Tax Cut As Alien Concept

Union County freeholders are handpicked for, among other reasons, their unflagging support for maintaining and, where possible, expanding the tax base so as to benefit their patrons and, if possible, themselves. This has become so ingrained that the very concept of a tax cut is alien to their sensibilities.
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In Over Their Heads On Lifeguard Pensions

Atlantic city is broke with a reported budget deficit of $100 million, debt of $550 million, and the governing body is currently debating whether to make their next bond payment.  You would think the first step to recovery would be to restructure some of that debt to future years but in attacking the poster-issue of Atlantic City’s presumed profligacy, pensions for lifeguards, New Jersey legislators have thrown them another anchor.

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Sink or Swim with Lifeguard Pensions

In 2013 according to

In an effort to cut costs, the Ocean City [New Jersey] Council approved a resolution at Thursday’s meeting to lobby the New Jersey legislature to abolish pensions for newly hired lifeguards. Ocean City pays out over $160,000 annually for the pensions of 28 retired lifeguards, according to a report in the Ocean City Gazette. The resolution also stated that the city would grandfather in current pensioned employees, but it was in the best interest of the taxpayers to end the practice of paying pensions to seasonal lifeguards. The resolution now goes to the N.J. State Senate and Assembly.

Nothing came of it then but this week we got:

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Public Pensions and City Solvency

From the description:

Richard Ravitch, former lieutenant governor of New York, writes the Foreword and Robert P. Inman and Susan M. Wachter provide the Conclusion. The book’s three chapters examine the issue from different key perspectives: Joshua D. Rauh, a leading scholar in the study of unfunded pension liabilities, provides an economist’s perspective; Amy B. Monahan, a renowned authority in public employee benefits law, illuminates the legal framework; and D. Roderick Kiewiet and Mathew D. McCubbins, visionary political scientists, put the crisis and its economic and legal implications into context and lay out the necessary framework for reform.

Some useful excerpts:

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Bucking ASOPs

The Actuarial Standards Board has six Actuarial Standards Of Practice (ASOP) for pensions.

In his cover letter to the June 30, 2015 actuarial reports for the New Jersey retirement system Aaron Shapiro, FSA, EA, MAAA of Buck Consultants (which does all except the Teachers’ Plan) asserted (emphasis added):

The valuation reflects economic assumptions which include a rate of investment return of 7.90% per annum and assumed future salary increases of 2.50% per annum through fiscal year ending 2021 and 3.50% per annum for fiscal years ending 2022 and thereafter. These assumptions will remain in effect for valuation purposes until such time the State House Commission or the Treasurer recommends revised assumptions. In my opinion, the actuarial assumptions used are appropriate for purposes of the valuation and are reasonably related to the experience of the System and to reasonable long-term expectations. These assumptions were selected in accordance with applicable Actuarial Standards of Practice published by the Actuarial Standards Board.

and noted for all their plans (JRS example below) that:

The valuation reflects actual fiscal year 2015 State contributions of $16,506,000, which have been reduced from the recommended pension contribution of $44,334,504. In addition, the fiscal year 2016 recommended pension contribution of $46,502,819 has been reduced to $12,929,472. This amount reflects the State’s planned fiscal year 2016 contribution of $13,950,900, 30% of the recommended employer contribution, discounted to the valuation date. This amount may be subject to change per the requirements of the State’s fiscal year 2016 spending plan.

So where is the ASOP that says you select your discount rate based on what politicians who have an undisguised incentive to understate liabilities tell you to use and that slicing contributions by an arbitrary percentage are acceptable actuarial practices?

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Christie Dictating to Milliman

There was a session I attended at last week’s Enrolled Actuaries meeting titled Ethics Situations that Public Plan Actuaries are Often Placed In where one of the discussion topics was:

How much should the public system’s staff be allowed to edit or influence the content and/or wording of an actuarial report or other actuarial work product from their outside consulting actuary. This can range from:
1. Editorial suggestions on wording to requests, to
2. Requests to delete sensitive content that is informative and relevant but non-essential, to
3. Arm twisting for changes to specific and material recommendations.
This generally happens behind the scenes, so as to influence what information is seen by the Board and the public.

When I got back to the NJ pension beat I came upon a real world example:

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MPRA – More Political Revenue Anticipated

HR83 which included the Multiemployer Pension Reform Act (MPRA) was passed by the House on 12/11/14 (219-206), the Senate on 12/13/14 (56-40), and enacted on 12/16/14 for reasons that were obvous to me at the time but I may have missed something.

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