Analyst Myopia

I became suspicious of bond rating firms and the amount of research they do when Union County started getting AAAs even with among the highest taxes in the nation, failed projects to support, and the possibility that the state will wake up to their ongoing theft of Open Space trust fund money.

Even an article on how New Jersey keeps falling behind on pension funding has this

Recently released Governmental Accounting Standards Board valuations showed a net liabilities reduction for New Jersey’s seven combined pension plans by $26 billion to $142.3 billion as of July 1, 2017, according to S&P. The combined funding ratio of the seven plans also improved slightly to 35.8% from 30.9%, but [S&P credit analyst David] Hitchcock cautioned that a sustained recovery remains in flux.

“While prosperous times have allowed the state to stabilize its pension system, we believe New Jersey still has a long way to go to achieve healthy pension plans and could risk backsliding amid unexpectedly weak economic conditions should they occur,” said Hitchcock.

Prosperous times…..a stabilized pension system…..risk of backsliding? How deep did S&P dig?

The increase in the GASB funded ratio from July 1, 2016 to July 1, 2017 for the New Jersey system was primarily due to the dubious use of a 3.83% (from 3.11%) interest rate for valuing liabilities. Nothing has stabilized here except for the expanding role of prevarication and myopia in the discussion.

4 responses to this post.

  1. Posted by Tough Love on May 2, 2018 at 11:20 am

    Sounds like you should offer your Actuarial Consulting Services to the Bond rating companies …….. could be a well-paying gig.


  2. Posted by Tough Love on May 2, 2018 at 8:16 pm

    It’s interesting how some writers “get it” …. the ROOT CAUSE of the problem …… while many other don’t. In a recent article (a few paragraphs pasted below) about Oregon and Nevada’s pension problems, this author “gets it”:


    The report should serve as a cautionary tale for Nevada. Democratic lawmakers in the Silver State have long resisted efforts to reform the state’s Public Employees Retirement System — which has billions in unfunded liabilities — preferring to stand with government unions rather than the taxpayers who pay the bills.

    And that’s the critical dynamic which escaped scrutiny by the Times. While the pension predicament Oregon and other locales now face may indeed have been, in part, the result of “faulty financial decisions,” the primary culprit is the cozy relationship between liberal politicians and the labor organizations that represent government workers.

    It’s an incestuous, circular system. The unions stuff dues money (derived from taxpayers) into the pockets of progressive politicians to help them get elected and stay in office. Those officials, in return, advocate for higher pay and benefits — including cushy pension plans — for government workers. Rinse and repeat. Both sides enrich themselves courtesy of the taxpayer.

    To wit, the Times reports that — incredibly — when Oregon lawmakers passed a measure requiring retired government workers to pay the state’s 9 percent income tax, “they also increased pensions by 9.89 percent, giving retirees extra money to pay the tax.”

    Absent changes — transitioning government pensioners from a defined-benefit to a defined-contribution system, for instance — a taxpayer rebellion looms. “It’s an affront to everyone who pays taxes,” one retired Portland carpenter told the Times. “At every step of the way, they’ve made decisions that went against the interests of the public.”

    It’s worth asking: Who are the politicians resisting public pension reform — most of whom are on the left side of the aisle — actually representing? The answer is obvious.

    This is just one more reason why Taxpayers should renege on paying the 50% to 75% share of these now LUDICROUSLY excessive pensions (AND benefits) that assuredly would NOT have been granted in the absence of that Union/ Elected-Official COLLUSION.


  3. Posted by Stanley on May 3, 2018 at 7:15 am

    This is an interesting blog post. In today’s financial world, rating agencies almost have to employ deaf, dumb and blind analysts. Recently, I have wondered how home buyers could get financing in such troubled districts that are only superficially sound.
    Your comment that S5 may be vetoed to prevent examination of the asset mix is interesting and amusing.


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