required Minimum distribution.” But the CTPF was not able to clarify further what exactly that means or why she was entitled to such a sizable payout.

The second-highest earner was Debra Blackmon-Parrish, a former elementary school teacher and teachers union delegate who was paid a $230,000 pension last year. The pension fund says some of that was retroactive pension pay as well.

Other notables on this list include former CPS superintendent Manford Byrd ($192,000 yearly pension) who retired more than 25 years ago; and Barbara Eason Watkins, who served as chief education officer behind Arne Duncan and Ron Huberman until 2009. In addition to her pension, she works currently as the head of the Michigan City school district.



Download our 2017 Chicago Teachers Pension Fund data

The top Chicago teacher pensions are actually lower than their suburban and downstate counterparts. There are a few reasons for this. All teachers outside of Chicago fall into the State Teachers’ Retirement System, and the top earners were over or around $300,000, topped off by indicted former Lincoln-Way superintendent Lawrence Wyllie, whose case is ongoing.

This pension fund includes all educators, not just teachers, but superintendents and administrators as well, who tend to earn higher salaries. The Chicago Teachers Pension Fund excludes most CPS administrators, who receive their pensions through the Illinois Municipal Retirement Fund instead.

Another is factor is the fact that Chicago both administers and pays for its teacher pensions. Downstate and suburban districts can boost an educator’s salary before they retire without having to worry about picking up the tab, because that responsibility falls on the state.

Despite the high value of some teacher pensions, there are other factors driving the system’s massive funding problem. Ralph Martire at the Center for Tax and Budget Accountability says the entire pension crisis was created by lawmakers who constantly allowed government to either short or not pay into the system at all. Chicago Public Schools skipped pension payments in the CTPF every year from 1995 to 2005. The system, which had been 100 percent funded, is now around 50-55 percent funded and carries a $9 billion unfunded liability.

But the Civic Federation’s Laurence Msall says there are other drivers to the city’s enormous pension obligations. All Illinois pensioners, including Chicago teachers, receive 3 percent compounded cost-of-living raises every year. Msall says the funds can’t sustain such ballooning values, but efforts by Illinois lawmakers to modify those yearly raises were rejected by the state supreme court. Also, since 1980, Chicago teachers contribute relatively little to their pension: only 2 percent per year. The average social security contribution for private sector workers is a little over 6 percent. And other city retirees will soon by paying as much as 11.5 percent for their retirement, after the city negotiated modest benefit reductions to its four public pension systems.


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COLORADO

http://www.foxbusiness.com/features/...-rate-wsj.html

Quote:
Pension Sues Canadian Banks Over Key Rate -- WSJ

Spoiler:
TORONTO -- A Colorado pension fund is suing Canada's top six banks and three other lenders for allegedly manipulating a key Canadian lending rate.

The Fire & Pension Association of Colorado filed the lawsuit in U.S. District Court in Manhattan Friday and alleged the banks engaged in an "unlawful conspiracy" to boost their derivatives trading businesses by manipulating the Canadian dealer offered rate between 2007 and 2014.


The lawsuit names Canada's largest banks, Bank of Montreal, the Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank, along with Bank of America Merrill Lynch, Deutsche Bank AG and HSBC Holdings PLC.

Bank of America Corp., National Bank, RBC, CIBC, HSBC and Bank of Montreal declined to comment. The other banks didn't immediately respond to requests for comment on the lawsuit.

The CDOR is a benchmark rate that aims to reflect the cost of borrowing funds in Canada and is used to calculate interest on several financial instruments, including interest-rate swaps, forward contracts and other derivatives. It is calculated each business day by Thomson Reuters based on submissions from banks of rates at which they would be willing to lend.

The accusations in the lawsuit are similar to those associated with the London interbank offered rate, the scandal-plagued benchmark that is used to set the price of trillions of dollars of loans and derivatives across the world.

The integrity of Libor was called into question following a rate-rigging scandal where traders at numerous banks were able to nudge it up or down by submitting false data. Banks including Barclays PLC, J.P. Morgan Chase & Co. and Royal Bank of Scotland Group PLC were fined billions of dollars and several traders were sent to prison.

