Christie’s Pension Whoppers

In what might be a record, Reggie Miller once hit consecutive threes against the Knicks in the space of a few seconds:

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It wasn’t that Reggie Miller hadn’t ever hit two shots consecutively. It was the rapidity and deftness of execution combined with the game situation that astounded.

So it was today when Governor Christie talked pensions in his budget address:
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Politicians lie all the time but rarely have two whoppers been shot off so quickly with so little time left.

The last cut

ARCs get be blown off.  Employees get furloughed or laid off. Libraries get closed.  But, still untouched……..

Beyond the Plateau

According to this chart the New Jersey state pension plans had $67 billion in assets in 1998 and, after a few  peaks and troughs, they still have $67 billion in assets now.  So what’s the problem?

My Beef with Public Employee Unions

They have to be aware of the waste yet they seem to be under the impression that taxpayers are still able to pay for their members’ current and prior promised (and underfunded) benefits while maintaining the political spoils system.  For example:

What Public Budgets Must Pay For

Local government budget season is upon us and again the Union County Watchdog Association expects to review the county budget in detail for 2012. 

To run a jail and a nursing home, take care of the parks, fund the Prosecutors Office, provide social services, keep track of land records, and run elections they will need about $400 million.  The other $100 million will go to repay campaign contributors.

Pension Funding Flaws

Public pensions are collapsing in part because of flawed actuarial methods.

Ivory tower concepts like believing the sponsor will be put in what they’re told to put in don’t work in states like New Jersey.   But, beyond that, presuming that you will earn 8% on phantom assets could require you to earn 16.67% on what you actually have.  Taking the most basic example:

Backward Thinking on Tax Reform Is Backfiring in NJ

Governments in New Jersey are bloated with no-show jobs, no-bid contracts, and kickbacks to political sponsors which is a primary reason that taxes here are the highest in the nation.

However, the ‘starve-the-beast’ tactic that New Jersey politicians continue to use is making things much worse as political machines are thinking up projects that will fall into the debt-exception so that favored donors can keep getting their contracts and cronies can keep their jobs.  Here is a particularly clumsy example of how it works.

Real Number on New Jersey Pensions – 6/30/11 update*

The June 30, 2011 valuation reports are out.

You might be seeing numbers tossed at you regarding deficits in the state pension of $40 billion and a funded ratio of 67%.  They’re way off.  Based on actuarial reports for the three largest plans I put the real deficit now at $162 billion and the real current funded ratio at 30%. Let’s take this in stages as we replace official figures with real-world ones for the three largest plans.

OFFICIAL NUMBERS @ 6/30/11 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………32.2…………29.1………23.2……………..84.5
Liabilities……………….49.9…………43.3……….30.9…………..124.1
Deficit………………….-17.7…………-14.2……….-7.7……………-39.6
Funded Ratio………..64.5%………67.2%…….75.1%………….68.1%

The funds did not really have $84.5 billion in assets at June 30, 2011. The ‘actuarial value’ in this case means an average of the the asset values over the last five years which in the private sector is used to ‘smooth’ valuations but in the public sector is used to distort. Just because the plan held Lehman stock that was worth something in three of the last five years they get to pretend they really have more money now. Here are the figures when we use market value of assets:

OFFICIAL NUMBERS WITH ASSETS AT MARKET @ 6/30/11 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.4…………25.7………21.3……………..74.4
Liabilities……………….49.9…………43.3……….30.9…………..124.1
Deficit………………….-22.5…………-17.6…….. -9.6……………-49.7
Funded Ratio………..54.9%………59.4%…….68.9%………….60.0%

Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 8.25% interest assumption in a plan that now demands liquidity) understate the true benefit costs. Here are the figures using realistic liability valuations:

BURY NUMBERS WITH MARKET VALUE @ 6/30/11 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.4…………25.7………21.3……………..74.4
Bury Liabilities…………75.0…………65.0……….46.0…………..186.0
Deficit………………….-47.6…………-39.3……. -24.7…………..-111.6
Funded Ratio………..36.5%………39.5%…….46.3%………….40.0%

Next we turn to the COLA theft.  2010 liability numbers were adjusted for the plans to take into account the elimination of all future Cost-of-living adjustments that public employees were promised - in writing.  Were that reinstated the respective adjustments that artificially lowered liabilities will need to be reinstated to the tune of 17% (TPAF), 12% (PERS), and 16% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.4…………25.7………21.3……………..74.4
Bury/COLA Liab………87.7…………72.8……….53.4…………..213.9
Deficit………………….-60.3…………-47.1……. -32.1…………..-139.5
Funded Ratio………..31.2%………35.3%…….39.9%………….34.8%

Now remember these numbers were as of June 30, 2011. The latest report from the Division of Investments shows assets at $69.6 billion and we can add another year of accruals to the liability side:

BURY/COLA WITH MARKET VALUE @ NOW (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………25.6…………24.0………20.0……………..69.6
Bury/COLA Liab………95.0…………79.0……….58.0…………..232.0
Deficit………………….-69.4…………-55.0……. -38.0…………..-162.4
Funded Ratio………..26.9%………30.4%…….34.5%………….30.0%

For the year ended June 30, 2011 there was about $7.6 billion paid out in benefits from these three funds. With early retirement incentives, the return of cost-of-living adjustments, longer life expectancies, and baby-boomer retirements this payout number should exceed $10 billion in three years by which time the fund will be depleted (after returning the interest-adjusted contributions made by employees) unless, of course, New Jersey politicians step up and do the honorable thing. There’s a debate as to whether you can put a number on that happening.

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* This is an update of pieces I did on April, 2009 and February, 2010 , and February, 2011 with minor changes in the text.

Public Pension Propaganda (3) – The Liars

This post was going to be about calling out the National Public Pension Coalition (NPCC) for  lying when they say there is no public pension crisis in their  press conferences and public presentations.  But then I noticed that my prior posts on this conference had been picked up on another site with the comment:

Public Pension Propaganda (2) – The Lie

“The vast majority of statewide plans are in good financial shape.”

Hank H. Kim, Esq. Executive Director and Counsel National Conference on Public Employee Retirement Systems

So says a lawyer and purported expert in this field to a bunch of reporters. NCPERS averaged 216 responders to a survey who happened to have a funded ratio of 76.1% and Fitch ratings says 70% or above is adequate. 
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Who’s to argue?
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Me.