By Christopher Briem, on December 15th, 2011
Yunz thought I forgot. That or lost interest? Boiler has been building up steam is all. That and there seems to be quite a confluence of news in the nexus here: pensions, assessments, redistricting even migration. Damage Control teams being spread thin just trying to keep up. But let’s poke in on pensions for a minute.
Let’s recap: we all declared victory just a few months ago it seemed. We ’solved this for the city’ was one quote.
So last week we learn that the city pension funding is down to 54%, Note that is 54% with the notional asset of pledged future parking revenues that is still hard to define and as council is learning even harder yet to extract from the Pittsburgh Parking Authority. Let’s just agree that it is not cash on hand in any form, nor fungible in any extant market. I still want to know what the real cash horizon is for the pension fund. You think others would care as well.
What really ups my distemper over the whole notional asset is how if confused the public. Maybe the asset makes sense, maybe it doesn’t. But read the news coverage and tell me if you walk away with any appreciation for how much in $$ is really there to pay pension bills? No real appreciation that a large part (soon to be the majority) of all pension assets are no more than a promise from the city to itself to pay money in the future to the pension account. It is a promise that I am pretty sure existed long before last December mind you.
So it is conincidence that Governning had a column last week on the public pension problems everywhere to a degree. Will pension plans run out of money? It talks of the “risk of depletion” for pension funds. “depletion” isn’t quite a euphemism, but sure sounds a lot tamer than the what it would mean if it were to come true.
So what does it all mean here? Here is what we know as to the state of the city’s collective pension fund. Forgive me for any errors in the decimal points, the city does not mail me the detailed pension accounting.
Total liability Jan 1, 2011 $1,012,027,241
Funding as of Jan 1, 2011 said to be 62% which gives me $627 mil
Funding as of Sept 30, 2011 said to be 54% so $549 mil
Value of notional asset said to be valued at $239 million which gives a net value of $307 mil
That in itself would give you 30% funding ratio. It has been worse. Still,, after all the extra $$ piled in and all the other machinations, in reality we are in my calculation below the 32% we were just about two years ago. No thanks to some big losses due to massive market timing bets. I really wonder if they have really gotten all the cash back into the market in a portfolio that make sense. Something tugging at me makes me wonder what is up with the investment. Anyone know more?
If this is how we define success, you have to wonder what failure looks like? The only thing different today than a year ago is that an IOU was passed from one part of city government to another. The truth is that IOU existed legally, morally, and in the accounting long before the latest accounting trick. So what really is any different?
It really is worse than that. Realize also that there was what by definition was a one time transfer of the cash that was sitting in the not so locked ‘lock box’ built up from past budget surpluses. So just before the end of the year.. or so everyone is agreeing to even if the banks were closed, was the transfer of $45 million I believe it was to the pension fund. When thinking about trends, you really have to think about that as the one-time opportunity it was. No such surplus will be there for a long time again. If you were to net that out the city would most likely have been at ~$262 mil or less, or just under 26% funding ratio.
I won’t pile on and say another year has gone by and while the rate of increase in the calculated total liability has slowed a bit, it would still seem an obvious projection that the total liability is higher as well which would push that % lower. That or that parts of the system are less well funded than these cumulative averages would imply. But success.. keep saying it.. it all succeeded last year.
By Christopher Briem, on October 21st, 2011
or if I had seen this, I would have just used it today…..
Just out from Stateline.org: Pittsburgh and Harrisburg: A tale of two deep-in-debt cities
I still have not had a chance to update much of it with the 2011 data, but on that we will gratuitously relink my iPension page with all the numbers you can ever really use on the city’s pension funding… or it would if I had time to update it. Also gratuitous, but don’t you long for the days when the pension fund was not a problem and fully on track to becoming fully funded.
and speaking of Downtown Pittsburgh.. just caught this in the news from New Mexico: Former Pittsburgh mayor urges innovation and risk. There is a quote near the end that is… well it is.
 Join the forum discussion on this post - (1) Posts
By Christopher Briem, on September 20th, 2011
Things that confuse me.
Well, there you have it. The go away and come back later answer on the City of Pittsburgh’s pension ‘solution’ of the day. (Trib, PG). As a commenter here pointed out in the immediately previous post, the first payment from parking revenue into the pension fund is due a week from this Friday. Does the city even have that much free cash to ship over?
On to other things I guess. More confusing things: Increasing property tax to send $3.25 million a year over to the Carnegie Library necessitates a city-wide referendum, but sending $14-$26 million (‘irrevocably’ no less) a year to the pension fund is a simple vote of council in December?