The U.K.'s Financial Conduct Authority, which regulates Libor, said in July that the benchmark would be phased out and that work would begin to plan for a transition to alternate benchmarks.

In the lawsuit related to CDOR, the Colorado pension fund noted that BofA, Deutsche Bank and HSBC "have collectively paid approximately $4.4 billion in fines to multiple government regulators for manipulating at least 11 benchmarks..." The suit alleges that their attempts to suppress CDOR are "part of a broader pattern of price fixing and collusion intended to benefit defendants' trading businesses at the expense of investors."

The suit claims that the banks conspired to keep CDOR rates low by intentionally quoting lower rates because they were emphasizing derivatives businesses that required them to pay rates based on CDOR. The lower rate saved the banks money and boosted profits on interest- rate swaps and other CDOR-based obligations. The Fire & Police Pension fund said it had conducted more than $1.2 billion in CDOR-based business. It alleges that, it "paid more or received less than it should have in those CDOR-based derivatives transactions."

Canada's Office of the Superintendent of Financial Institutions in 2014 said it would more closely monitor banks' submission process to Thomson Reuters after noting there had "not been reports that CDOR, or other Canadian financial benchmarks had been manipulated." The agency published guidelines for banks to ensure their internal controls over the submission process were adequate.

The Colorado pension fund said it would continue to look for evidence of collusion and price fixing as the lawsuit progresses. "Plaintiff believes it will unearth additional evidence in support of its claims after a reasonable opportunity for discovery."


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CALIFORNIA

https://cei.org/blog/end-california-...pension-reform

Quote:
End of 'California Rule' Can Open Path for Pension Reform
Spoiler:
Addressing the underfunding of public pensions is difficult enough on its own. Reformers routinely face opposition from government employee unions and their political allies. But that’s not all. In 12 states, even when the political will exists and the public may seem willing to support reform, a formidable legal roadblock stands in the way—a legal doctrine known as the “California Rule.”

The California Rule, which dates back to the 1955 case Allen v. City of Long Beach, treats pension benefits as near-ironclad contractual obligations that states and local governments may not alter short of any circumstance other than the pension plan facing impending insolvency. However, the California Supreme Court recently agreed to hear a case that may finally undo the California Rule.

A ruling that strikes down most of the rule—or at least loosens its strictness—would open a path for reform, by taking away a potent weapon that public employee unions use to fight any changes in pension benefits, however modest or sensible. As San Francisco Chronicle columnist Dan Walters notes:

[California Governor Jerry] Brown is supporting appellate court rulings that upheld two provisions of the modest pension reform bill he and the Legislature enacted in 2012, one ending “pension spiking” and the other repealing the ability of public employees to purchase additional retirement credits called “airtime.”

However, Brown appears to go even further, suggesting that the court set aside, or at least severely modify, the so-called “California rule.”

That rule, based on a 1955 state Supreme Court decision, is an assumption that public employee pension benefits, once granted, can never be modified, even for future work.

It is a bedrock issue for public employee unions and the union-controlled California Public Employees Retirement System, as demonstrated when they successfully pressured bankrupt cities not to reduce pension obligations, even though a federal bankruptcy judge said they could do so.

Pension spiking involves public employees taking on large amounts of overtime in the years preceding retirement in order to substantially raise the compensation upon which their pension payouts are calculated. Ending the California Rule would substantially lessen government employee unions’ ability to defend egregious practices like spiking.

And not a moment too soon, given the California Public Employee Retirement System’s (CalPERS) growing share of municipal budgets across the Golden State. In a survey of CalPERS clients, including 427 cities and 36 counties, the Reason Foundation and California Public Policy Center found that local governments’ payments to CalPERS, which are already large, will continue to grow under the current system. Worse, in some cities, much of the increase will come from “catch-up” payments for unfunded pension liabilities.

Of course, ending the California Rule won’t mean that pension reform will become easy—union opposition will remain as fierce as today—but it’s a needed start.


http://www.foxandhoundsdaily.com/201...vice-pensions/

Quote:
Court Gets Advice on Pensions
Spoiler:
Finley Peter Dunne, a humorist and newspaper columnist at the turn of the 20th Century famously said in making decisions, “The Supreme Court follows election returns.” The question for California is will the state Supreme Court heed the governor’s advice?

