Laws are not assurances in New Jersey

New Jersey in 2011 passed a law promising to make its legally required, actuarially-determined pension contributions* yet in a bond prospectus this month the state asserts:

“No assurances can be given as to the level of the State’s pension contributions in future fiscal years”

In one of the lamer political rationalizations for lying:

Christie spokesman Michael Drewniak provided The Star-Ledger with several examples where identical warnings were included in previous bond prospectuses dating back to at least 2009, calling it a standard disclosure.

“The language referred to is standard disclosure language that is identical to bond offerings disclosures going back to at least 2009 and the Corzine administration,” Drewniak said. “It is because we cannot tie the hands of, or commit future legislatures or governors’ actions that we are obligated to include such language.”

So no assurances could have been made in 2009 but, after the 2011 law passed, shouldn’t this language have changed?  How much of this prospectus is boilerplate?  Has anyone checked?  Is there still language in there from the Cahill administration about not needing an income tax?

What other tidbits are in the 16 pages of the prospectus devoted to Funding Pension Plans and what do they really mean?

An Assurance for New Jersey Public Workers on their Pensions

The Christie administration warned potential investors earlier this month that future pension payments — estimated to grow from $1.7 billion next year to about $5.5 billion by 2018 — will drain resources and “create a significant burden on all aspects of the State’s finances.”

“No assurances can be given as to the level of the State’s pension contributions in future fiscal years,” the prospectus reads.

Yet when pension ‘reform’ was passed in 2011 assurances were made and are still being made.

Pushing Public Employees to Retire

School superintendents are by far the highest paid government employees in New Jersey, making even more than heads of some Utilities Authorities, though they do need to come to work occasionally.

Governor Christie makes $175,000 in salary so in 2010 he imposed that as a prospective cap on superintendent salaries.

In an article today, a purported blowback example is provided in the retirement of Judith Wilson who has 35 years of service with a salary of about $225,000 and is retiring on a pension of $144,000 at age 56 rather than swallow a pay cut.  What that writer is missing…..

Calculating What’s Expedient – Politically

Joshua Rauh, GASB, and Moody’s would all like to see public pension plans report the value of their liabilities using an interest assumption in the 4% range instead of the 8% most use but the cost of doing all this extra work has been cited as a barrier to providing that information.

Last week New Jersey announced what localities would need to pay into PERS and PFRS for 2014 per a DLGS email blast:

Popping the New Bubble

“Public pension funds account for 9 percent of hedge-fund investments.”

Les Leopold – How to  Make a Million Dollars An Hour

Not private pension funds which theoretically have the same motivations but PUBLIC pension funds.  New Jersey has around 24% of their pension fund assets in alternative investments and is committing to more.  What’s the attraction?

Please Don’t Sue Us

The July 1, 2012 actuarial valuations for the New Jersey public retirement system are out and they provide a useful compendium of basic data on the plans from which an independent observer can deduce that they are going broke.  However, from an actuarial funding perspective they are a train wreck.  Liabilities and contributions are grossly understated while the ‘actuarial’ value of assets is pure fiction.  So how’s an actuary to avoid getting sued?  Here’s how Milliman and Buck are coping.

Fatal Flaw GASB 68 Wants Fixed

John G. Dickerson, financial expert and author of two new reports on government pension accounting, recently presented some alarming findings on how changes at Moody’s Investor Service and new pension accounting standards will unmask the staggering debt threatening vital community services.  The pertinent excerpt from his talk:

Cost of a Public Pension in New Jersey: $3,021

The thing that struck me about public pension funding when I started getting into the details about five years ago was how often the annual benefit payments to retirees exceeded the calculated Annual Required Contributions (ARC) in plans where benefits were continuing to accrue.  Subsequently I saw gimmicks like high interest assumptions, open-amortization methods, and contribution holidays as prevalent and that explained some of it but after reviewing the July 1, 2012 actuarial valuations for New Jersey and combining pertinent results into a spreadsheet this may be single most outrageous number in the history of actuarial funding: $3,021.

SEC Legalizing Fraud

The state of New Jersey was charged by the SEC with committing fraud in its pension disclosures at around 9 am on August 18, 2010.  A few hours later the case was settled.

The state of Illinois was charged by the SEC with committing fraud in its pension disclosures at around 9 am on March 11, 2013.  A few hours later the case was settled.

And the SEC wonders why investors think its spineless.  I’m not an investor but I do wonder what this prosecution-by-kabuki accomplishes.  Let’s see how New Jersey panned out.

Lesson from a phony pension reform

In June, 2011 New Jersey politicians enacted reforms that were supposed to ‘save’ the state retirement system.  We now have a full valuation year and, based on this spreadsheet, we can come to some interesting conclusions: