Double, double toil and trouble
Fire burn, and cauldron bubble. ~Shakespeare's MacBeth
NY Comptroller, DiNapoli said, "Unlike New Jersey, we don’t ignore our pension fund obligations. While New York still faces significant fiscal challenges, our management of the pension fund has left us in a much better position than other states that have continuously neglected their pension fund obligations."
The Good News: "Moody’s found that the states with the biggest total indebtedness included Connecticut, Hawaii, Illinois, Kentucky, Massachusetts, Mississippi, New Jersey and Rhode Island." "Other big states that have had trouble balancing their budgets lately, like New York and California, tended to fare better in the new rankings. That is because Moody’s counted only the unfunded portion of states’ pension obligations. New York and California have tended to put more money into their state pension funds over the years, so they have somewhat smaller shortfalls."
Now, the but: "Pensions were considered “soft debt” and were considered separately from the bonds, using a different method. 'A more standard analysis would view both of these as liabilities that need to be paid and put stress on your operating budgets,' said Robert Kurtter, managing director for public finance at Moody’s."
Now, more buts and oh, gee: "Moody’s is using the pension values reported by the states. The shortfalls reported by the states greatly understate the scale of the problem... The government method allows public pension funds to credit themselves for the investment income, and the contributions, that they expect to receive in the future. It has come under intense criticism since 2008 because the expected investment returns have not materialized."
Now, from this blog in November 2010:
From Ponzi to Madoff to Hevesi to DiNapoli; New York Learns Anew About Bond Losses And A Phony Safe 7.5% Pension Return
Madoff had promised safe returns of 10% before the economic recession began.The SEC warns in its Ponzi Schemes – Frequently Asked Questions that Ponzi schemes share common characteristics:
High investment returns with little or no risk
Overly consistent returns.
Link for Comptroller Di Napoli will reduce his hope to earn 8% percent a year to 7.5%. Except for Madoff, who guarantees a 7.5 percent safe rate of return? Or 7 percent? Or 6 percent? No junk bonds allowed. NY's real rate of return was less than 4% for ten years.
Even worse, NY's return for past 5 years was 01.1%. Link.
Now more wild accounting: Comptroller Thomas DiNapoli proposes for the state government and local governments a pension “amortization” (i.e., borrowing) plan where the 7.5% rate won’t necessarily affect annual pension fund contributions, because they can borrow their higher payments from the pension fund. Only the Government could imagine being able to use your credit card to charge your credit card payment.
And it gets better, "after a decade in which the New York State pension fund’s annual return on assets averaged less than half its [8%]target rate, the fund will need to jack up its taxpayer-funded contribution rates next year, Comptroller Thomas DiNapoli announced today."
That's you, the taxpayer, paying a 42% rise in your share (11.5% to 16.3%)
Now what do you think Moody's reevaluation of NY debt will be when real world accounting is used?
Thank to Bernie Madoff for the recipes to cook the books.
Thanks for showing us how garbage budget data in means garbage budget data out.
C.C. Moody's, Fitch's, Standard & Poors
