Survey finds cities and counties would cut nearly 500,000 jobs without additional federal assistance

U.S. Cities, Counties are Poised to Cut 500,000 Jobs

July 27 (Bloomberg) -- U.S. local governments may cut almost 500,000 jobs through next year to cope with sliding property taxes, a decline in state and federal aid and added need for social services, according to a report released today.

The report, a result of a survey by the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties, showed local governments are moving to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. That suggests 481,000 employees will lose their jobs, according to the report, which said the tally may yet rise.

“Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” said the study, which was released in Washington today.

While a separate report by the National Conference of State Legislatures today said U.S. state revenue is recovering from the drop in tax collections caused by the 2007 recession and the slow pace of job growth since, the greatest blow to local governments will be felt from now through 2012, the local groups said.

They called on Congress to pass a bill that would provide $75 billion in the next two years to local governments and community-based groups to stoke job growth and forestall deeper cuts.

Such a move may face political obstacles. Governors have appealed to Congress to extend additional aid to cover the cost of providing health care under Medicaid, the state-run program for the poor. The proposal stalled in the Senate, where the Republican minority has raised concern about the size of the federal deficit.

Property Taxes

The local groups said their budgets are likely to be hit by a drop in property taxes, which trail changes in home values because of the way assessments are calculated. Although prices peaked in 2006, property taxes paid to state and local governments kept rising until the first three months of this year, according to annual totals compiled by the U.S. Census Bureau.

“Over the next two years, local tax bases will likely suffer from depressed property values, hard-hit household incomes and declining consumer spending,” the report said.

The need for state and local governments to balance their budgets has weighed on the economy, damping the recovery. Spending fell at an annual pace of 3.8 percent during the first three months of this year, the steepest drop since the onset of the recession, according to U.S. Commerce Department. By June, local governments had cut their payrolls to 14.4 million from 14.6 million, according to the U.S. Labor Department data adjusted to take account of seasonal variations.

Distressed Cities

The fiscal strains have pushed some local governments into distress. In 2008, Vallejo, California, filed for bankruptcy protection. Reading, Pennsylvania, last year sought refuge under the state’s program for distressed municipalities. This month, a state appointed receiver took over in Central Falls, Rhode Island, a cash-strapped town of 19,000.

Ron Loveridge, the mayor of Riverside, California, one of the areas worst affected by home foreclosures, said cities are struggling to meet the basic needs of their communities, such as running parks, libraries and fire departments.

“For local governments, unemployment and foreclosures resulting from the Great Recession translate into too few revenues making it increasingly difficult to fund or satisfactorily maintain many basic services,” Loveridge, who is also the president of the National League of Cities, said in a statement.

Wall Street Journal: Benefits for public employees are higher than private sector, but cuts may be coming

Public Employees Get More Benefits

July 28, 2010 Wall Street Journal

An annual scorecard on benefits shows that public employees continue to have richer benefits than their private-sector counterparts, but squeezed state and local budgets could push governments to start cutting back.

As of March, 88% of state and local government workers had access to employer-sponsored medical plans, compared with 71% of private-sector workers, according to a Labor Department report released Tuesday.

Governments also picked up a larger share of the health-care tab. Public employers paid 89% of the premiums for policies covering individual workers as of March, compared with 80% at private-sector companies.

The more generous benefits given to government workers are part of a larger trade-off, according to economists. Unable to match private-sector salaries for their most valued workers, governments instead offer more-attractive benefits packages.

"It's certainly the case that, for higher-skilled workers, the more generous provision of benefits, especially retirement benefits, is a compensation for lower pay," said Gary Burtless, an economist at the liberal-leaning Brookings Institution, a Washington think tank. "It also is a deterrent to your more senior and older workers from leaving."

Mr. Burtless said that as state and local budget strains continue, governments' relatively generous benefits packages could come under the knife. "Right now, a lot of states and localities are facing extremely severe long-term fiscal problems. One of the big sources…is this employee-benefits package," he said.

When it came to paying premiums for family policies, the government and private sector were more closely aligned: Businesses paid 70% of premiums, while governments paid 73%.

But government workers took advantage of health-care programs available to them more often than private-sector workers. While 83% of public employees tapped into employer medical plans, only 73% of private-sector workers did.

Meanwhile, nine out of 10 government employees had retirement plans available to them, compared with 65% of private-sector workers. And 95% of government workers participated in the provided retirement plans, while 76% in the private sector did .

Governments' richer benefits packages extend to low-wage workers much more often than in the private sector. In the public sector, 69% of workers who earned in the lowest quarter of wages were eligible for medical benefits, compared with just 38% in the private sector.

Low-wage government workers also benefited from employers picking up 89% of the tab for their individual policies, the same share as the highest-paid employees. Private-sector employers paid 77% of the premium for low-wage workers, less than the 82% they chipped in for their highest-paid workers.

Low-wage public-sector workers also had better access to retirement plans: 74% were eligible, compared with 40% in the private sector.

Schwarzenegger restores furloughs for state employees: three days per month

Schwarzenegger brings back furloughs for state workers

Sacramento Bee Jul. 29, 2010 | Page 1A

Furloughs are back.

Less a month after ending unpaid days off for more than 200,000 state workers, Gov. Arnold Schwarzenegger is bringing back a scaled-down version of the policy that will take effect on Sunday.

