Why is the media treating CalPERS with kid gloves?

Robert Fellner Blog

Yves Smith of the Naked Capitalism blog has presented irrefutable evidence that CalPERS CEO Marcie Frost submitted false information to the pension fund when applying for the job she now holds.

For example, despite only taking writing courses at Evergreen College for two semesters in 2010, Ms. Frost claimed (up through at least the end of 2016) to be actively enrolled in a dual degree program — a program which simply never existed, according to the college.

This is very similar to what happened with CalPERS CFO Charles Asubonten, who was recently fired for severely misrepresenting his work and earnings history.

When those reports first surfaced, CalPERS dismissed them as nothing more than as an attempted “character assassination,” according to the Los Angeles Times.

But when CalPERS own investigators confirmed what Yves had reported, the fund elected to terminate Asubonten’s employment. The fund never publicly explained its dramatic turnaround from blindly defending Asubonten, to moving to fire him.

Likewise, when Bloomberg asked CalPERS about the gross falsehoods and misrepresentations on Marcie Frost’s job application materials, CalPERS Board President Priya Mathur and Vice President Rob Feckner issued a statement declaring that:

The board’s confidence in Marcie Frost and her leadership is unwavering. These continued efforts to tear down Calpers and discredit Marcie and the broader leadership team at the system are nothing more than a spiteful attempt to attack retirees, beneficiaries and the promised benefits of public employees.

This actually reminds me of the culture I’ve observed at some small homeowners associations, where the board is comprised of people who don’t have a solid understanding of the issues they assumed responsibility for, and thus are reflexively and comically defensive when faced with any sort of criticism.

Mathur and Feckner’s claim that reporting on Ms. Frost’s misrepresentations is “a spiteful attempt to attack retirees” is obviously asinine and idiotic.

But their continued willingness to blindly defend those with a documented pattern of misrepresentation — the facts of which they don’t dispute! — suggests that the board’s primary factor in evaluating the fitness of an employee, or chief executive in this case, is their personal relationship with that person.

The relatively sparse coverage over this scandal is also a good example of how the media tends to be much more deferential to government agencies than private actors.

Imagine that California decided to outsource the role of CalPERS to a private business, say Koch Investments, just for the sake of argument.

This private firm is now managing nearly $400 billion in public monies to provide for the secure retirement of California’s nearly 1.9 million public workers and retirees.

Reports then surface that its CEO made demonstrably false statements in the job application process, before ultimately obtaining the position as head of the fund and the nearly $500,000 taxpayer-funded pay package that comes with it.

The media coverage would be relentless — and rightfully so.

Also, I can’t imagine any private firm being as arrogant and dismissive in response to these allegations as CalPERS has been. Remember, there is no dispute that the representations made by Ms. Frost to the recruiting firm were blatantly false, as discussed above.

Even if the owners of the private firm didn’t care about their CEO’s misrepresentations and were just as arrogant and dismissive as Mathur and Feckner are, their public response would at least pay lip service to the idea that it was a problem, with some PR statement about how they want to ensure all of their staff acts with the utmost integrity…etc.

CalPERS instead attacks the messenger and the intelligence of the public at large with its tried-and-true “those who report on serious ethical issues of our top executives are ATTACKING RETIREES!” nonsense.

That willingness to be so publically dismissive stems from the very different incentives facing public and private institutions. Namely, CalPERS knows it’s immune from accountability, as those tax dollars ain’t going anywhere.

While a private firm would fear losing their customers/contract, possible legal actions stemming from fiduciary violations, etc, CalPERS just needs to avoid a public outcry — which makes the media’s silence on this issue all the more troubling.

Ignoring risk hides pension costs from policymakers

Robert Fellner Blog , ,

A new rule currently being considered by the Actuarial Standards Board would finally require public pensions to meaningfully account for risk. In a commentary for the Voice of San Diego, I explain how this would benefit all stakeholders.

Future Taxpayers and Public Employees Are Paying for Past Pension Mistakes

As San Diego County sues its own pension fund for the right to slash benefits for new hires, and while taxpayer costs continue their ascent to record-high levels, understanding the true cause of the county’s pension crisis is more important than ever.