How would the new incremental library tax be impacted by new property assessments? Does it get adjusted for anti-windfall legislation, or will it remain an extra 0.25 mills and thus likely wind up being a lot larger revenue stream? I am pretty sure the nominal tax base for the city in aggregate is going up, especially in nominal terms.
If the city decides to alter the millage for the library tax, then does the Carnegie Library have some means to sue the city to get it back. In other words, is it irrevocable in the sense of the parking tax diversion (see first point above).
So now that PPG is being sold according to news accounts… is the City of Pittsburgh again going to be left out in the cold on the potential transfer tax that would bring in. Is anyone working on the issue we brought up in the spring? A rhetorical question I know.
The notional price is only listed as a $214 million investment. So if there is a potential 3% transfer tax (total for city and school district not including additional to state) out there, the ‘lost’ revenue is on the order of $6.5 million.. or nearly 2 years of the new library tax revenues.
And from last week… If you missed the big public finance news out of Jefferson County where they also seem to have conflated all fiscal issues into their water and sewer system. Looks like JP Morgan is willing to take a big haircut and restructure bonds they set up with their county sewer system. Seems like the Pittsburgh Water and Sewer System could have used some similar consideration for their variable rate bonds causing such expense and consternation. Maybe we didn’t ask nice enough? or maybe we asked too nicely? Who knows?
But I confuse easily. and yeah, I changed the title. The allusion just kind of punched me in the nose.
Join the forum discussion on this post - (1) Posts
By Christopher Briem, on September 16th, 2011
Reuters: Pennsylvania to rule on Pittsburgh pension takeover
My guess is that the city will be saved by the bell if only because the folks at PMRS will just kill the folks at PERC if they wind up being stuck with Pittsburgh’s pension system. Accounting fictions or not, will there be a literal cash issue at some point if all this goes through with so much notionality on the books?
Let them spend IOUs.
Seriously, I would love the legal minds reading here to tell me if an asset is an asset if you can’t sell it? That and whether anyone really thinks the city’s IOU to its own pension board could be sold to a third party for cash. I bet one of those advertisers on tv offering to monetize the annuities some folks have would be happy to make an offer. The interesting question is.. what would they value it at?
Join the forum discussion on this post - (1) Posts
By Christopher Briem, on August 29th, 2011
PBT Today: Pittsburgh Pension Loses Out on Millions.
Personally I am going to send each member of the pension board a copy of a book just about everyone who invests in the market should have anyway:
Beyond that… there is a companion story with that: Lamb seeks answers to pension plan delay. Something does not add up to me. If you were to dig into it, it sure sounded to me like the pension assets were not exactly converted to cash.. which is implied in the ‘delay’ in reinvesting into a more normal portfolio.. but it sure sounded like the intention as to buy some form of option which effectively created the same investment return as cash for precisely the 3 months in the fall the pension board was worried about. If that is what they did, then once the option ran out, the portfolio would immediately begin to have the investment returns it should. This option strategy should also give some advantages in not incurring the costs of moving several hundred $million out and then back into the market. Apparently that isn’t what happened which raises its own questions.
The net result however it happened is really pretty sad. Pension fund cashes out in fall 2010 which turns out to be quite a big run up in the market. Delays getting back into the market in first quarter of 2011 which continued to be a great quarter for the market. Assuming they finally got cash reinvested by April, it was just in time for the horrific returns from the market since then. There you go.
By Christopher Briem, on July 15th, 2011
If you want to read the one news article that you didn’t see which covers the single most important development that will shape future of the City of Pittsburgh over the next couple of deades?? and as collateral damage a whole lot of other local public finance as well. Then take a scan at least of this article in Bond Buyer: GASB Unveils Pitch on Pensions.
Everything else is just kind of fluff in comparison. It is also why I am no longer going to get myself amped up over the rump debate of the parking controversy because it just does not matter. State takes over pension system or not. Does not matter. City finds some new revenue from the parking authority or not. Does not matter. Take the city’s current pension liability and instead of using an 8% discount rate, try recalculating using half that… and then see what it gives you. If you really push it to 3%, or say something close to what is used in private sector pension accounting and…
Ni!
Never has something so esoteric meant so much in the real world.
Whatever.. just the most important thing that may shape all local public finance for decades. Will be big news most everywhere, but we are the singularity. Beyond anything to do with the City proper, there is another big local connection to all of this as well.
By Christopher Briem, on July 8th, 2011
Let’s see. News from New York City is that their municipal pension funds are doing pretty well and were up over 20% over the last year. I wonder how that compares to the City of Pittsburgh’s investment return? Oh, nevermind. Does not seem to be a question anyone cares about.