The governor made the decision this week after Controller John Chiang said that until lawmakers come up with a budget, he'll start issuing IOUs in August or September to conserve funds as long as possible. The state's cash could run out by October, the controller estimated.

"We have a fiscal crisis," Schwarzenegger spokesman Aaron McLear said Wednesday morning as he explained the new furlough order. "We're doing what we have to do to conserve cash."

Bruce Blanning, head of the 11,000-member Professional Engineers in California Government, said that the move is really designed to squeeze unions like his that haven't cut concessionary contract deals with the administration.

"It's more misguided pressure from the governor on those who won't agree with his program," Blanning said.

Like the furlough policy that ended June 30, the new plan laid out in Executive Order S-12-10 requires employees to take three unpaid days off per month. There's no termination date: Furloughs will end when lawmakers pass a 2010-11 budget. That could be weeks or months after the Legislature reconvenes next week.

About 156,000 employees are covered by the new program, reducing the state's monthly payroll costs by about $147.2 million per month, according to administration estimates. About $80 million of that is general-fund savings.

Roughly 73,000 employees are expressly excluded based on where they work or their unions' labor contract status.

Furlough-exempt employees include those at the Board of Equalization, the Franchise Tax Board, the Employment Development Department, State Compensation Insurance Fund, the California Housing Finance Authority and the California Earthquake Authority.

As with his last furlough order, Schwarzenegger exempted employees with the California Highway Patrol and the state Department of Forestry and Fire Protection.

The executive order doesn't explain the criteria for excluding those departments and agencies from furlough.

The order also excludes about 37,000 state workers in six unions, including those representing Highway Patrol officers and firefighters, that recently reached tentative labor agreements with the Schwarzenegger administration.

"We expect the Legislature to quickly ratify those contracts next week," McLear said.

The deals contain some concessions, including monthly furlough days – as many as 12 this fiscal year – and higher out-of-pocket employee pension contributions, that Schwarzenegger has made a condition of any labor agreement.

As part of the agreements, the administration promised that the Legislature will enact measures that will protect those workers from additional furloughs, minimum wage or both.

"We keep our promises to the unions," McLear said.

The 95,000-member SEIU Local 1000 and five other unions have been bargaining but haven't yet reached terms with the governor.

Managers and supervisors make up the remainder of the work force. Unless they work in an exempt department, they are subject to the furlough order.

Wednesday's order marks the third time that Schwarzenegger has unilaterally reduced state workers' hours and pay. In December 2008, with the state mired in a severe fiscal crisis, he directed that state workers take off two unpaid days per month.

Several state employee unions sued to block the order, but a Sacramento court in January 2009 agreed with Schwarzenegger that the crisis was an emergency that allowed the governor to mandate furloughs to address it. Twice-monthly furlough days started the next month for most of California's 235,000 or so state workers hired through the executive branch.

In June 2009, Schwarzenegger added a third furlough day each month for the 2009-10 fiscal year that started July 1, 2009, and ended June 30. The Legislature passed a budget that assumed the savings.

Although lawmakers failed to pass a budget last month, the governor ended furloughs as planned. Since then, the administration has tried – and so far failed – to hold state workers' pay to federal minimum wage during the budget impasse. All along, the administration has warned that every day the state goes without a budget would make furloughs or layoffs more likely.

Dino Gomez, a Department of General Services worker on cleanup duty Wednesday outside state office buildings, nevertheless wasn't buying the need for Schwarzenegger's order. "He should have stuck to acting," Gomez said.

Girard Miller: California city’s case of egregious pay and pension may offer lessons for reform

California's Latest Pay Plunder

Outrage over lavish salaries and pensions in Bell, California, could fire up reform in public compensation laws and practices.

July 26, 2010 Governing Magazine

There's nothing like a government salary scandal to get people worked up. Last week the Los Angeles Times reported a doozie. Bell, California-a tiny working class city near Los Angeles that has a population of 36,000 and a median income under $30,000 — had paid their city manager nearly $800,000 a year.

To add insult to injury, the now-resigned official will likely receive a lifetime pension in the range of $700,000 a year plus CPI increases. That translates into a $30 million golden handshake, according to one report. And it wasn't just the city manager: The city manager's assistant and the police chief were also overpaid. Even the part-time city council members in this hamlet collect $100,000 a year. Needless to say, there is talk of a recall election to oust the council. Voters are not just crabby — they are fuming.

To pour gasoline on the fire, the unrepentant former city manager was quoted as claiming that he "could have easily earned that kind of money in the private sector." Well, I've worked as a CEO and COO for national firms, and there is nobody in that world who gets a salary of $787,000 plus a $30 million retirement package for running an organization of 80 workers performing commonplace tasks — unless they founded a closely held firm that developed a patented, high-margin product with customers worldwide. American companies with shareholders simply don't pay salaries that high to the managers of local service enterprises performing ordinary, replicable functions.

Because the city participates in a pension pool with a hundred other small communities and subdivisions, the innocent taxpayers of those other municipalities may be stuck with the bills for part of these overpaid officials' outrageous lifetime pensions. So this problem is not confined to Bell's 2.5-square-mile territorial limits. The state's municipal league condemned the city's compensation practices. One prominent civic leader called the city salary arrangements and the mayor's posturing "nauseating."

Incidentally, this isn't the first such pay abuse in this region: the former Vernon, California city manager is smugly collecting a half-million dollar lifetime pension benefit that he parlayed through equivalent gamesmanship — even though he was indicted for embezzlement. There must be something potent in the water on that side of the metroplex.