While some blame the stock market crash of 2008-09, the real culprit was an explosive growth in the size of promised pension benefits, and the flawed accounting practices that encouraged such recklessness.

Over the past 30 years, the accrued liabilities of the San Diego County pension fund, SDCERA, increased by nearly 1,300 percent — almost four times more than the growth in the county’s total personal income over that same time period.

The willingness to make such large pension promises stems from accounting practices that understate their cost by ignoring risk entirely.

Specifically, by treating assumed future stock market returns as certain — despite acknowledging their investments will underperform expectations roughly 50 percent of the time — SDCERA can “discount,” or minimize, the estimated cost associated with safely funded employees’ future pension benefits.

Of course, ignoring risk on your balance sheet doesn’t make it go away in the real world, which is why this approach is outlawed in the private sector and rejected by public pension plans in more than 100 countries worldwide, with U.S. state and local public pension plans being the only exception from that consensus.

This also reveals why blaming San Diego County’s soaring pension costs on the Great Recession is so misleading. The cost was created when the promises were made, as indicated by SDCERA’s nearly 1,300 percent increase in accrued liabilities, not when they were exposed by a market downturn.

But because defraying costs to future generations is so politically attractive, there has been little interest in reform, despite the urgings of those like Warren Buffet, Nobel Laureate William F. Sharpe and what seems like the entirety of the economics profession.

Thankfully, after years of fierce criticism by prominent actuaries worried about the harm that would befall their profession as a result of its continued silence, the Actuarial Standards Board proposed a new rule that would finally require pension plans to meaningfully account for risk.

While the proposal would simply require plans to disclose the level of risk associated with their funding strategy, government unions are nonetheless howling in displeasure at the idea, terrified at the consequences of making the full cost of their pensions known.

But this reflexive opposition to honest accounting is short-sighted and destructive. As the experience of San Diego County so aptly demonstrates, the damage caused by overpromising is often borne by government workers themselves, particularly future hires.

After having been lulled into a false sense of security by numbers that overstated the health of the fund while understating the cost of increasing benefits, the County Board of Supervisors in 2002 passed a 50 percent benefit enhancement for all county employees.

But when the inevitable market downturn hit — a certainty for any long-term investor like SDCERA — paying the full cost of the 2002 enhancement fell to today’s taxpayers and public employees, who never received any of the benefits they are now being required to pay for.

In addition to forcing both groups to pay more, while getting less, the county also repeatedly cut the benefits offered to new hires to get its soaring retirement costs under control.

After reducing the retirement benefits offered to new hires in 2009 and again in 2013, the county earlier this year approved a plan to cut new employees’ benefits to the lowest level allowable under law, which are worth roughly half as much as those received by pre-2009 employees.

The current lawsuit that has delayed the implementation of this new, bare-bones retirement plan focuses only on how and when that plan will be implemented, not if.

This makes clear that all groups — including government employees — are harmed by the status quo.

Had the Board of Supervisors been informed of the true cost of the excessive and unnecessary 2002 benefit enhancement — and the degree of risk associated with relying on stock market returns to pay for it — this whole mess could have been avoided.

Requiring public pension funds like SDCERA to meaningfully account for risk will make it much harder for policymakers to force future generations to pay for their past funding failures.

And that’s good news for everyone concerned with the fiscal health of the county and the fair treatment of all its citizens — taxpayers and public employees alike.

Robert Fellner is executive director of Transparent California. This commentary was first published by the Voice of San Diego.

CalPERS sued for withholding complete pension data

Robert Fellner 2018, Press Releases , , ,

The California Public Employees’ Retirement System (CalPERS) is unlawfully withholding information necessary to help safeguard the system from waste, fraud and abuse, a just-filed lawsuit alleges.

The problem of disability fraud has plagued California’s public pension systems for decades, costing taxpayers untold millions.

One of the first documented cases occurred in 1992, when a retired officer drawing a tax-free disability pension was spotted competing in a local rodeo.