Jerry Brown certainly gave the court advice on how to deal with upcoming public pension cases.

At his recent budget press conference, Brown asserted that there was more flexibility than previously imagined in the so-called “California Rule.” The rule is actually a Supreme Court decision from 1955, which declared that if a benefit to a public employee is reduced it must be made up in another way.

The state Supreme Court will get a chance to explain the parameters of the California Rule when a number of cases scrambling the exact meaning of the rule come before the high court.

In an appellate decision from 2016 on a case generated by public employees in Marin County opposed to legislation Brown signed to limit pensions for new employees, the court made a “reasonable” pension argument declaring that there is no “immutable entitlement” for an “optimal formula” for employee pensions.

Yet, last week, another appellate decision on a challenge brought by public workers in consolidated cases from Alameda, Contra Costa and Merced counties, decided that if pensions are to be reduced there must be “compelling evidence” that the pension reduction does not damage the promise of the retirement system. More on the recent court decision can be found in Ed Mendel’s Calpensions column.

Into the fray steps Jerry Brown only a year away from retirement as governor who wants to leave a strong financial footing for his successor. Brown understands how demands of the pension system with its large unfunded liabilities put pressure on government budgets.

In presenting his latest budget, Brown told reporters “There is a lot more flexibility than is currently assumed by those who discuss the California rule.” Brown expressed a “hunch” that the court would change the California Rule, predicting that in time for the next economic downturn pensions would be on the “chopping block.”

With his “hunch” Brown was sending a message to the court that the pension situation must be modified to meet real world budget demands, not 1955 circumstances.

The justices, of course, are expected to decide the cases according to the law as they interpret it. But, this issue touches the justices in a personal way. If the pension crisis is lessened there will be more money available for the courts, a crying need. Judges also get pensions.

The words of the governor, who has wrestled with the pension issue for some time, will be part of the debate before the court since Brown’s own attorneys replaced the attorney general on one pension case.

Much of the writing on California’s financial health and its governments ignore the darkening shadow created by pension liabilities. Brown who has served both as the town crier of California declaring, “all is well,” but at the same time, the apocalyptic prognosticator of the future who sees “darkness, uncertainty, decline and recession” ahead should be heeded by the court to help mute the dire prediction.


https://www.nakedcapitalism.com/2018...ng-scheme.html

Quote:
Why Is CalPERS Board Member/Governor Wannabe John Chiang Telling a Big Lie About CalPERS Private Equity Outsourcing Scheme?
Spoiler:
Last week, California State Treasurer John Chiang, who sits on the CalPERS board, spoke to the Culver City Democrats’ Club. Chiang is running for Governor. The session was recorded and I am told the video will be posted.

During the Q&A section, someone who reads Naked Capitalism asked about CalPERS’ plans to outsource its private equity program (for details, see our recent post: CalPERS Launches Illegal, Corrupt, Unjustified and Beneficiary-Damaging Private Equity “Strategic Partner” Search Obviously Designed to Favor BlackRock):

How can CALPERS justify handing over as much as $26 billion to a costly private equity middleman and hand the business to one firm – BlackRock? Why is it being done in the first place? Other big public pension funds are going in the opposite direction – of doing more in house to reduce fees, not increase them.

Chiang’s response:

There are a few that are going in-house… My office looked at it. We put together, I wouldn’t call it quite a white paper but as we started a few years ago some of us were very interested in a Canadian model where in the Canadian model, the private equity model, did very well except once we looked at where they were making money, they were making money on oil companies in Canada.

Part of our challenge is, we’ve been trying to figure out how do we replicate a private equity performance and expertise and bring it in-house. And there is interest but to cover all the territory that the private equity companies [unintelligible few words] would be quite expensive. But we are looking into that, trying to reduce the fees and bring those services [unitelligible few words]

We got in contact with the person who grilled Chiang, who was willing to provide more detail via e-mail:

I said, off mike, at the end, “I’m not the only one who reads Naked Capitalism.” In other words, your garbage answer is not going to get you that far in circles more sophisticated than the Culver City Dem Club.

