Why Lottery Charade

Another stupid pension faux-fix for the New Jersey retirement system:

Broadly, New Jersey’s lottery will become an asset of the pension fund, just like all of the fund’s stocks, bonds and other investments.

The state hired an outside consultant to determine the value of the fund, and it came back with $13.5 billion. That would immediately slash the state’s pension debt. Treasurer Ford Scudder said the valuation will be updated regularly.

Over the next 30 years, the revenue generated from ticket sales would add $37 billion to the pension fund. The lottery would revert to the state budget after those 30 years.

Why the charade?

New Jersey has the worst funded state retirement system in the country and having $13.5 billion appear would allow it to leapfrog Illinois if they don’t follow suit.

But since when are future employer contributions considered assets?

Then there is the question of what will happen to the programs now being funded by the lottery money:

Once the lottery is deposited in the pension system, it would dramatically decrease the unfunded liabilities, or debt. That would, in turn, eventually reduce the amount of money that needs to be budgeted for the pension contribution.

Thus the ‘required’ contributions would drop, possibly by more than the $965 million that the lottery money will bring in, freeing up MORE money for those programs.

This ploy is completely unnecessary in New Jersey which has acquired the right to make up their own contribution amounts but it does create a patina of responsibility if those mini-contribution numbers are filtered through the actuarial distortion filter. And that’s why.

 

28 responses to this post.

  1. Posted by Now Retired Pat on May 14, 2017 at 10:20 am

    As someone who has a vested interest in maintaining the Pension Fund, I find the approach laudable. The other “entitlement” programs currently supported by the lottery proceeds will necessarily become part of the regular budget process and hence, subject to sever cuts or even elimination. And, because the lottery proceeds can be viewed as supporting “educational activities” a constitutional amendment may not be required!

    If nothing else, it will prolong the ponzi scheme just through my expected lifespan of another 30 years. I’m all for it!

    Reply

    • Posted by Anonymous on May 14, 2017 at 11:55 am

      Oink Oink.

      Reply

      • Posted by Anonymous on May 15, 2017 at 9:22 am

        It’s getting so a DB retiree can’t even recover their contributions – LOL!

        Reply

        • Posted by dentss dunnigan on May 15, 2017 at 10:07 am

          Recovering one’s contributions is usually done in the second or third year of retirement …….

          Reply

          • Posted by Anonymous on May 15, 2017 at 11:53 am

            That’s just about right because RARELY do employee contributions (INCLUDING all the investment returns thereon) pay for more than 10% to 20% of the Total cost of their EXTREMELY generous Public Sector pensions.

  2. Posted by dentss dunnigan on May 14, 2017 at 10:27 am

    If I owned a asset worth 13.5 billion and only threw off 965 million a year return I would be highly suspect of the valuation that shows a return of 0.7% return …RED flags should be raised .But I’m still confused where the money will come from to fund the benifits the lottery used to fund …or is this typical NJ whack a mole ..?

    Reply

    • Posted by Anonymous on May 14, 2017 at 12:13 pm

      The reason that the $13.5 Billion is not THAT unreasonable is because the $13,5 Billion valuation is ONLY the PV of 30 years of $965 Million in income with ZERO sale value because the Lottery won’t actually “own” the Lottery. Curiously, I calculated the interest rate for which the PV of $965 Million (assumed payable in the middle of each year) for 30 years is equal to $13.5 Billion. The resultant rate is 6.127%.

      Also interestingly, if they discounted it at the NJ Plan rate of 7.9% the $13.5 Billion would have been only $11.39 Billion.

      Reply

  3. Posted by skip3house on May 14, 2017 at 11:30 am

    Simplify please. That part of NJ Pension funds contributed by workers can/cannot be used for others’ pensions?
    If funds go bust, will enough dollars be left to refund worker contributions, retired at one calculation, not retired at 100% ?

    Reply

  4. Posted by George on May 14, 2017 at 11:38 am

    Once it is in the pension scheme the lottery can be sold. AKA converted into a ‘one shot’.

    The real proposal seems to be to fund the things previously funded by the lottery with the general fund and fund the pension scheme with the supposedly fixed lottery revenues. Then if a cut needs to be made it will be the things that were previously funded not the pension.

    ‘Selling’ the lottery to the pension only reduces costs if the lottery continues to work as a business. The pension assumes no risk in the transaction. Any reduction in future lottery revenue has to be made up by the state.

    One problem with this is the original ballot initiative specifically mentioned educational institutions. It is not clear that paying money to people who once worked at educational institutions, but no longer do meet that criterion. Admittedly that criterion is violated now and probably nobody cares anyway.

    Quick googling found a previous Christie lottery fiasco.

    Chris Christie’s decision to privatize the New Jersey lottery is looking like a big mistake
    http://www.businessinsider.com/ap-lottery-privatized-under-christie-falls-136-million-short-2015-9

    Anonymous msg board poster rant:

    If the lottery goals change will people still play the lottery in the same numbers?

    Will the paper based lottery ticket for cash and print winners named in the newspaper scheme still function in a paperless bitcoin anonymous world? Seems ripe for disruption.

    Reply

  5. Posted by Anonymous on May 14, 2017 at 11:54 am

    An asset such as an office building or apartment house presumably generates a profit each year, and can also be sold if the owner chooses to do so. So essentially the “value” of a financial asset (net of any liabilities such as a mortgage) is the present value of it’s expected profits (including the profit upon sale). Of course the rate at which you discount those profits will have a material impact on the asset’s “value” (just as a pension Plan’s liability is heavily dependent on the rate used in discounting future Plan payment outflows).