As discussed in more detail below, historically lax oversight encouraged such abuses, which continue to this day.

Earlier this year, for example, the Los Angeles Times reported on an allegedly disabled firefighter who had competed in a half-marathon. The Times report ultimately led to an arrest and calls for reform from city councilmembers.

To its credit, and likely in recognition of the fact that the problem extends beyond just those who compete in athletic competitions while on disability, CalPERS encourages the public to report cases of suspected fraud and abuse to its disability fraud tip line.

Yet the fund, which manages over $300 billion in assets and receives nearly $20 billion annually from California taxpayers and public employees, has inexplicably refused to disclose the very information necessary to identify such cases of potential abuse.

Today, the Nevada Policy Research Institute (NPRI) has filed a public records lawsuit against CalPERS to obtain this information for its Transparent California website — the state’s largest and most comprehensive public pay and pension database.

Specifically, Transparent California requested the one-word designation of either “regular” or “disability” that would identify the type of pension received by retirees, so that the public could better assist CalPERS in its efforts to identify cases of disability fraud.

Despite the law’s presumption of openness, and binding case law precedent requiring disclosure of the requested information, CalPERS denied the request by citing a statute that makes confidential employees’ personnel and medical files.

“It’s highly unlikely CalPERS actually believes providing the one-word designation of the type of benefit received by its members is equivalent to providing a copy of their medical records, which is properly exempt from disclosure,” said Transparent California Executive Director Robert Fellner.

“Instead, CalPERS is exploiting the lack of any penalties for governments who unlawfully withhold public records, secure in the knowledge that taxpayers will be the ones required to pay all legal fees incurred.

“Sadly, the lack of teeth in California’s Public Records Act has effectively negated the presumption of openness enshrined in state law. The Legislature must amend the law so that those who violate it are held personally liable, just like any other citizen would be.”

Abuses previously uncovered

Public pension disability fraud in California has been an issue since at least 1992, when investigators uncovered an officer who was drawing a tax-free disability benefit competing in a local rodeo. Further investigation revealed the retired officer had won gold and silver medals in a Police Olympics swim competition the very month she filed for disability, according to an Associated Press report.

In 2005, the Sacramento Bee exposed widespread fraud at the California Highway Patrol Department, where over 80 percent of retiring chiefs would claim injury within 2 years of retirement. Then-Governor Arnold Schwarzenegger appointed a task force to investigate the Bee’s findings, which culminated in multiple arrests.

More recently, the Los Angeles Times uncovered abuses taking place in the city pension fund, like a firefighter who competed in a half-marathon while claiming disability for an injured knee. At least one retired officer has since been arrested on suspicion of disability fraud since the Times published their findings earlier this year.

“These types of abuses are naturally much easier to detect when the pension fund distinguishes disability benefits from a regular pension,” Fellner said.

“In addition to both the city and county fund of Los Angeles, nearly two dozen of California’s independent pension funds do disclose this information, further undercutting CalPERS arguments for secrecy.”

As indicated above, CalPERS itself recognizes the importance of the public’s assistance in identifying cases of disability fraud, and encourages the public to report suspected cases of fraud to its disability fraud tip line.

“Refusing to disclose benefit type prevents the public from providing the very oversight CalPERS claims is essential in order to safeguard against waste, fraud and abuse,” Fellner said.

CalPERS refusal to identify benefit type on the grounds of confidentiality is even more perplexing, given the vastly more comprehensive and invasive information disclosed by the agency elsewhere.

“It’s hard to imagine a coherent legal standard that shields benefit type, while simultaneously making public the vastly more comprehensive information found in CalPERS own public hearings and state Workers’ Compensation reports,” Fellner said.

For more information, please contact Robert Fellner at 559-462-0122 or Robert@TransparentCalifornia.com.

Transparent California is California’s largest and most comprehensive database of public sector compensation and is a project of the Nevada Policy Research Institute, a nonpartisan, free-market think tank. The website is used by millions of Californians each year, including elected officials and lawmakers, government employees and their unions, government agencies, university researchers, the media, and concerned citizens alike. Learn more at TransparentCalifornia.com.