At the very end, I went over to him again when people were just chatting him up. I said, this is going to be a problem for you. Your competitors obviously know this and I suspect it will come up at some point. He said, well, Newsom hasn’t said anything about it. I said: oh, come on – this could come out a month before the primary. You need to get it together. You need to fix this and get a better story or this is going to be really bad for you. Yves is not going to stop writing about this. He said: well, she’s just wrong… I just said, Oh, please. Good luck. And left. Also, somewhere in there I said, you watered down that assembly bill [on private equity transparency]. And he whined, I had no support.

Notice what is going on here. Chiang could have chosen to duck this line of questioning truthfully by saying something like, “We are just getting more information about options, no decision has been made.” He is instead aggressively defending what is going on even as highly regarded, mainstream publications like Private Equity International have raised eyebrows about CalPERS’ rushed and inexplicably narrow solicitation process. 1

Even worse, the defense is flat out false. Chiang flatly misrepresented what is happening. CalPERS is not planning to bring more private equity in house or taking steps to reduce fees.

The Request for Information that we posted last week is crystal clear on what is being set in motion: CalPERS is looking to give investment discretion, as in control over the money, to an external manager who will then pick private equity funds and/or co-investing. The proposal also amusingly makes clear that the hired gun is to go to lengths to present the sham that this is a CalPERS program, as opposed to “XYZ Fund Manager Scheme”. Specifically:

It is important to note that with this strategic partnership initiative (Strategic Partnership or Partner) CalPERS does not intend to create a standard “Fund of Fund” relationship or consider this to be an outsourcing of responsibility. Instead, CalPERS desires to create a collaborative partnership where the Partner has investment discretion, but works with CalPERS PE Staff in the development of an annual allocation plan that CalPERS will approve. The Partner is expected to act as an extension of CalPERS Staff and continuously dialogue with CalPERS PE Staff on the management of the Portfolio. CalPERS is open to any legal structure that will help it achieve these goals.

If Chiang really does not understand what a sham this is, he doesn’t deserve to be Treasurer, much the less Governor. All that counts in that paragraph is that the partner will have investment discretion. The fact that it has to talk to CalPERS a bit more than in the typical fund of fund arrangement is optics.

This bears no resemblance to the so-called “Canadian model” in which seven Canadian pension funds have been doing more private equity in house. The only way that can be construed to be happening, as one wag said, is CalPERS would be getting a Canadian, in the form of its head of private equity, Mark Wiseman, if CalPERS were to go with BlackRock, which certainly appears to be the plan.

And as we’ve also written, the idea that this will lower fees is false. It will increase them, on the order of at least $50 million per year of base fees if CalPERS were to outsource its entire portfolio. And that’s before you get to the fact that an outside manager will typically take 10% of the profits, which will cut further into CalPERS’ returns.

But observe further: Chiang is not only abjectly misrepresenting what is going on, he is also presenting himself as being the moving force behind it. Now why might that be?

Chiang is taking a pro-private equity position (have CalPERS pay more fees) amid his gubernatorial bid. Private equity in general is one of the biggest, if not the biggest, donor group. And even though fund managers are supposedly prohibited from giving money to the campaigns of public pension funds trustees, there are well-established ways of circumventing the rules: have the donation made by the an in-law or wife of a financial firm executive (even better under her maiden name) or the executives of a private equity portfolio company. These routes are so well known that in major US cities, the big consultants can look through donor lists and identify how they are connected to the almost certain actual source of the funds.

The potential upside to Chiang’s fundraising would also explain another feature of this “partner” search that we’ve found difficult to explain: that false urgency. When CalPERS first presented this idea to the board, it made it sound as if it was proceeding in a very deliberate manner, with the next step being that the board would be briefed on possible legal structures in six months. The sudden change to a rushed process that looks designed to favor one party is consistent with needing to show sufficient progress before election time.

Californians who view Chiang as a bona fide progressive may take umbrage at this line of inquiry. However, if you care about a candidate’s policy positions, the most reliable guide is his past actions. Chiang supporters need to look hard at what he has done at CalPERS. Just because you don’t like Gavin Newsome does not mean that Chiang should get a free pass.

