Author Archive: DSWright

Is the Pension Fund Secure? The Costs of Underfunding

It is not news to most people who followed the debate here at Blue Jersey and elsewhere that the pension reform bill did not save the pension system. A few, mostly cosmetic, changes were made that will have little effect on the deep structural problems in the fund. Some have even called the very notion that the bill solved even part of the problem idiotic.

But let’s table all that for now and look at another threat to the pension fund: the growth of risk in the fund’s investments. A threat that resulted from bi-partisan irresponsibility in managing the fund, particularly in not making payments or underfunding.

The lack of contributions, and in one case raid to pay for tax cuts, forced the fund’s investment managers to seek more novel ways to get the returns necessary to maintain the solvency of the fund. The riskiest strategy by far is the increased use of “alternative investments” to get abnormal returns to plug the gap.

According to the investment section of the pension fund’s annual financial report:


Investments in alternative investments are limited to no more than 28% of the portfolio. The individual categories of private equity, real estate, real assets, and hedge funds are limited to 7%.

Let’s be clear, “alternative” is a euphemism for extremely risky. Putting aside real estate (how’s that doing?) and real assets (commodities) the categories include private equity and hedge funds. These types of funds are so risky that only sophisticated investors are legally allowed in. This is because, though their returns can be large, the risk of major losses and even a fund collapsing is high.

As will be discussed later the pension fund’s other, seemingly less risky, investments are having serious problems right now. Who knows what kind of exposure or danger the “alternative investment” section of the portfolio has.

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(The NJ Pension Fund has considerably extended its use of “Alternative Investments” – increasing risk)

But let me be entirely clear, this is not the investment managers’ fault. This is the unfortunate but reasonable response to both political parties and their leadership failing to fully fund the pension system. Because of underfunding, investment managers had to try and do more with less and the only way to do that in finance is to take on more risk or be creative. Creativity in the arts is wonderful and life affirming, in money management it’s generally a prelude to pain.

Bottom line: underfunding has lead to more risk in the pension fund, jeopardizing its stability and in the worst case its solvency.

(walk through after the jump)

Collingswood Wins “Muniland Absurdity of the Year Award”

Recently the borough of Collingswood suffered a massive credit downgrade:


Collingswood was among the 0.6 percent of public entities rated by Moody’s to receive a “large, multi-notch downgrade,” or a downgrade of two or more notches. The borough was dropped an astonishing six notches, from A1 to Ba1.

The primary source of the problem seems to be a development scheme wherein the borough underwrote considerable debt to secure the financing of high end housing:

The downgrade was a reflection of doubts over how Collingswood would fully pay off $8.5 million for the LumberYard, a luxury housing and retail complex near the PATCO Hi-Speedline. The borough will make an extended maturity deadline of Dec. 7, but not without borrowing another $4.5 million to purchase unsold condos, which it will try to lease.

This odd situation has lead Reuters columnist and municipal debt expert, Cate Long to award the Borough of Collingswood the “Muniland Absurdity of the Year Award” Long writes:

The small town of Collingswood, New Jersey is facing some rough sledding in the next 90 days as it attempts to raise cash to pay off loan guarantees it made on behalf of a local condo and commercial development.

The private project, The Lumberyards, originated in 2006 with funding from TICIC, a consortium of New Jersey banks that provided $18,000,000 in construction loans to Lumberyard Condominiums. After completing about one third of the project the developers encountered weak demand when the housing market and economy softened following the 2008 financial crisis. The developers are now broke and have turned to the town of Collingswood, their municipal guarantor, to repay the loan to TICIC.

What is also raising eyebrows is the involvement of Philip Norcross, brother of both powerbroker George Norcross and Senator Donald Norcross, who serves as Collingswood’s bond counsel and worked on this strange deal. Philip Norcross was recently profiled in a piece by the Philadelphia Inquirer citing his involvement in a new and very lucrative lobbying firm that leverages its connections to both Chris Christie and Steve Sweeney. This, along with the involvement of the scandal plagued Delaware River Port Authority, has many wondering if there is another shoe to drop in this boondoggle.

(more after the jump)

Deep Thought: DADT is Repealed, Now It’s Time For Equality In New Jersey

(Soldier comes out to his father on Youtube after DADT repeal)

Today Don’t Ask Don’t Tell, the Department of Defense’s backward policy on homosexuality, is no more. And no, the world didn’t end.