 

DMV supervisor unaware that sleeping on the job for 4 years straight requires disciplinary action

Robert Fellner Blog ,

The most robust study ever conducted on the topic found that the average California state government worker earned 23 percent more in total compensation than their similarly skilled and educated private-sector counterpart.

That number rose to 33 percent above their private-sector counterpart, when the value of California state government workers’ legendary job security was included. But a recent report by the California State Auditor leaves one with the impression that the study vastly underestimated the true value of job security for government workers.

In February of 2014, a DMV employee was documented by her supervisors for sleeping at work. According to four separate witnesses, the employee continued to sleep at her desk for a minimum of three hours a day, for nearly 4 years straight.

The most mind-boggling part of this story is that there is no dispute that this employee was sleeping on the job, every day, for nearly 4 years.

In addition to the four witnesses, her daily sleeping was also documented by her supervisors in written, periodic performance evaluations, which the employee signed off on without disputing any of the factual allegations contained within.

When the state auditor got involved midway through 2017, the employee’s supervisor defended her failure to perform her core duty by claiming that “because she woke up the employee three to four times each day, she believed the employee missed only 20 to 30 minutes of work time daily.”

The auditor rejected the obvious falsehood that an employee who needed to be woken up “three to four times each day” somehow missed only 20 to 30 minutes of work.

The auditor instead found that the employee slept for at least 3 hours a day from February 2014 through December 2017 — a finding consistent with the statements provided by four separate witnesses and the fact that the employee’s work output was only 35 percent of the amount expected.

That 35 percent figure just reflects the number of reports the employee turned in, compared to what was expected. If we’re measuring productivity or value, it’s possible the employee was actually a net negative to the department, given what her colleagues and supervisors had to say about the few reports she did turn in:

Further, the employee’s evaluations mention that she made mistakes when entering data. In fact, during the investigation, a witness explained that the employee’s work was often so inaccurate that the witness would not trust the employee to accurately enter the witness’s own address or vehicle ownership change. Thus, the employee’s behavior may have prevented DMV from providing the public with an appropriate level of service.

So what was the final outcome? Despite sleeping on the job everyday and producing error-filled work for 4 years, the employee received no disciplinary action of any kind, and continues to collect her full salary and benefits.

What’s much worse, in my opinion, is the gross negligence of the supervisor. The DMV is a large employer. There will be some bad apples. Moreover, if an employee who is sleeping at their desk everyday receives no penalty of any kind, it’s not terribly surprising they never change their own behavior.

So what happened to the DMV supervisor who, by her own admission, did not take any disciplinary action against an employee that she needed to wake up three to four times a day, every day, for 4 years?

Nothing.

While the auditor recommended that the DMV take disciplinary action against the supervisors, the DMV countered that because they had no prior issues, they would instead only require that the supervisors undergo training to ensure they understand that employees who sleep on the job every day for four years should be disciplined, should such a situation arise in the future.

And that is why so many are critical of government. It’s not because this story is reflective of government employees generally — it’s not. The audit only occured because of the employee’s coworkers who blew the whistle.

The continually justified criticism of government, however, is that it is a grossly negligent and irresponsible steward of taxpayer dollars — something perfectly reflected in the DMV’s response to the auditor’s findings.

1,237% increase in promised pensions dwarfs San Diego’s economic growth, taxpayers’ ability to pay

Robert Fellner 2018, Press Releases

The total pension benefits promised by the San Diego County Employees’ Retirement Association (SDCERA) increased 1,237 percent from 1986-2016 — an amount which is over 300 percentage points more than the increase found at CalPERS over that same time period.

After tracking fairly closely with the other economic indicators from 1986-2000, the size of promised pension benefits exploded after 2002, as shown in the chart below:

SDCERA1200

This sudden growth reflects a dramatic benefit enhancement approved by the county Board of Supervisors in 2002.