To put this in perspective, the problem of excessive pay is hardly unique to local government. CEOs of bailed-out banks were lambasted last week by the federal pay czar. National nonprofit organizations underwent a decade of CEO pay scandals in the 1980s that forced significant tax-law reforms that awakened their boards of directors and changed their compensation practices for the better.

Demands for responsible reform. Already there are calls for new laws and reforms, although nobody has presented a concise solution for incidents like this. The League of California Cities is reportedly working on a legislative proposal to stop this kind of nonsense.

Amid the furor, however, there is a risk of overkill. This column will try to offer some balanced suggestions and discuss the issues and problems that will result from over-reacting and acting hastily. As with the BP incident in the Gulf, there are plenty of lessons to learn, but we need to act thoughtfully and not reactively.

Also, let me say that the vast majority of America's public officials and public employees are more likely to be underpaid, not overpaid. In thousands of communities across America, most public officials, public managers and millions of public servants earn every penny of salary they receive. We need to curb the extreme abuses and go no further. Otherwise our system will scare away everybody who's competent and dedicated to public service, and they will leave government work forever.

On the other hand, there might be an opportunity here to leverage the public outrage into viable long-term reforms. As Rahm Emanuel has said, "Never let a serious crisis go to waste." In that context, here are a few observations and suggestions for policy leaders to consider:

1. Sunshine is the best disinfectant. If anything proved the need to make public officials', union employees' and retirees' pay more visible to the public, this year's Bell incident and the now-notorious $100,000 CalPERS and county pension club revelations have succeeded. There should be no need to sue a pension fund to get that information. Fortunately the courts have agreed on that principle so far, but if we need to strengthen our freedom of information laws to assure public access without litigation, then so be it. I don't want to fuel petty witch hunts, but those in the public sector must know it's a goldfish bowl and accept that reality as the price of public service.

2. Full and fair disclosure. In the corporate world, the boards and top executives of public companies must disclose their total compensation in their public financial reports and shareholder proxy statements. Public managers who lust to play in the big leagues must be held to that same standard. Ironically, the Bell manager who bragged about fiscal stewardship and claims he belongs in the same league with the corporate execs didn't even post a public financial report on the city's website. Talk about duplicity and hypocrisy. Note that the federal financial reform laws now facilitate shareholder advisory votes on corporate executive compensation. Does anybody on that council really think the voters of Bell would have endorsed this guy's pay?

For the record, I truly don't think pay plebiscites are the answer. Management-by-lynch-mob would be the result. But good disclosure and an active media will curb abuses.

3. Pension caps and DC top-hats. We have to put a limit on public pensions, period. Illinois set a cap of $106,000 on pensions for new hires. In states where pensions of incumbents are protected constitutionally, that is the best we can do. But it's an approach to consider. Another remedy is to simply limit the amount of pay that can be used in the pension formula to a similar level in the low six figures. That, plus anti-spiking reforms, such as those embraced by gubernatorial candidate Jerry Brown, would curb both management and union abuses, for the benefit of all taxpayers. If employees deserve more for retirement, then employers should put it into a visible above-board defined-contribution plan so there are no hidden costs. This includes police and firefighters making six figures with overtime. If a city council wants to award its high-performing manager $25,000 or more in a good year for that year's retirement benefit, then so be it. But don't bury it in a fat pension that future taxpayers have to pay while it bypasses the current budget.

Transparent, disclosed supplemental retirement plans (called top-hat plans in the industry) must become more prevalent in state and local government. That would help avoid ridiculous pension annuities at levels that inflame the public, invite pension envy and induce nausea.

4. Public employment contract law. Not every state has the problems of California, so I don't recommend this nationwide. But the Golden State needs a law that forbids employment-related contracts awarding excessive compensation at all public agencies and municipalities. This approach would have faster impact than pension reforms which typically apply only to new hires. The law should provide for a claw-back of excessive compensation, plus interest and penalties. To avoid frivolous and spiteful litigation, there must be several protections: (1) the plaintiff(s) must file a bond [except prosecutors after satisfying a grand jury], (2) the loser must pay all costs including legal expenses, and (3) safe harbors should allow for reasonable publicly vetted compensation approved by a qualified independent committee or subcommittee of the governing board with independent validation — as performed in the corporate world and often in the highly compensated segment of the nonprofit sector.

To focus its scope and avoid overkill, this law should apply only to six-figure compensation, adjusted for inflation. It should apply to union contracts as well, so that taxpayers in cities like bankrupt Vallejo would have status to invalidate abusive union pay and pension deals.

Public-sector compensation should be evaluated against three market standards, which must all be satisfied. Public salaries in the six-figure bracket should not exceed:

• Prevailing local public-sector compensation for similar job titles

• Prevailing local (private-sector) labor market compensation for similar work, skills and services

• The "replacement cost" of similar personnel in the open market including the costs of training. Nobody in public service is irreplaceable, regardless of popularity or talent. So if a replacement city manager with viable experience could be recruited at far less cost, then compensation beyond the incumbent's replacement cost is potentially excessive, unless linked to objective performance-based accomplishments. Likewise, if six-figure firefighters can be replaced in the open labor market for 60 percent of the salaries paid those with seniority, something is awry.

