Dallas Pension Not Only “Ticking Time Bomb Ready To Explode,” Public Policy Director Warns

For months, if not years, we’ve warned that conflicted politicians and union bosses pursue a perverse set of goals in their management of pension funds, most of which have nothing to do with the application of sound financial principles. Here’s how we summarized the situation back in the summer (see “An Unsolvable Math Problem: Public Pensions Are Underfunded By As Much As $8 Trillion“):

Defined Benefit Pension Plans are, in many cases, a ponzi scheme.  Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities… classic Ponzi.  But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit.  Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

Then, just a couple of weeks ago, CalPERS confirmed our fears when they chose to lower their discount rate by only 50bps to 7%, nearly a full point above their 6.2% projected annual returns over the next decade.  Even more startling was the open admission from Richard Costigan, chairman of the CalPERS finance committee, that the decision was motivated by the board’s desire to maintain the ponzi, saying: “this is just a start…municipalities and other government agencies need some breathing room before they absorb the impact.”

Apparently we’re not the only ones growing increasingly concerned about the lack of financial discipline within these massive pension funds.  Lawrence Person’s BattleSwarm Blog recently interviewed the Director of the Texas Public Policy Foundation, James Quintero, who noted that many of the nation’s largest pensions are relying on “fuzzy math to make them work, or at least give the appearance of working.”

When it comes to Texas’ public retirement systems, one of my greatest concerns is that there are other ticking time-bombs, like the DPFP, out there getting ready to explode. It’s not just Dallas’ pension plan that’s taken on excessive risk to chase high yield in a low-yield environment.

 

Setting aside the issue of risk for a moment, the DPFP, like most other public retirement systems around the state, suffers from a fundamental design flaw. That is, it’s based on the defined benefit (DB) system, which guarantees retirees a lifetime of monthly income irrespective of whether the pension fund has the money to make good on its promises or not. This kind of system is akin to an entitlement program, warts and all, and is very much at the heart of pension crises brewing in Texas and across the country.

 

One of the biggest problems with DB plans is that they rely on a lot of fuzzy math to make them work, or at least give the appearance of working. Take the issue of investment returns, for example. Many systems assume an overly optimistic rate of return when estimating a fund’s future earnings. Baking in these rosy projections is, among other things, a way to understate a plan’s pension debt.

 

The common element in most, if not all, of these systemic failures is the defined benefit pension plan. Because of the political element as well as the inclusion of inaccurate investment assumptions in the DB model, these plans are almost destined to fail, threatening the taxpayers who support it and the retirees who rely on it. And sadly, that’s what we’re witnessing now across the nation.

Unfortunately, as Quinterro points out, when all those bad assumptions about future returns finally prove to be wildly optimistic it will be taxpayers left holding the bag.

Let me preface this by saying that I’m not a lawyer nor do I ever intend to be one. However, Article XVI, Section 66 of the Texas Constitution plainly states that non-statewide retirement systems, like DPFP, and political subdivisions, like the city of Dallas, “are jointly responsible for ensuring that benefits under this section are not reduced or otherwise impaired” for vested employees. Given that, it’s hard to see how the city of Dallas—or better yet, the Dallas taxpayer—isn’t obligated in some major way when their local retirement system reaches the point of no return, which may be a lot closer than people think given all the lump-sum withdrawals of late.

 Asked whether other large pensions in Texas were as bad off as the Dallas Police and Fire Pension, Quinterro said simply, “If you’re a taxpayer or property owner in one of Texas’ major cities, I’d be concerned.”

A quick review of where some of Texas’ largest pensions stand, after one of the biggest bull market runs in history, helps explain Quinterro’s pessimism:

Texas Pensions

While “fuzzy math” can help these ponzi schemes elude the inevitable for a very long time, at some point they will eventually collapse.  And, with $6-8 trillion in outstanding liabilities at U.S. public pensions alone, we suspect the consequences of that collapse will not be pleasant.

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Why The Italian Government Can’t Stop Refugee-Smuggling Boats? Because It Doesn’t Want To

Via GEFIRA,

The rule of law is often invoked by as a Western value that “populist” movements want to destroy, yet the establishment’s own governments have long suspended that very same rule of law when it comes to immigration. The most evident example of this is the immigration policy started by the Italian Letta government in 2013 and continued since then under the Renzi government.

In October 2013, the Letta government, facing waves of refugees escaping the chaos of Western backed-Arab Spring in Libya, which later transpired as nothing more than insurgencies of Islamic radical groups, launched the operation “Mare Nostrum” or “Our Sea”, which consisted in the use of the Italian navy near Libyan waters to rescue asylum seekers from the African coast.