One of the gay (and proud to be so) service members heavily profiled in the media today is stationed in New Jersey:

On Tuesday, as the 17-year-old “don’t ask, don’t tell” policy goes away, so does J.D. Smith, the name a 25-year-old Air Force officer assumed to shield his identity as he engaged in high-wire activism that could have crashed down on his career. Even if no one asks, Air Force First Lt. Joshua David Seefried is telling.

“It’s all about leading now,” Seefried told The Associated Press as he prepared to come out to his superiors, put a picture of his Air Force pilot boyfriend on his office desk and update his personal Facebook profile to reflect his sexual orientation. “Those are things I feel like I should do because I guess that is what a leader would do. If we all stay in the closet and don’t act brave, then the next generation won’t have any progress.”

At Joint Base McGuire-Dix-Lakehurst in New Jersey, Seefried works in finance, oversees a staff of 20 and is attached to the 87th Air Base Wing. Twice this year, he was set to deploy to the Middle East, and felt conflicted when his orders were canceled only because going overseas would have put J.D. Smith out of commission. A handful of friends at work know he is gay. Only one knows about OutServe, the underground network for gay military personnel he co-founded last year.

Re:Re: Monmouth Poll

Patrick Murray is not happy, nor should he be. The poll he conducted and subsequent press release has been near universally criticized for being false, misleading, and even biased. I would not imagine that brings joy to a pollster (or anyone for that matter). But what are his objections to the objections?

most of the criticism has come from people without expertise in the field of survey research. Some has, which I will treat more seriously.

To start, Murray’s piece is the first public or private defense I have seen of a poll that was released nearly three weeks ago. Let us also admit that polls are not beyond the understanding of the average person or non-experts in survey research – let alone the people quoted on Blue Jersey that publicly criticized the poll:

A Scholar, Bruce Baker, who is an expert in the field of survey research. A professor at Rutgers focusing on education policy generally with a particular interest in school finance.

A Policy Expert, Matthew Di Carlo, who is a senior fellow at Albert Shanker Institute in Washington D.C. where he focuses on education policy. Di Carlo has a PhD in sociology and is also an expert in the field of survey research.

A Practitioner, StoptheFreezeNJ, who is an actual teacher and therefore has perhaps the best perspective on what are fair and proper characterizations of the profession and its practices. It’s not theoretical, he lives it and understands the issues from first hand experience.  

Despite the different backgrounds all agree it was a bad poll and press release.

(But unfortunately there has to be more after the jump)

Trouble Across The River: “Occupy Wall Street” Protests Launched in NYC

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       (Hundreds gathered to protest on and near Wall Street on Saturday)

Today, unknown to many people including myself, was the launch of a three day long protest called “Occupy Wall Street” the event is apparently affiliated with the 99% movement whose core tenant is that the Top 1% of the wealthy in America have essentially rigged the economy for their benefit at the expense of the bottom 99% I want to also stress it is difficult to understand who or what is exactly behind this protest/movement because of the strategy known as “leaderless resistance.” The group Anonymous is also believed to be involved.

Julianne Pepitone, of CNN, has been one of the few reporters on the scene. From her story:

Hundreds of demonstrators took to the streets of Manhattan’s financial district on Saturday in a largely peaceful protest aimed at drawing attention to the role powerful financial interests played in wreaking havoc on America’s economy.

Modeled on the “Arab Spring” uprisings that swept through Egypt, Tunisia, Syria and other countries this year, Occupy Wall Street is a “leaderless resistance movement” orchestrated through Twitter, Facebook and other social media tools. The Twitter hashtag #OccupyWallStreet lit up Saturday with coordination messages and solidarity tweets.

One of the solidarity tweets caught my eye:

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            (Haledon Mayor Domenick Stampone tweets his support)

The protests have, so far, been peaceful though the police were deployed and closed off Wall Street.

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(Police protect Wall Street Assets)

The Christie-Bradford Shell Game

“I’m huggable and loveable.” Those were the words of For-Profit Education Lobbyist Governor Christie on Meet The Press. Those words sparked the beginning of a charm offensive that could only fool the Corporate Media (and even they seem a little skeptical about it.)