If a public employer wishes to exceed these levels of salary compensation, the pay plan should require variable pay (bonuses or deferred compensation) based on personal performance against pre-established public goals, objectives and targets for accomplishment. Such individual performance incentives must be market-competitive and not cosmetic or "rigged." If unions want their workers to be paid "over the top," they must live with pay-for-performance and full public disclosure of prevailing pay rates as well. Variable awards for top management should be disclosed in public (the corporate model), and it would be generally reasonable to require full public disclosure of all others receiving such compensation in excess of 25 percent of base salary at the six-figure level. Remember, these would be only the folks who are known to be paid more than prevailing pay levels, so we're presumably dealing with outliers here.

A statute governing both management and union employees would protect the public's interest, especially if it includes clawback provisions (excessive compensation must be repaid to the employer). The law could require a special master to be appointed by the court when needed, so that technical factors are fairly evaluated. In the Bell case, such a clawback provision would now be worth millions of dollars to the local taxpayers who are sadly doomed to bear the burden of this scoundrel's pension costs for years to come. The risk of a clawback with penalties and costs would discourage abusers and sober up the decision process.

For public employers that pay within prevailing compensation rates, they are done once they complete their homework every contract renewal. For them, it's business-as-usual thereafter, under this due diligence system.

5. Professional ethical standards. The highly respected International City/County Management Association (ICMA) needs to review its ethical codes. The last thing their reputable professionals need is legislative overkill, relentless and overzealous investigative reporters, and further disincentive to work for the public — and that is where overkill for these notorious abuses will push the pendulum. But there must be a way for thoughtful professional associations to set peer standards for what constitutes fair pay. Better that they manage the process, than a lynch mob or a disingenuous legislature. After all, these are the people who say: "I Can Manage Anything."

ICMA (or its California state association) could carefully craft a guideline that requires "suitable professional" compensation above a prevailing salary level to take the form of performance bonuses, with limits on lifetime pensions, broader use of defined contribution plans for high-end retirement benefits, and full disclosure in the annual report to be published on the employer's Web site. Objective justification for compensation above prevailing levels should be documented by a professional, independent third party. That would meet the national corporate and non-profit "duty of care" and "duty of loyalty" standards that elected officials and chief administrators should respectively follow as guiding ethical principles.

The neighboring city managers promptly wrote a letter of outrage, but their reference to "do good and avoid evil" platitudes in their ICMA code of ethics informs us all that they need to put more substance into the warm-and-fuzzy guidance that has obviously flunked the test of reality in parts of southern California.

6. Labor arbitration laws must also be reformed as described in my prior column. What's good for the managerial goose must be equally good for the union ganders. The standards suggested in section #4 above would help stop pay abuses in those proceedings as well.

I realize that some of these ideas could spawn a cottage industry for compensation consultants. But my informed judgment is that the net cost to taxpayers will be less as a result — especially if these measures are thoughtfully implemented and required primarily in extremis. And for the record, I have no interest in taking on work in that field!

Mayor Bloomberg will challenge “no-proof” disability benefits for NYC workers

Mayor Bloomberg to fight no-proof disability pensions for cops, firefighters and other city workers

New York Daily News July 29, 2010

Mayor Bloomberg declared war on a cherished benefit for cops and firefighters: line-of-duty injury awards for some illnesses without proof they happened on the job.

"We cannot afford to automatically assume that anybody who is sick was made sick by their government service," he said at a budget meeting Wednesday.

"And if it wasn't made sick by their government service, it's not the government's responsibility."

Cops, firefighters and many other city workers get the so-called "presumption" for heart conditions, and firefighters also get it for lung conditions and some cancers.

Disabled workers retire with tax-free pensions worth three-quarters of their salary - instead of half their salary, taxable.

Union leaders are outraged the mayor wants all injured retirees to prove they were hurt on the job, after a career spent risking their lives for the city.

"Some injuries are visible to the naked eye, but some injuries are only visible inside a CT scan," said Al Hagan, president of the Uniformed Fire Officers Association.

"We have a lung bill, and you can well imagine that firemen end up with bad lungs," said Hagan, a 35-year veteran. "I never had a cigarette in my life, and I cough like a TB victim."

Unions have relied on sympathetic lawmakers in Albany to pass the presumption bills, usually over the city's objections.

Benefits for existing workers can't be reduced under the law, but Bloomberg is seeking a wave of pension changes for new city employees.

"The dangers and stress faced by police officers are unrelenting and will not diminish for future police officers," said Patrick Lynch, president of the Patrolmen's Benevolent Association. "These laws exist to care for those who face these dangers without question."

Missouri legislators’ different treatment of their pensions may foreshadow broader scrutiny of legislative pensions across the country

Pension overhaul treats lawmakers, other state workers differently

By John Gramlich, Stateline July 29, 2010

When Missouri passed major pension reform legislation last week, lawmakers called it a difficult but necessary step for a state that — like many others — can no longer afford to provide the same level of retirement benefits that it has given to its state workers for years.

Under the legislation, new employees will be required to contribute to their pension plans for the first time, starting in January. They will need to work twice as long until they become vested and can access those savings. And the standard retirement age will rise from 62 to 67 — the highest in the nation, along with Illinois. The plan is expected to save the state $660 million over the next decade.