______

1From its January 11 article, Decoding the CalPERS request for information :

. But right before the industry disappeared for the holidays, CalPERS sent out a request for information for a private equity strategic partner, plus a questionnaire for potential partners to fill out.

Here are the highlights.

– It’s not open to everyone

In the document, CalPERS wrote “the process is very targeted, and will only be open to those that CalPERS invites to participate in the process”. It is unclear which firms have been invited to participate.

CalPERS declined to comment further, citing the solicitation’s active status.

– There isn’t much time

The solicitation opened on 21 December 2017 and will close at 5pm PST on 19 January.

The fact that CalPERS launched such a major process over the Christmas and New Year period has not escaped criticism, and the critics have a point. The questionnaire asks for detailed information on, among many other things, the firm’s approach to the due diligence process, deal pipeline, negotiating and monitoring across all relevant investment strategies, a detailed compensation structure and a “proposed dollar amount of firm capital which would be invested alongside CalPERS”. Not information that can be pulled together at the last minute.


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https://www.nakedcapitalism.com/2018...ion-funds.html

Quote:
Lawsuit Against Blackstone, KKR/Prisma, PAAMCO, Kentucky Retirement System, and Others Has Major Implications for Public Pension Funds
Spoiler:
A case filed at the end of last year, Mayberry v. KKR, hasn’t gotten the attention it warrants. The suit, which we’ve embedded at the end of this post, was filed on behalf of the beneficiaries of Kentucky Retirement Systems (KRS), the state’s public pension fund and its taxpayers, against Blackstone, KKR/Prisma, and PAAMCO for engaging in a civil conspiracy and violating its fiduciary duties under Kentucky law by misrepresenting what it calls “Black Box” hedge fund products. One of the eight plaintiffs is a sitting district court judge.

In addition to suing the top executives at these funds, including Henry Kravis and George Roberts of KKR and Steve Schwarzamn of Blackstone, the filing also targets four former and three current KRS board members, four former KRS administrators for breach of fiduciary duties, along with KRS’ fiduciary counsel, several financial advisers, its actuarial adviser, and a firm that certified its Comprehensive Annual Financial Report.

The fund managers allegedly focused on KRS and other desperate and clueless public pension funds who were unsuitable investors, particularly at the risk levels they were taking. KRS made what was a huge investment for a pension fund of its size. $1.2 billion across three funds all at once, in 2011, roughly 10% of its total assets at the time. They all had troublingly cute names. The KKR/Prisma funds was “Daniel Boone,” the Blackstone fund was “Henry Clay” and the PAAMCO fund, “Colonels”.

In the case of KKR/Prisma, the fund had installed an employee at KRS as well as having a KKR/Prisma executive sitting as a non-voting member of the KRS board. The filing argues that that contributed to KRS investing an additional $300 million into the worst performing hedge fund even as it was exiting other hedge funds. 1

The suit seeks damages for losses, recovery of fees paid to the hedge funds and other advisers, and punitive damages. The damages would go to KRS and the suit also asks that the court appoint a special monitor to make sure the funds are invested properly.

Some observers may be inclined to see this litigation as having only narrow implications, since KRS is fabulously underfunded, at a mere 13.6% funding level with only $1.9 billion in assets, and famously corrupt. KRS not only saw its executive director and chief investment officer fired over a 2009 pay to play scandal, but more recently, it had the astonishing spectacle of having the governor call in state troopers to prevent the KRS chairman, Tommy Elliot, from being seated. 2

Charming, no? But with so much bad conduct out in the open, it’s not hard to see why analysts might assume that Kentucky is so sordid that a suit there, even if it proves to be highly entertaining, is relevant only to Kentucky.

That may prove to be a mistake. As one former public pension trustee said,

This is the equivalent of going from a confrontation between the public pension industry and some people throwing rocks to a confrontation against the Soviet Army. Bill Lerach, the guy behind this is as serious as they come. Don’t let the fact that he was disbarred in any way fool you.

Lerach’s wife is a Kentucky native and one of the lawyers representing KRS. Her husband’s firm, Pensions Forensics, is an advisor to this case.