As noble as its motivation may be, a side effect of the operation was to encourage even more people to undertake sea travel because now they are certain that the Italian navy will rescue them. The result was a 224% increase in the number of boats leaving Libya, which translates into an average of almost 10 million euro a month for the Italian government.

In November 2014 Mare Nostrum was replaced with the EU-coordinated and funded Triton, covering a smaller part of the Mediterranean at the cost of 3 million euro a month. The official reason for the Triton operation is to control borders, however once we look at facts the goal of the operation is simply to bring in as many people as possible, regardless of whether they are refugees, economic migrants, legals or illegals. Since then, smuggling channels instead of being stopped have multiplied.
An established practice since the “Mare Nostrum” operation, continued under Triton, was for smugglers to launch a rescue signal to the patrolling navy and request assistance. In the meanwhile, NGOs pursuing the “open borders” have joined forces with them, assisting anyone, legal, illegal, refugee, who wants to reach Europe.

ArrivalsItaly

The European Commission that is responsible for Frontex, and what follows border controls, has a clear opinion on the matter. Commissioner for Home Affairs, Migration and Citizenship Dimitris Avramopoulos said: Another important element that emerged strongly from the discussions on countering smuggling is that NGOs – and local and regional authorities – which provide assistance to smuggled migrants shall not be criminalised. I fully agree with this, of course, as I also agree on the need to protect the fundamental rights of those who are being smuggled. Those who we need to punish are the smugglers!”

Punishing the smugglers, unless they are part of NGOs, meaning the problem can’t and won’t be solved, because NGOs will always be free to smuggle migrants. This continues a well established tradition; during the Monti government in 2011-12 a Ministry for Immigration was created and given to Andrea Riccardi of the “Comunità of Sant’Egidio”, the prominent Italian open borders NGO. “Comunità of Sant’Egidio” runs projects such as “Humanitarian corridors”. The project funds an alternative route to bring people into Italy. Andrea Riccardi told the French media that he is convinced that Europe must open its borders. The Ministry was then given to Cecile Kyenge, a black woman born in the Democratic Republic of the Congo, who set herself a task of drastically reducing the requirements for acquiring Italian citizenship. She proposes a law that would give citizenship to the children of immigrants if they are born on Italian soil. Under Renzi, the ministry was reduced to a department within the ministry for Home Affairs, and handed to Mario Morcone, again affiliated with the “Comunità di Sant’Egidio”.

But what happens once migrants of all kinds reach Italian soil? They are sent to refugee centers, where they can apply for the status of refugees. It should be noted that Italy has long run out of places for asylum seekers, and so the government is paying hotels, hostels or citizens in general to take in people.

Here a common practice for those who know that their application will be rejected is to destroy their documents beforehand so that the time to identify them increases exponentially. Experience has shown that centers eventually become overcrowded, which turns out to be an occasion for migrants to riot, destroy properties and finally escape and become illegals.If they do not escape and their application is rejected, they are expelled. Expulsion however is voluntary and data shows that approximately only 50% of expelled migrants actually leave, probably to an other EU-Schengen country, the rest become illegals as well.

Moreover, as the “Mafia Capitale” scandal has shown, a collusion between members of the ruling Democratic Party controlling immigration-related institutions within the Italian state, including refugee centres, NGOs and the organized crime ensures that migrants are employed at the expense of Italian taxpayers and for insignificant hourly rates ensuring massive illegal profits for the racketeers. An infamous quote of a member of organized crime reveals how immigration is now a more profitable business than drug trafficking.

“Do you have any idea how much I make on these immigrants?” Salvatore Buzzi, a mafia affiliate says in a 1,200-page wiretap from early 2013. “Drug trafficking is not as profitable”. “We closed this year with a turnover of 40 million but… our profits all came from the gypsies (Roma people),on the housing emergency and on the immigrants,” Buzzi said. That was in 2013, when 20.000 immigrants arrived in Italy. In 2016, 180.000 immigrants arrived in Italy.

Corrupt politicians like Giuseppe Castiglione (NCD, partner of the ruling Democratic party), working for the Home Office, with the official mission of ”favouring the integration of those in need of international protection” in reality work to ensure profiteering from the crisis.

Illegal activities range from all levels; starting with the assignation of the construction of refugee centers to Democrat-related cooperatives in exchange for bribes; asylum seekers and illegals are then transferred to the Italian countryside and employed in the agricultural sector for an hourly rate between 1 and 3 euro.

When it comes to women, immigrants themselves organize prostitution rings within the refugee centers or sell them to work in the Italian streets.

Immigration, a tale of willingly lax enforcement of rule of law, smuggling, dishonesty, slavery and destroying Europe.

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