Controversy surrounded many aspects of the overhaul, which lawmakers just barely passed in a special session. One of the more explosive elements was the fact that the new benefit rules are different — and more favorable — for Missouri’s elected officials. Members of the General Assembly will be able to retire at 62, not 67, and they’ll be eligible for a pension after six years of service, rather than 10. Statewide elected officials, such as the governor and attorney general, can qualify for a pension after four years in office.

“I want to know,” state Representative Stephen Webber thundered during a floor debate on the bill, “why the members of this body find ourselves so worthy that we should get to retire five years before regular state employees, and with four less years of service.”

The provision in question, Webber said in a telephone interview with Stateline after the bill became law, “had nothing to do with the fiscal stability of the state or modernizing the pension system. It had everything to do with politicians cutting themselves a break.”

Missouri is not the only state that provides better pension terms for its elected officials than it does for other state workers. And there are some reasons why legislators might expect to get a different arrangement than other state workers. Term limits, for example, as well as the need to win elections, reduce lawmakers’ job security and, thus, their ability to work long enough to qualify for pensions. Missouri limits its legislators to eight years in each chamber of the General Assembly, making a 20-year legislative career impossible.

But the debate in Missouri serves as a reminder of just how sensitive pension changes can be — particularly when one group of public servants is seen as getting a much better deal than others. When the lucky group is made up of the politicians who write the rules, Webber says, “it shakes people’s faith that elected officials are looking out for the people and not for themselves.”

Spotlight on lawmakers, too

Missouri’s experience may foreshadow similar lines of criticism as pension reform gains momentum nationally, particularly in places where state workers and retirees are asked to give more and receive less than they were promised.

This year alone, with the specter of unfunded pension obligations on the horizon, 16 states have reduced benefits for employees or increased their contributions, according to the National Conference of State Legislatures. Some states, including Colorado, Minnesota and Wyoming, are taking aim at the benefits of current workers, rather than limiting changes to future ones, as Missouri did. And New Jersey’s state treasurer raised eyebrows this week when he refused to rule out the possibility that even current retirees will see their pension checks slashed or their health premiums go up as the state struggles with an enormous pension shortfall.

Many good-government groups, labor unions and others believe that the flurry of recent pension downsizing for state workers — and the likelihood of further reductions next year and beyond — should invite more scrutiny of the benefits received by the lawmakers who write the rules.

“The more you try to eliminate the benefits of the rank-and-file,” says Pete Sepp of the National Taxpayers Union, a Washington, D.C.-based advocacy group that pushes for lower taxes, “the less you can justify keeping your own package of perks intact.”

Pennsylvania is a notable example. Members of the General Assembly — which is still battling an image problem after lawmakers voted in the middle of the night to give themselves a pay raise in 2005 — can retire earlier and receive a higher rate of return on their pension plans than other state employees, thanks to changes lawmakers made years ago.

Tim Potts, executive director of a government reform group called Democracy Rising PA, believes changes are long overdue, and he notes that the House of Representatives has passed a bill that would provide more parity. But he isn’t holding his breath that the Senate will approve the legislation. “Everybody’s skeptical,” he says.

In Illinois, like Pennsylvania, the terms for current legislators are more favorable than for other state employees, leading critics to call for a change. The state did pass a major reform package this year that addresses some of those concerns, including raising the retirement age to 67 for lawmakers along with other employees. But lawmakers and judges still will be able to qualify for a pension sooner than other workers.

In Maryland, one of many states with a part-time legislature, lawmakers have fended off criticisms about the fact that they are entitled to a full-time pension while only being in session three months a year.

Not the first backlash

State legislators’ pensions are a common focus of scrutiny.

Louisiana voters passed a constitutional amendment in 1996 to ban pensions for newly elected legislators. In California — which has the nation’s highest-paid legislators — voters abolished pensions for lawmakers first elected after 1990. The change was part of Proposition 140, which created term limits and, on the whole, “was designed to make life a little less cushy for career politicians,” according Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, a group that favors limited government and supports the proposition’s changes.

Seven other states — Alabama, Nebraska, New Hampshire, North Dakota, South Dakota, Vermont and Wyoming — do not give pensions to lawmakers, according to a 2009 survey by NCSL, which also found a broad variation in pension terms given to legislators around the country.

In more recent years, anger over legislative and other government pensions have been aimed at specific practices that are seen as abuses of taxpayer dollars. Lawmakers in New Mexico, for example, this year passed legislation that sought to prevent “double dipping,” the practice of current government employees simultaneously collecting a paycheck and a pension payment for earlier service. Other states have clamped down on “spiking,” the practice of employees working overtime or otherwise increasing their pay in their last years of employment in order to maximize the salaries on which their pensions are based.

Shared sacrifices

What is driving reform this time around isn’t one particular practice of pension padding or high-profile example of abuse, but a recession that has laid bare the huge, unfunded obligations faced by state governments — and, by extension, the taxpayers.

State workers stand to lose the most from this fiscal shortage, as benefit reductions and higher employee contributions become the norm. For many critics of the recent Missouri pension bill, that’s the biggest problem: Lawmakers are asking state workers to make substantial sacrifices, while refusing to make those same concessions themselves.

Missouri state Representative Gina Walsh, for example, notes that new Missouri state workers will be asked to contribute 4 percent of their salaries toward pensions. “The 4 percent doesn’t seem like a lot, but if you only make $28,000 a year, it’s a lot of money,” she says, noting that Missouri state employees are among the lowest-paid in the nation.