    Pension Plans appropriately count the market value of a real estate investment as part of it’s assets (with any outstanding mortgage held separately as a liability). While I do not agree that annual lottery profits should be dedicated to NJ State Pension Plans, IF the lottery was actually OWNED by the Plan, then yes they would be correct in counting “valuing” it as the PV of future profits., but without actual ownership (as seems to be the proposed structure), it would appear that it should only count the annual profit as income in the year received.

    This lottery slight-of-hand is ALSO of concern because if counted as an asset the way regular assets are counted (and not as annual income as I believe to be correct), the Plan would be closer to reinstating COLAs….. certainly an ENORMOUS desire of the Unions an Plan participants. And once they get within striking distance (of the funding level that must be reached before doing so), the Unions/participants will twist the hands of the actuaries every which way from Sunday to reach that funding ratio ……. which would have a HUGE negative financial impact on the Plans …. and hence NJ’s taxpayers.

    Reply

    • Posted by dentss dunnigan on May 14, 2017 at 2:21 pm

      Since it seems they are disregarding the state constitution and using dedicated funds for other purposes ,why not just grab more from the income tax revenue and cit Abbott funding …?

      Reply

  6. Posted by Marko on May 14, 2017 at 3:54 pm

    Same as the past pension reform. Increase the revenue from a source besides the state, increased employee contributions, to lower the liability on paper. Again this will do nothing to strengthen the system. The 100 days are almost up. Time to step aside and let someone else try. A complete failure.

    Reply

  7. Posted by MJ on May 15, 2017 at 10:40 am

    I thought that the lottery funded a lot of other programs and services in NJ especially for seniors, mental health services, etc……..how will this revenue be made up or will most of those services be cut? Anyone know in simple terms how this will play out?

    Reply

    • Posted by dentss dunnigan on May 15, 2017 at 11:05 am

      The easiest way of explaining this is …if you’ve ever see on the streets on NYC a game of three card monty this is it …right down to when one of the shills yells “COPS”..and the dealer kicks over the table and takes off with all the cash …..

      Reply

  8. Posted by Anonymous on May 15, 2017 at 3:11 pm

    Include the Federal, including military, pension Ponzi scheme and the number triples or quadruples – now there’s a story to run with…..

    https://amp.ft.com/content/f2891b34-3705-11e7-99bd-13beb0903fa3

    Reply

    • Posted by Anonymous on May 15, 2017 at 3:35 pm

      Looks like you’re Still trying to shift the focus and NECESSARY discussion from the grossly excessive, unnecessary, unjust, unfair (to taxpayers) and clearly unaffordable State & Local Public sector pensions ??????

      Reply

      • Posted by Anonymous on May 15, 2017 at 7:27 pm

        Just the facts jack, can’t handle all the truth?

        Reply

        • Posted by Anonymous on May 15, 2017 at 9:06 pm

          I believe it is you who can’t handle the truth ……… THAT your pension plan is rapidly heading towards insolvency, and CERTAINLY will not be able to honor anywhere near the ludicrous amount that have been promised.

          Reply

          • Posted by Anonymous on May 15, 2017 at 9:28 pm

            You and yours keep enjoying those Federal benefits, now deny it…..

          • Posted by Anonymous on May 15, 2017 at 11:17 pm

            The only Federal benefits I’ll ever get are SS and Medicare ………….. for which I have paid a hefty price ……. unlike NJs’ Public Sector workers who rarely pay more than 10% to 20% of the total cost of a Plan MULTIPLES greater in value upon retirement than what similarly situated (in pay, age at retirement, and years of service) Private Sector workers get from their employers.

            It’s WAY past time to FREEZE all of these Public Sector DB pension Plans for the future service of all CURRENT workers ………. and ding THAT is just to stop digging the financial hole NJ is now in DEEPER every day. We’ll still have to address (likely via tax increases as well as benefit reductions) the grossly excessive PAST service accruals.

          • Posted by Anonymous on May 16, 2017 at 10:51 am

            Sure Mr/Mrs self interest we believe you, not.

          • Posted by Anonymous on May 16, 2017 at 1:11 pm

            Unlike YOU, my only “self-interest” is in being a NJ taxpayer disgusted with the HUGE tax increases that will come unless:

            (a) DB pensions are frozen or are at least halved in value for a new employees

            (b) DB pensions are frozen or are at least halved in value for a the future service of all CURRENT employees.

            (c) What taxpayers now contribute towards active employee healthcare benefits is reduced to what Private Sector companies typically contribute towards the cost of their employees healthcare benefits.

            (d) Retiree healthcare COMPLETELY phased out over a SHORT period (5 years). Employer-sponsored retiree healthcare benefits are becoming quite rare in the Private Sector. There is ZERO justification for those who don’t get such benefits (the Private Sector) to pay for it for others (the Public Sector).

            *******************

            Public Sector workers are NOT “special” and deserving of a better deal ….. on the taxpayers’ dime.

          • Posted by Anonymous on May 17, 2017 at 10:44 am

            Now wipe the dribble…..you’re messing on yourself

  9. […] analysis was done here but I fear: . . If not, here it […]

    Reply

  10. […] lowering contributions which will lead to an earlier depletion of assets – but you people already knew that. The problem is that people who get their news from the Star Ledger and other mainstream media […]

    Reply

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