Monday, August 22, 2011

Fluid Leadership

On water: While ER pulls a quote from here in their synopsis of the commentary on the flooding impacts, they are good enough to note my comment was from last week.. and thus before any of this happened. I am apprehensive of commenting on the flooding specifically since the consequences were so dire and the circumstances not fully understood. It is just clear to me observing the PWSA’s response at least that leadership matters. It is a tautology that leadership always matters and right now the PWSA is hampered by having no single leader since the last executive director departed. The bifurcated and acting leadership in place now is never a good model for an organization of any kind. While I want to be clear that there is no reason to think the two top folks holding down the fort (make that 'holding the bag') are responsible for the current situation, looking forward the PWSA needs its top spot filled. One might hope that this situation accelerates the PWSA’s leadership search process.
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On pensions: Bram diligently goes through the quite the extensive history of the city’s pension imbroglio. The recent history at least. The longer history could legitimately go back decades. Despite the fact that would take an even longer tome than he has there now.
Bram starts out with a foil of faux ‘agreement’ mentioning me and others on the mutual acceptance of the dire state of the pension fund.  How long has their been acceptance of any such thing you have to wonder?  Here is a quote from not long ago which highlights where the city was at just a couple years ago on this topic. See the Trib: City Councilman Returns to Deficit Spending. The money quote:
City Budget Director Scott Kunka likened that to yelling "Fire!" in a crowded theater.

"I think that the data was inaccurate. It's quite a bit of a distortion," Kunka said. The city is legally required to fully fund the pension and is on track to do so, he said.
The source of the projections being so maligned back then? and for the record it was not a new message. Anyway, the date of that quote was December 2008. When did the "fully on track" thing fade away?  December 2008 is not that long ago and I will guarantee nothing structurally changed in the state of the city’s pension system between then and now… certainly nothing between then and when the city changed its mind and started to ‘agree’ that there was an imminent danger of a zero fund balance. Somewhere though the city’s tone changed 180, at least in public.

There is one fundamental truth:  pension funding problems compound over time.  The longer efforts to improve the situation have been deferred, the far worse the problem becomes. Even a decade ago, if a moderate improvement in funding for the pension system had been implemented consistently then the situation would be far less dire than it is here now. That argument is true going forward as well, but there is a point of no return in terms of what is going to happen to the pension fund assets. That may be one of the few points of agreement between me and the ICA which years ago stated clearly that and I quote from the ICA's long-time Executive Director: "At some point it's impossible to catch up".  Things have only gone downhill since they made that quote.  Are we still thinking that point is in the future?

3 Comments:

Blogger Bram Reichbaum said...

Two questions:

1. In the 08 Trib article, BP said that you said the Police fund specifically was at risk of running out in 2011. Do you still have your eye on what remains of this year (or maybe early next year) or did something significant change with the Police fund since then? And if so, was it a shift from within our other funds / our routine payments, or some good news from outside the box?

2. And in terms of a point of no return where "it's impossible to catch up" -- surely that means, short of extraordinary measures? Could we not still sell / lease the parking assets AND sell / lease the remaining water assets, and commit ALL the proceeds from both (AND perhaps join PMRS voluntarily) and still get somewhere? Because my thinking had just turned to, we're facing a choice between that kitchen sink gambit and the other thing.

Tuesday, August 23, 2011 12:00:00 AM  
Blogger C. Briem said...

The 'impossible to catch up' refers to the pension assets as an investment that can appreciate enough over time to fund future pension payouts. At some low funding ratio, no conceivable future rate of return will help much. Before some of the additional contributions into the pension fund in recent years, the balance was awfully close if not below the level where even with investment gains it would not gain ground year over year. That is the 'impossible to catch up' end game in a sense and when the system de facto becomes a pay-as-you-go system.

Sure it is always possible to add money and re-fund the pension system.. but that implies all sorts of failures have happened.. and if future contributions are not sufficient (or actuarily conservative enough) then the system may continue to fall back. Not the way it is supposed to work.

On the date. Consider that if that $45 million in the (not so locked) lock box savings was not transferred over and if the stock market did not have such a big run between mid 2009 and end of 2010 then I do suspect the police pension fund would be at a remarkably low funding ration right now. Even with those two big pluses, I bet the actual funding ratio of the police pension is awfully low.

Tuesday, August 23, 2011 6:48:00 AM  
Blogger Bram Reichbaum said...

"I bet the actual funding ratio of the police pension is awfully low".

The fact that you're "betting" ... when was the last time you got a peek? Has anyone ever just tried filling out a RTK / FIA request to work around the passive transparency issue? "How much money is in those three funds according to the most recent quarterly statements? And what are they invested in?" Or is that proprietary secret sauce?

Tuesday, August 23, 2011 5:51:00 PM  

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