That’s why it troubles Walsh that Missouri legislators didn’t accept the same terms for themselves when it comes to their pensions — notably, the length of time they need to work before they can qualify for one. “If we’re going to make state employees extend their vesting periods,” she says, “then we should do the same.”

Investment returns for year ended June 30, 2010: Louisiana SERS: 16.1%; MASS PRIM: 12.8%; Rhode Island ERS: 13.5%

PENSION RESERVES INVESTMENT MANAGEMENT BOARD ANNOUNCES A 12.82% RETURN FOR 2010 FISCAL YEAR

BOSTON, July 28, 2010 - The Pension Reserves Investment Management (PRIM) Board announced today that the PRIT fund grew by $3.6 billion in the 2010 fiscal year, a return of 12.82%.

"As chairman of the PRIM Board, I remain focused on the long-term investment performance of the fund," said Treasurer Timothy P. Cahill. "These results demonstrate that our disciplined approach continues to serve our beneficiaries and taxpayers well."

The fund's return of 12.82% exceeded PRIT's interim policy benchmark of 9.77% for the 2010 fiscal year, which ended June 30. The fund exceeded its policy benchmark by 305 basis points due to strong performance in value added fixed income, up 32.75%, private equity, up 17.84%, global equity, up 14.28%, core fixed income, up 11.74% and hedge funds up, 7.13%.

The PRIT fund stands today at $41.3 billion. PRIT Fund assets would have grown even higher this fiscal year, to $42.8 billion, if assets did not have to be taken out to pay for benefits. Over the long term, since fiscal year 2003, the fund would have grown to $47.5 billion today if assets had not been taken out for benefits.

Since January 2003, the fund has grown from $25.9 billion to $41.3 billion, a cumulative return of nearly 60% and an annualized return of 7.66% per year compared to a return of 4.15% for the S&P 500.

"The PRIT Fund's fiscal year 2010 performance was outstanding on both an absolute and relative basis," said Karen Gershman, Interim Executive Director of the PRIM Board. "More importantly, long-term, our annualized return since inception through June 30, 2010 was 9.36%, which exceeds our most important benchmark, the 8.25% return assumption set by statute."

The PRIT Fund represents the retirement assets of over 300,000 state employees and teachers and over 90 public retirement systems and municipalities within the Commonwealth of Massachusetts.

Tuesday, July 27, 2010

LASERS Announces Strong Investment Returns

Baton Rouge‐ The Louisiana State Employees’ Retirement System (LASERS) today reported a 16.1 percent return for the fiscal year ending June 30, 2010. This brings the total asset value for LASERS to approximately $7.68 billion.

“Multiple asset classes performed well during the last year.” LASERS Chief Investment Officer Bobby Beale said, “Total equities were positive 15.7 percent, total fixed income including global fixed income was positive 20.7 percent and total alternatives were positive at 12.1 percent.” The system oversees its own investments, and has highly credentialed staff to internally manage over 25 percent of its portfolio. LASERS 25-year compounded actuarial return of 8.41 percent exceeds the expected return of 8.25 percent.

“LASERS is pleased with the good returns, but also realizes the importance of assessing the market environment, and making any changes necessary.” said LASERS Executive Director Cindy Rougeou. “The importance of a strong in‐house investment team, and its ability to meet the unique needs of our members cannot be overstated.”

Caprio: Rhode Island Outperforms Nation's Largest Pension Fund

July 19, 2010

State's return of 13.46% once again beats the California Public Employees' Retirement System (Calpers) gain of 11.4%

General Treasurer Frank T. Caprio announced today that the Rhode Island State Employees' Pension Fund has once again outperformed the nation's largest public pension plan, the California Public Employees' Retirement System (Calpers).

"Over the past fiscal year the State of Rhode Island's Public Pension Fund has delivered a return of 13.46%," said Treasurer Caprio. "Over the same time period, Calpers has announced a return of 11.4%. That's a margin of more than 200 basis points in our favor," Caprio said.

According to the latest figures released by State Street Investments, over the past year Rhode Island's investment performance ranks in the top 21% of State Street's data base of public pension funds in excess of $1 billion. Over a 3-year time frame, Rhode Island is ranked in the top 17% of large public pension funds and when the performance is stretched out to 5 years, Rhode Island ranks in the top 22%.

"These have certainly been challenging economic times for all public pension funds," said Treasurer Caprio. "Due to the strong fiscal practices of the State Investment Commission (SIC) and the Office of the General Treasurer, Rhode Island has not only weathered the storm, but we have consistently beat our benchmark and outperformed many of the top pension systems in the country," Caprio said.

Pensions & Investments: Public pension funds are pursuing lower manager fees

Public plans cutting money management fees

Pensions & Investments July 26, 2010

U.S. public pension fund officials are increasingly asking their external investment managers for fee concessions as part of an effort to cut operating costs.

Some of the concessions are taking place behind the scenes, as in the case of the $74.4 billion Washington State Investment Board. Others are coming as the result of public audits, such as that of the $68.7.billion North Carolina Retirement Systems, that found some manager fees were higher than the norm.

The most visible fee reduction efforts are those of the nation's two largest public pension systems, the $204.4 billion California Public Employees' Retirement System and the $129.7 billion California State Teacher's Retirement System.

CalPERS officials said they have saved $99 million in fees in the past six months across asset classes as the result of fee reductions. The largest cuts, totaling $56 million, were made by 10 hedge fund managers, said CalPERS Chief Investment Officer Joseph Dear.

