Dan McGowan, of WPRI, emailed to point out that he wrote about the subject of my earlier post back in May. The article does prove that at least one mainstream journalist has brought the topic up, but the content illustrates much of my point. Consider this from McGowan’s article:
[Kathleen Riley, a senior vice president and actuary for Segal Consulting,] told the committee the change in calculation “in many ways is not too meaningful,” but explained that is why the city’s unfunded pension liability grew from $831.5 million at the end of the 2013 fiscal year to $894.3 million in 2014.
“Historically very little attention was paid to funded ratio so it didn’t really matter how you reflected that contribution receivable,” Riley said. “But we think this is a cleaner approach to presenting your numbers, [and] a more accurate reflection of your assets in your fund and your funded ratio on the valuation date.”
What is this but a rolling scandal for which no politicians are ever held accountable? Nobody used to care whether the pensions were funded, so the accounting didn’t really matter? That’s scandalous. Then, when people started to pay attention, it benefited the city to lag its contribution to the pension fund (which looks like about 25% of its declared assets) by a full calendar quarter.
If somebody were really relying on that money (rather than just expecting taxpayers to come up with any shortfalls when bill comes due), that would make a difference. Somebody looking at an audit at the end of June would expect that $63 million to be in the account gathering investment returns for three months. Using the city’s (absurdly high) projected return on investments of 8.25%, that’s around $1.3 million lost to the pension fund for the year.
If the city does this every year, by the end of a decade, it would be short around $20 million. At the 30-year horizon often used for pension calculations, it would be out over $150 million. (This all ignores the possibility that doing this accounting helps the city avoid thresholds like a designation of “critical.”)
But it’s complicated, and it’s all just numbers on a page until the city has to take more money away from some resident in order to give it to some retiree.
I should note, by the way, that this is more an attack on our general assumptions about government than on journalists. If you look at the note at the end of this April 2012 post of mine, you’ll see that WPRI’s Ted Nesi and I were discussing Providence’s delayed payments back then. Those of us who write about these things can’t be expected to trace every curious detail, or to know off the tops of our heads what normal practice is. Back then, I was concentrating on explaining how the entirety of pension accounting is a scam.
Today, I’m mostly pointing out how pension accounting illustrates the flaws in our civic system, which I’d suggest should advise us to severely limit the activities of government.