But why? Why not continue to be the rotten prick we’ve all grown to love/hate/question legally? Hasn’t Fox News proved there is a lucrative market for the Angry White Man routine?

   

(“Security! Hey get with the program I yell at you and then you leave!”)

Well apparently people didn’t like it. So Christie is trying to come off as someone who isn’t a rotten prick, mixed results so far.

But how can he even try such a move? Who is going to demean teachers to distract from Wall Street’s recession and the real problems we have if Christie is going to try to be loveable?

Enter Derrell Bradford. He can insult teachers too!

   

(more after the jump)

Assembly Democrats’ Statement Raises More Questions Than Answers

Yesterday former For-Profit Education Lobbyist Governor Christie got together with former President and COO of Edison Schools Incorporated Acting Commissioner Cerf to present the Education Transformation Task Force’s Initial Report – you can download it here.

The report is interesting in that it was exactly the kind of power grab some (people who write here) predicted and is not limited to “struggling” schools but creates a centralized system for all schools in New Jersey and the flow is pretty obvious – centralize, homogenize  and privatize. I have always been surprised how much disdain this Republican governor has for local control. Either way there are many forthcoming posts on this report.

John Amodeo’s Odd Campaign Strategy: Deny Things People Know Are True

In campaigns there is such a thing as spinning and such a thing, as well, dishonesty.

The first instance of this, as previously reported, was Assemblyman Amodeo saying his fellow Republican candidate for the legislature had never received a no-bid contract despite it being proven with smoking gun evidence. I truly can not understand that move, outright denying something that anyone (let alone a rival campaign) can get a record of being true.

But there was also another odd, demonstrably false, statement in the same radio interview.

     

John Amodeo: We’ve been told by the Governor there was an increase this year … people will see their homestead rebates increasing not only this year but again in the following year.

OK, I guess I understand hoping someone won’t do a public records search for professional services contracts but people know they didn’t get more money… because they didn’t get more money.



(more after the jump)

Monmouth Poll Recap: Going Forward

It has been almost three weeks since Monmouth University/NJ Press Media put out the poll on “Education Reform.” The response to the poll, particularly the use of the headline “New Jersey Supports Education Reforms: Public Likes Merit Pay,  Limited Tenure, Vouchers, Charter Schools.” in the press release has been decidedly negative from those in the education community who have seen it and those who study the issue. No one has even, to this moment, offered a detailed defense of the poll. The headline was an unfortunate way to frame the poll for two reasons:

1. It misleads policymakers and media that “education reform” has broad support.

2. The poll itself proved that headline to be false.

The Pension/Benefit Bill was not an “Achievement”

Governor Christie gave (soon to be ex?) Speaker Oliver a nice kiss of death yesterday:

Christie said he doesn’t understand why Oliver is upset with him and said her decision to post the reform bills for votes was “courageous.”

“I think it’s a great story about New Jersey, The Republicans and Democrats were willing to work together. The Republicans were willing to vote for a Democrat for speaker if she was challenged because they all agreed on the policy. Let’s remember what’s really important here – the policy achievement, and Republicans and Democrats were willing to work together to get that done,” Christie said.

This “achievement” meme has been pushed by all participants and their union busting allies in the media. But is it true?

No, not at all really. The pension system is still in deep deep trouble. Mostly due, not to pensioner greed, but to unrealistic return schemes that can’t survive a market downturn. Wait they don’t factor in another market downturn? Yes, another market downturn will crush the pension system that needs a constant rate of return to stay solvent.

But what about health benefits? Wasn’t eliminating collective bargaining a policy achievement that will save those benefits?

No, not really. The problem with healthcare costs is not public workers getting sick more or exhausting benefits, it’s a nationwide trend of rising health care costs. Forget did, CAN the state of New Jersey even legislate that? No. The law only restricts what New Jersey public workers can have covered not what healthcare costs in America. So instead of allowing a fluid collective bargaining process to respond to market conditions we have stagnant statutes – the “achievement” was simply screwing the workers.

In fact, even after this bill was passed New Jersey’s Credit Was Downgraded. What a policy achievement!

This is probably why the majority of the Democratic Party voted against the bill and why Sidekick Sweeney and Speaker Oliver needed Republican votes (maybe Republican guarantees of staying in power) to pass the bill.