“We have reduced the number of our hedge fund relationships but have obtained better fees on commitments,” said Mr. Dear in an e-mail response to questions.

The remaining cuts came from 11 global equity managers, 17 private equity managers, two fixed-income managers and 13 real estate managers, said CalPERS spokesman Clark McKinley.

Mr. McKinley said that in the next few months, Sacramento-based CalPERS will be looking for additional fee cuts from other real estate and private equity managers.

At West Sacramento-based CalSTRS, officials said they have been reaching a high level of success as they push for an average 15% across-the-board cut for all external investment managers. CalSTRS spends $140 million annually on money management fees, its biggest administrative expense.

Part of the reason for the success might be that CalSTRS officials aren't taking no for an answer.

“Our approach is that we will achieve lower fees one way or another,” said Trish Taniguchi, director of global equities.

“One manager said, "We don't negotiate fees,' so we reduced our investment with them by 30(%) to 40%,” she said.

Ms. Taniguchi would not identify the manager. But she said the manager, whose fee is tied to the amount managed for CalSTRS, is now receiving a fee that is lower than it would have received had it agreed to the initial reduction request.

Other investment managers have appeared to see the light.

Ms. Taniguchi said CalSTRS officials have reached some degree of agreement on fee reductions with 18 of 30 global equity managers since the fee-cut program began a year ago. Negotiations continue with the remaining 12 managers, she said.

CalSTRS has solicited input from the managers as to how the fee reductions should take place, she said. Some managers have proposed, and CalSTRS has agreed to, a performance incentive system that pays minimum fees in years of poor performance and increased compensation in years in which portfolios outperform their benchmark.

CIO Christopher Ailman told the CalSTRS board at its monthly meeting on July 9 that significant fee reductions were being achieved across asset classes. As of last week, a detailed summary of the cuts was not yet available.

But reductions achieved in global equity manager fees will be significant because it is CalSTRS' largest asset class. Global equities comprise $67.5 billion, or more than 50%, of the system's total assets, according to financial statements.

While CalSTRS and CalPERS officials have discussed cost reductions openly at public board meetings, officials at other funds have not.

“We have had some concessions, some fee reductions,” said Theresa Whitmarsh, executive director of the Washington State Investment Board, Olympia.

But Ms. Whitmarsh would not go into detail, saying the investment board has a policy of not publicly discussing the issue.

Indeed, approaching investment managers to renegotiate an existing contract is a delicate matter, especially as plan executives try to keep winning managers in their stable.

Short-term response

The CIO of one major state plan, who asked not to be identified because he has yet to discuss the matter with his board, said he is working on a short-term solution to the fee issue asking its external money managers to agree to temporary cuts lasting at least a year.

In North Carolina, fee reductions began after State Treasurer Janet Cowell hired consultant Ennis Knupp & Associates Inc. to do a full fiduciary review of the Raleigh-based systems.

The result, announced on June 17, found 36 of 41 public equity managers charged fees that were significantly lower than average fees for comparable managers. But six strategies overseen by five managers ranked above the median in terms of competitive fees.

Ms. Cowell said in an interview that North Carolina officials were able to negotiate fee reductions totaling $2.4 million with the five managers: Numeric Investors LLC; Longview Partners LP; Relational Investors LLC; TimesSquare Capital Management LLC; and Turner Investment Partners Inc.

The biggest cost savings came from Relational Investors. Relational will keep its 1.5% management fee on the first $300 million it manages for North Carolina, but will reduce the fee to 1% for anything above $300 million. Relational will still be eligible to earn a 20% incentive fee for amounts earned over the benchmark, but it now will have to outperform that benchmark for three consecutive years to get its full fee.

The North Carolina retirement plans have $574.6 million invested with Relational, and the cost savings estimated by the treasurer's office amounted to $1.2 million.

Ms. Cowell said that as pension plans have struggled following the global economic meltdown, there has been more interest in plan expenses and what can be done to reduce them. “People are asking a lot of questions about fees,” she said.

Common practice

Ralph Whitworth, founder and principal of Relational Investors, said it has become common during the past year for pension officials to seek reductions.

He said Relational has applied fee reductions given to North Carolina and CalPERS to other clients with similar-size mandates because of “favored nation” clauses in their contracts. Those provisions require Relational to match fees given to one client to others with similar investments. Mr. Whitworth declined to say how many clients have been given fee breaks.

He also said the company's fees were below average when compared with similar managers — those specializing in buying stock in companies with good corporate governance practices.

But Mr. Whitworth said Relational has agreed to fee cuts in an effort to be a good investment partner. “There have been major changes in our industry, market conditions have changed,” he said. “These are valuable relationships. We want to share in the efforts to lower costs.”

Officials at Turner Investments declined to comment. Officials at Numeric, Longview and TimesSquare did not return phone calls.

There still is plenty of debate over whether fee cuts should occur. For example, George Hopkins, director of the $10.2 billion Arkansas Teacher Retirement System, Little Rock, said he doesn't believe fund officials have the right to change existing contracts.

Mr. Hopkins said officials at his fund are thinking more strategically when it comes to new mandates and fees. He said managers often will reduce fees for larger mandates, so the pension system now assesses whether going with fewer managers for a particular asset class is the better route.