Lerach has a net worth estimated at $900 million, which is plenty of firepower to fund expenses on a case like this. Two different readers in Kentucky (neither of them Chris Tobe) separately informed me that the Kentucky attorneys pleading the case are formidable. As one said by e-mail:

Anne Oldfather is a local lawyer with a fearsome reputation and not to be taken lightly and not prone to settlement of any cases.

The case has also been assigned to the most progressive judge in the state.

The stakes for the defendants are high. The giant fund managers do not want to be found liable for misrepresenting their products, since a loss in this case would expose them to many other suits. But the plaintiffs appear not inclined to settle, plus a settlement with a state entity may not be secret (they aren’t in California). That would reduce the defendants’ incentive to agree to anything bigger than what they could argue was a token payoff

But as we discuss below, this case also has serious implications for pension trustees and advisers all over the US.

The filing makes persuasive arguments about how all-too-common practices, like the overstatement of expected returns, which in turn leads pension actuaries, trustees, and legislatures to seek too little in the way of current contributions, is a breach of fiduciary duty. If the court were to rule in favor of the plaintiffs on the overstatement argument, it would send a shock wave across the pension world. Many supposedly well-run public pension funds like CalPERS engage the behaviors that this case credibly depicts as violations of fiduciary duty.

The legal team on this case would like to conduct a Sherman’s march through the many parties that have sat pat or benefitted from public pension fund grifting. From Bloomberg:

Plaintiff attorney Michelle Ciccarelli Lerach said her law firm and three others behind the suit believe it could open a new path for state and municipal pension systems to seek compensation from managers of other alternative assets. Kentucky state law, she said, provides considerably more latitude than federal securities law to hold “control persons” personally liable for the actions of the entities they supervise… “And, as we’ve alleged in the complaint, each of the managers, actuaries and pension advisers owes a fiduciary duty under Kentucky law. It’s not a stretch to say they’ve breached it.”

The case is very readable, although it has some sour notes, like trying to depict Blackstone’s Steve Schwarzman, who left Lehman in 1985, as somehow being responsible for the firm’s collapse.

First we’ll discuss the case against the fund managers, then against the trustees and other insiders.

How Blackstone, KKR/Prisma, and PAAMCO Picked the Pockets of a Clueless and Desperate Pension Fund

The filing makes arguments that will sound all too familiar to anyone who has been watching the public pension fund world. KRS was overfunded at the peak of the dot com era, took a whack in the bust, and took an even bigger hit during the financial crisis. The case contends that KRS’s current effectively bankrupt state wasn’t a foregone conclusion, since many public pension funds are over 80% funded.

As we discuss in more detail below, the filing describes the desperate state of KRS and how the “Black Box” hedge fund sellers appear to have taken advantage of KRS’ sorry situation. The filing stresses the opaqueness of the investments, which were hedge funds of funds, and does not weigh as heavily as it might upon the fact that KRS was paying a layer of extra fees when the size of its investment was so large, over $400 million per fund, that it could have gotten adequate diversification without hiring pricey middlemen. The filing does argue that hedge fund investments have been a lousy bet, as we reported in the very first post on this site, in 2006.

The plaintiffs have not yet obtained the return data from the three funds at issue. But the reported “absolute return” strategy over the period, which the plaintiffs believe consists primarily, and likely entirely, of their total results, was under 4% per annum for the five fiscal years ended June 2016 versus an average annual return of 11.9% for the S&P 500 over that time period. One might argue that an absolute return strategy, being somewhat contra-cyclical, could be expected to do less well than the S&P 500. But that does not appear to be what KRS was led to expect.

The filing depicts Prisma as having preyed upon KRS as unsophisticated and needy and as misrepresenting its “Daniel Boone” fund as high return and low risk. One of the most telling parts of the filing is where it contrasts how the funds were described to KRS as opposed to in SEC registered filings.