Transparent California Executive Director Robert Fellner blames a broken governance model as the key factor behind such recklessness:

The 2002 enhancement was approved, in significant part, because U.S. state and local pension plans like SDCERA employ accounting methods designed to hide the true cost of the promised benefits — despite such methods being outlawed in the private sector and rejected by public pension plans in over 100 countries worldwide.

This scheme incentivizes politicians to over-promise benefits on the backs of future taxpayers — as they are immediately rewarded for doing so, yet immune from accountability when the costs show up several years later.

This also explains why such lavish pension benefits are only found in the public sector. Academic studies have shown that workers vastly prefer higher salaries to higher future pension benefits. The costs of higher salaries, however, are immediate, transparent and easily understood by all.

The costs of pensions, by contrast, are inherently opaque, which makes it a uniquely effective way to covertly enhance public workers’ compensation.

The below chart reflects the cumulative growth in SDCERA’s promised pension benefits (accrued liabilities) alongside a variety of San Diego County economic metrics:

San Diego County Indicators Growth from 1986-2016
Promised Pension Benefits 1237%
Personal Income 372%
Median Household Income 173%
Inflation 142%
Population 51%

Data sources:

  • Promised pension benefits reflects the growth in accrued liabilities, as reported by the San Diego County Employees’ Retirement Association (SDCERA).
  • San Diego County personal income “is the income that is received by all persons from all sources,” calculated and reported by the U.S. Bureau of Economic Analysis.
  • Median Household Income data was provided by the U.S. Census Bureau. The Excel Trend function was used to fill in years in which data was unavailable.
  • Inflation is derived by calculating the growth in the Consumer Price Index for All Urban Consumers: All items in the San Diego-Carlsbad, CA region.
  • Population data was provided by the U.S. Census Bureau.

 

For more information, please contact Robert Fellner at 559-462-0122 or Robert@TransparentCalifornia.com.

Transparent California is California’s largest and most comprehensive database of public sector compensation and is a project of the Nevada Policy Research Institute, a nonpartisan, free-market think tank. The website is used by millions of Californians each year, including elected officials and lawmakers, government employees and their unions, government agencies themselves, university researchers, the media, and concerned citizens alike. Learn more at TransparentCalifornia.com.

Transparent California helps uncover massive fraud in LA school district

Robert Fellner News , , ,

On Monday, the Los Angeles County Office of Education and the Fiscal Crisis and
Management Assistance Team (FCMAT) released their “Extraordinary Audit of
Montebello Unified School District.”

In the introduction, the audit cites the following as an impetus for their investigation:

Prior to the teacher’s request, there were many rumors alleging that some K-12 teachers and classified employees were given the opportunity to earn large amounts of extra money for little or no work, paid from adult education funds.

Coworkers accessed the Transparent California website (www.transparentcalifornia.com), which revealed that some of the district’s instructors earned exceptionally high salaries. This led to questions about how these instructors were earning such high compensation. (emphasis mine)

District administrators were told that instructors, including classified employees, had adult education class rosters with few or no students in attendance, and this raised serious questions that prompted an internal investigation and led to discussions with the county office of education.

The audit then found many instances where “hourly pay occurred during times when classes were not in session,” and that in the majority of cases studied “the district’s payroll records did not have sufficient supporting documents to conclude that compensation paid from adult education funds was for legitimate payroll expenditures…”

In its conclusion, the audit determined that:

there is sufficient evidence to demonstrate that fraud, mismanagement and misappropriation of the district’s funds and assets may have occurred.

The audit could only state that fraud “may” have occurred, citing a requirement that only a court could definitely make such a determination.

Consequently, the audit instructed the county superintendent to immediately inform “the local district attorney that fraud or misappropriation of district funds and/or assets may have occurred,” for further action.

Nonetheless, the audit findings are such that it’s almost impossible to imagine any explanation other than fraud.

The teachers’ use of Transparent California to help uncover this fraud is just one more example of the enormous benefits such transparency provides — although certainly not one we could have imagined when we first created the site!

You can read the full audit by clicking here.