David Holmes, partner at Eager, Davis & Holmes LLC, a consultant to money managers in Louisville, Ky., said managers have been a lot more willing to cut fees for existing clients because new mandates have been hard to come by in the past several years. “When demand is down, there is more of a proclivity for investment managers to be a bit soft on fees,” he said.

But Mr. Holmes believes the window for fee speculation will be shrinking in coming months as more pension funds launch more manager searches. “Demand is picking up,” he said. However, he says, the largest pension plans still will be able to have the most leverage at getting discounted fees because their mandates are larger.

Ultimately, Mr. Holmes said, managers with the best results will be able to earn the best fees. “Investors are willing to pay more for good investment performance,” he said.

Hedge fund manager with public pension clients pleads guilty to fraud

Hedge fund manager pleads guilty to fraud

Thursday, July 29, 2010 Bloomberg News

Hedge fund manager Paul Greenwood, the general partner of WG Trading Co., plead guilty to six charges including conspiracy and securities fraud and is cooperating with the United States against his co-defendant, Steven Walsh.

Mr. Greenwood and Mr. Walsh, his fellow manager of WG Trading and WG Investors, were indicted last July on charges that they conspired to defraud investors of $554 million, including the University of Pittsburgh and Carnegie Mellon University. The United States said the pair schemed to defraud investors from 1996 until their arrest in February 2009.

Ken Walters, a CMU spokesman, had no comment on the criminal proceedings but said "We continue to work aggressively to pursue recovery of our investment." CMU is seeking the return of $49 million in investments. Pitt claims it invested more than $65 million. Pitt had no comment.

A prosecutor said Wednesday that Mr. Greenwood would testify against Mr. Walsh at trial. Mr. Greenwood said Wednesday he entered into the conspiracy with Mr. Walsh and that the two claimed to investors they had an "index arbitrage fund" which promised institutional investors high returns. Mr. Greenwood said he and Mr. Walsh took out funds for their own personal use, which a federal prosecutor said cost investors between $800 million and $900 million.

"You treated these investments as your own personal bank accounts?" U.S. District Judge Miriam Cedarbaum in Manhattan asked Mr. Greenwood Wednesday during his plea.

"Correct," said Mr. Greenwood, who said that the defendants often paid out investors money if they sought a redemption, using funds from other investors.

"So this was a Ponzi scheme?" Judge Cedarbaum asked.

"Sort of," said Mr. Greenwood, who told the judge that he took out "in excess of $75 million," spending the money on "a house, a horse farm and antiques."

Assistant Manhattan U.S. Attorney John O'Donnell said in court that Mr. Greenwood was cooperating with the United States and would be a witness against Mr. Walsh. No trial date has been set.

Judge Cedarbaum said Mr. Greenwood could face as long as 85 years in prison and millions of dollars in fines. She set a Dec. 1 sentencing date.

Mr. Walsh has pleaded not guilty to the charges.

The men were first arrested in February 2009, accused with using the company as a "personal piggy bank" to buy homes, cars, horses and collectible Steiff teddy bears. The U.S. Securities and Exchange Commission sued the men, and described WG Trading Investors as an unregistered investment vehicle.

The criminal and civil complaints offered details on the lifestyles of two men long known for their wealth. They were minority owners of the New York Islanders professional hockey team in the 1990s. In 1984, Mr. Greenwood bought Old Salem Farm, a 54-acre riding school and horse farm, from the late actor Paul Newman and his actress wife, Joanne Woodward. Mr. Greenwood later sold the farm.

Mr. Greenwood and Mr. Walsh were accused of defrauding "large institutional investors, including several public pension funds and educational institutions and endowments," the SEC said in its 2009 civil complaint.

The Commodities Futures Trading Commission also sued Mr. Greenwood and Mr. Walsh, saying they misappropriated $553 million of $1.3 billion in funds from commodity pool investors.

Former retirement system employee sentenced to prison for attempt to rig bid of investment manager

Bountiful ex-retirement worker sent to prison for secret deal

Deseret News July 21, 2010

SALT LAKE CITY — A former Utah Retirement Systems employee will go to prison for arranging an under-the-table deal to ensure an investment firm would be contracted to manage state retirement funds.

Cameron H. Cox, 28, of Bountiful, pleaded guilty to one count of wire fraud in connection with the scheme. U.S. District Judge Dale Kimball sentenced him Tuesday to one year in a federal penitentiary followed by 36 months of supervised probation.

Cox was an investment analyst in 2009 during negotiations with a London-based hedge fund looking to manage about $50 million of the URS portfolio. During the talks, Cox secretly set up a side deal in which he would get $150,000 for making sure an agreement would be approved.

A London investment manager notified URS about the proposition and federal authorities were called. Hedge fund officials cooperated with an FBI sting operation in which Cox was arrested.

Authorities say Cox acted alone and no state retirement funds were in jeopardy.

"For a public employee to attempt to negotiate this type of secret deal for personal gain is not only a violation of federal law, it's a violation of the public's trust," said James McTighe, special agent in charge of the FBI in Salt Lake City.

TRS of Texas appoints firm to search for replacement for Ronnie Jung

Teacher Retirement System of Texas

June 17, 2010 from the TRS website

The TRS Board of Trustees today voted to hire Korn/Ferry International to assist in the search for qualified executive director candidates for the Teacher Retirement System of Texas. The process is expected to be complete by the end of this year. The new executive director would replace TRS Executive Director Ronnie Jung who recently announced his planned departure from TRS, effective July 1, 2011.