This bit is also ugly:

As the Daniel Boone Fund began to lose millions in 2015-2016, KKR/Prisma, Roberts, Kravis, Reddy and Cook helped to arrange for a KKR/Prisma Executive to work inside KRS while still being paid by KKR/Prisma. Reddy and KKR/Prisma referred to this arrangement as a “partnership.” Subsequently, while Cook and Peden and the KKR/Prisma executive were working inside KRS, KKR/Prisma sold $300 million more in Black Box vehicles to KRS despite that KRS was then selling off over $800 million in other hedge funds because of poor performance, losses, and excessive fees and the KKR/Prisma Black Box was the worst performing of the three. This very large sale to KRS was a significant benefit to KKR/Prisma, which was then suffering outflows due to customer dissatisfaction over poor results and excessive fees.

One of the key questions is how the big fund defendants will respond in court. The usual approach is to say that the parties who lost out were sophisticated investors and that anyone who invests knows that nothing is guaranteed. Moreover, if the hedge funds agreements resemble private equity agreements, they may include language that is tantamount to a waiver of fiduciary duty. To my knowledge, no one has tested whether these provisions are enforceable; I can think of reasons (the staff and trustees cannot legally waive those duties; the provisions are contrary to public policy and hence not enforceable) why they might not survive a legal challenge.

In addition, fiduciary duty imposes a high standard of conduct, and at least so far, the defendants don’t appear to be trying to duck that. From Bloomberg:

“We take our fiduciary duty very seriously and believe that the allegations about our firm are meritless, misplaced and misleading,” Cara Major, a spokeswoman for KKR, said in an email.

How KRS Trustees, Administrators, and Hired Guns Sold Out the Fund Beneficiaries and Kentucky Taxpayers

Significant parts of the case discuss how the parties duty-bound to serve the welfare of the beneficiaries and the state instead put their own financial and/or reputational interests first. For instance, the filing states:

After these losses, the trustees4 received studies which revealed that the financial condition and liquidity of the Funds were seriously threatened and far worse than was publicly known. The trustees had been utilizing outmoded, unrealistic and even false actuarial estimates and assumptions about the Pension Plans’ key demographics, i.e., retiree rates, longevity, new hires, wage increases, inflation. For example, Trustees used an assumed 4.5% yearly governmental payroll growth when new hiring rates were near zero or negative and interest rates were too. Most importantly, KRS’ assumed annual rate of investment return (“AARIR”) of 7.75% was not realistic.5 Nevertheless, Trustees and other Defendants continued to use assumptions that were proven to be dead wrong by the actual figures established since 2000. From 2000 through to date, the Funds’ cumulative moving average annual rate of return has never even come close to that “assumption.”



It isn’t just that the trustees continued to use unrealistic return assumptions, as shown above. The fact that they also apparently had “false actuarial estimates” and stuck with rosy payroll growth assumptions makes this look like a continuing “kick the can down the road” exercise, that with the long time horizons of pension funds, the officials in charge could hide the problems, or somehow generate miraculous returns and earn their way out of their hole.

But as anyone who had managed professional traders knows, someone sitting on losses is particularly inclined to take “swing for the fences” risky bets or even engage in illegal activity to try to recover.

Enter what the filing calls the “Black Box” hedge fund sellers. It is remarkable that the trustees contemplated this type and scale of investment after the fund had been caught out in “pay to play” scandal involving its first investment in “exotic” alternative structures in 2009 that resulted in the firing of its Executive Director and Chief Investment Officer in 2009, a mere two years earlier.

The filing contend that by 2010, the trustees, administrators, and other advisers knew KRS was in a deep hole and were lying to the public about it:

All defendants also realized that if they honestly and in good faith factored in and disclosed realistic actuarial assumptions and estimates and investment returns, the admittedly underfunded status of the Plans would skyrocket by billions of dollars overnight, that there would be a huge public outcry, that their stewardship and services to the Funds would be vigorously criticized, and that they would likely be investigated, ousted, and held to account.

The reason this case is potentially so significant for other public pension funds isn’t simply that the fact set above serves as motive for investing in unduly risky products without asking tough questions, that the insiders were desperate for any way out even if they should have known that what they were buying was hopium. The filing makes a strong argument that the mere fact of misrepresenting the true condition of the fund was a violation of fiduciary duty and other state laws.