Actually, not to be completely dismal on all of this. Pittsburgh’s pension system is rapidly approaching a transversality condition no doubt, but some also like to describe the state’s far larger pension systems as being equally at the precipice. Others just write off the city’s pension problems as just par for the course these days when it just isn’t comparable to even the worse off pension funds elsewhere. There actually has been a lot of work on public pension funding out of the University of Chicago of late. Seems to me that if I were a Harrisburg apparachniki, I would find some less than horrible news in this graphic via the NYT based on the work of Professor Rauh. Pennsylvania is actually classified on the positive side of a notional benchmark of 80% pension funding.
Then again there is the City of Pittsburgh, which if we look sideways, use old data, conjecture some less than liquid assets and otherwise suspend disbelief we are likely closer to 20% than 80%.
Speaking of unasked pension questions.. I have seen no public update to this kerfuffle between the state and the city. Just asking…
By Christopher Briem, on April 25th, 2011
In a sense there is no news at all to comment on in the latest pension episode of the pension soap opera down on the 5th floor. Hard to see how the outcome down at the Pittsburgh Parking Authority board would have been any different than is being reported. Great quote in describing the state of all things pension related for the City of Pittsburgh as “extreme dysfunction”. Points for parsimony.
Fun with words aside, there is something to read between the lines. City news junkies follow along with me. It seems clear that no matter what happened on New Year’s Eve, my reading of the news is that there is no intention on the part of the administration to facilitate council’s plan as envisioned. Sanctioned or not by the PERC it may may be.
Now realize that it really does not matter what council adds up, the whole plan depends on the city’s own actuary certifying that the pension’s assets, to include the NPV of the dedicated parking tax funding stream, amount to 50% of the calculated liabilities. Realize that there are lots of judgment calls, let alone a lot of city-supplied data, that goes into the actuary’s calculations.
Sooo.. If the city really does not want the actuary’s calculation to show 50%, then there is a decent shot that the outcome of the determinative calculation will not be 50%.
Won’t that be interesting.
By Christopher Briem, on January 19th, 2011
I just don’t have it in me to comment more than point out the pension purgatory we are in.. and at this rate will forever be in. The current and soon to be re-identified WDUQ: Pension Valuation Could Take Months
I guess it is better than pension hell?
There are public pension doings in Philadelphia. WHYY: Nutter’s pension overhauls stalled in Philadelphia
By Christopher Briem, on January 3rd, 2011
Really really wanted to end the year on a positive, maybe we will start the new year with something less negative. Anyway.. Trib follows up on the story of the Detroit pension system’s losing bet on our casino: Casino’s Struggles Felt in Detroit.
Here is the thing. the story that came from sounds horrible. Risky bets cost Detroit pension funds $480 million. Yet the Detoit pension system, which is made up of two big pension systems I presume for uniformed and nonuniformed employees were funded at 100% and 106% in their latest audits. Granted those are from last year, but that is at least as current as our information here.
Go read the numbers yourself: See page 23 (per the pdf) of their General Retirement System audit, or the similar document for their Police and Fire Retirement system (page 25 per the pdf numbering). I’d point you out to read the comparable documents for the pension system here… but, you know.
So even after its $480mil dollar loss (a big chunk of which coming from our casino) Detroit’s pension system is three times as well funded as Pittsburgh’s pension systems combined. Maybe 4-5+ times as well funded as the Police pension fund (the worst-funded of our 3 pension funds) is here. Detroit!? Paragon of sound fiscal governance and transparency.
Might be intersting to look at an end of year news piece out of Detroit today. For them, their pension issues have truly become all consuming:
Another federal grand jury is probing potential problems with the city’s two pension funds. Subpoenas were issued to a top pension official and to the pensions themselves seeking records about investments, including a residential real estate development in Florida.
They’re mad that their pension fund is at or above 100% funding? While we are so happy with how things are going here that we are doing anything conceivable (and the inconceivable) to make sure nothing changes here?
Still an interesting tale of how Detroit got caught up in it all. Below is the ownership schematic and financing behind the reoarganization of the River Casino operation as of when Bluhm took it over from Barden. I would suggest that whenever you are a bank and have dotted lineds connecting you in a diagram like this, you have things to worry about. The multiple colors just for the Detroit pension folks is probably a red flag in itself. I’m just guessing Bluhm is a financial genius that is befitting a billionaire. If the Detroit pension system, and I am presuming Key Bank along the way as well took such big hits in this… then I bet his controlling interest in the casino didn’t really cost him all that much in comparison.
 fyi this must be all before the debt/equity was restructured. Anyone have a similar diagram of the current, post reorg ownership structure of the Rivers Casino? Must have a bigger like to the Detroit pension system I figure. I wonder if one of their pension board folks gets expense paid trips to the casino here?
Join the forum discussion on this post - (1) Posts
|
|
Most Popular Posts