Other lines of argument that could apply to many other public pension funds include:

Inadequate fiduciary training of trustees. Fiduciary counsel Ice Miller is a named defendant in the suit for this lapse. Ice Miller is separately alleged to be responsible for the officers and trustees of KRS not having sufficient directors’ and officers’ insurance, which the filing argues should be $300 million as opposed to $5 million.

Misleading and incomplete disclosure of KRS’ financial condition in its Annual Report. The filing depicts this breach as a serious failing and holds many parties liable, including the trustees, the fiduciary counsel, financial advisers that supplied signed representations included in the financial reports, KRS’ actuary, and of course, its accounting firm.

One amusing tidbit is the inclusion of the “Annual Report Certifier,” the Government Finance Officers Association, as a defendant. Note that CalPERS makes much of the fact that the Government Finance Officers Association also certifies its reports. From the filing:

According to GFOA, it conducts a very thorough review of any pension trust or plan that applies for a Certificate of Achievement in financial reporting…

GFOA’s business model depended on selling a large volume of public pension funds memberships/certificates/endorsement and awards and thereby generating revenue…The larger the fund the larger the fee. GFOA also charges a size-based fee in return for issuing its Certificate and Achievement awards, in effect taking fees and dues in return for handing out prestigious sounding and looking awards and certificates but doing no real research or investigation, nor any skeptical, detailed, independent review or evaluation.

The case contends that the GFOA had incentives to continue to give KRS’ reports awards in the face of evidence that they were dodgy:

GFOA depends upon the monies it gets for issuing these certifications and advertisements to public pension plans. If it suddenly withdrew or refused to continue giving the annual awards and certification to KRS, that would have raised red flags, pension funds would have shied away from using GFOA which could have threatened GFOA’s volume-driven, hand-out-the-certifications-in return-for-the-money, business model. GFOA chose to continue its awards and false certifications to KRS in order to benefit its own economic self-interest.

Mind you, this is far from the most important allegation of corruption in this suit. But it serves to demonstrate how deep the rot is and how many parties profit from it.

As Lambert likes to say, pass the popcorn. If the plaintiffs in this suit are as bloody-minded as they appear to be, a lot of dirty practices will be exposed, and the perps will have a hard time maintaining their usual plausible deniability defenses. If we are lucky, this suit will force a long overdue day of reckoning in public pension land.

____

1 For the purpose of simplicity in this post, we refer to Blackstone and KKR/Prisma. In fact, all of KKR, Prisma, and PAAMCO are included among the defendants in this suit. It was Prisma that sold the hedge fund investment to KRS in 2011. KKR had been trying to buy Prisma bolster its hedge fund business since 2010 and acquired Prisma in 2012. Last year, KKR/Prisma merged with Pacific Alternative Asset Management to form PAAMCO/PRISMAHOLDINGS. The new entity manages the former KKR/Prisma hedge fund operations. The filing also spills some ink on the fact that convicted hedgie S. Donald Sussman had a substantial ownership stake in PAAMCO which it alleges, based on a 2010 New York Times story, that founder Jane Buchan and Sussman conspired to cover up:

Sussman had a background Buchan wanted to conceal from potential investors, customers and regulators, as he had been convicted of dishonest behavior in connection with the investment of fiduciary monies. Buchan and Sussman created fake documents to disguise Sussman’s large ownership stake in PAAMCO as a loan, because Buchan and the other founders believed they could hide Mr. Sussman’s background from investors and regulators.

2The fact that the state attorney general backed Elliot and Judge Philip Shepherd later excoriated the Governor doesn’t mean we have a “good guy, bad guy” situation at work. This is more like a beauty contest between Cinderella’s ugly sisters. Noting that “There is no way to prove or disprove dark money,” former KRS trustee and author of Kentucky Fried Pensions Chris Tobe opined by e-mail:

Tommy Elliott (and Tim Longmeyer who is now serving a 5 year prison term for kickbacks from the related state health plan) were the fundraisers for the Gov. Beshear administration. So basically they were getting the Blackstones and KKR to give to superpacs, ie, dark money, to elect Gov Beshear’s son as Attorney General.

I believe that Gov. Bevins’ forced police removal was a loud and clear signal for Wall Street to write kickback checks to his people instead of Tommy Elliottt.


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