This commentary is by Matthew Cunningham-Cook, who lives in Brattleboro and Philadelphia. He is a public pension and capital markets expert for labor unions and an award-winning investigative reporter.
There is no pension benefit crisis. There is no likelihood that the Vermont’s pension funds will run out of money. Only one public pension fund in American history, in the bankrupt small town of Pritchard, Alabama, has run out of money.
States cannot go bankrupt. Vermont will always be able to raise sufficient revenue to meet its obligations. To suppose otherwise is to demonstrate basic historical ignorance about federalism and state finances. It has been disheartening to see so many legislators parrot this ignorance.
The recent walkback by the House Speaker is an important step forward, no doubt. The process was secretive, rushed and counterdemocratic. The way the issue is still being discussed by both leading politicians and Vermont’s press corp unfortunately tells a story about pensions that isn’t really true: that Vermont’s pension funding constitutes a “crisis” that must be rectified.
Speaking as someone whose brother just died from the actual opioid crisis, and as someone who happens to have written and researched a great deal on the subject of pensions, I have to say that my hackles are raised by the “crisis” terminology. The Wall Street Journal reports that there are 15,000 millionaire households in our state, plenty of wealth to tax, like New York’s legislature just has. The state cannot go bankrupt, and it will not run out of money. No state ever has.
Ah, “crisis.” What a loaded word! Vermont would benefit so much if every elected official recycling the pension “crisis” canard would watch the original “Our Brand Is Crisis” documentary (that was later turned into a Sandra Bullock feature). American political super consultants Tad Devine and James Carville jet down to Bolivia to run the campaign of Gonzalo Sanchez de Losada, a guy who spoke Spanish with an American accent and was widely derided as “el Gringo.” The Americans’ pitch? Bolivia is facing a crisis, and only Sanchez de Losada can rescue the country. They win, barely, but Sanchez de Losada’s program of selling off the country’s vast gas reserves to American and European investors is widely hated, resulting in mass civil unrest. That civil unrest culminated in Sanchez de Losada’s security forces going berserk, murdering 60 protesters, which in turn led to Sanchez de Losada’s resignation less than 18 months later.
What unites American political consultant buffoonery in Bolivia and Vermont’s pension fracas is the way that the well-off, well-connected, and amoral elite deploy the language of “crisis” to mask their real intention: class warfare.
Because there is no pension benefit or funding crisis. Unfunded liabilities are fungible numbers based on future assumptions. The model of prefunding pension obligations comes from the private sector, where there is extensive competition and companies routinely go bankrupt. Vermont will not go bankrupt. It has existed for 244 years. It has never defaulted on its debt during that time.
What there is, however, is extensive Wall Street profiteering from the pensions. Hundreds of millions of dollars invested in high-risk, high-fee alternative investments, and returns among the worst in the country for public pension funds. $1.5 billion in lost returns relative to a 70/30 index fund. That is the real crisis, one that merits both state and federal investigation. Given the long history of pay-to-play and alternative investments, a top-to-bottom review of the state’s investments in the area is only prudent.
It’s the grand smokescreen: Pay attention to the $24,000-a-year pensions while Wall Street is behind the curtain, driving up inequality, raising rents, financing politicians, and driving pension funds into the ground. This is still the framework used by the current proposed governance changes. The current text of the legislation, also crafted behind closed doors, does not propose any investigation of the state’s pension funds’ investment management.
The current proposed governance changes could deepen problems at the pension funds. By requiring more people with “financial” (read: Wall Street) “expertise” without enhanced ethics rules and disclosure, and making it easier to artificially inflate the unfunded obligations by increasing the assumed actuarial rate of return, the governance changes could provide the perfect cover for even more Wall Street predation and deeper benefit cuts down the road.
It’s time for every elected official in the state to speak up. Auditor Doug Hoffer should do a full-spectrum evaluation of the pension funds’ investments in alternative investments, and the performance and valuation of those investments must be audited and certified by a CPA — which they are not currently.
This is the real pension crisis: Vermonters’ tax dollars are going to finance the private jets, New York and London penthouses, and $10,000 bottles of wine of the wolves of Wall Street while tens of thousands of Vermonters are mired in poverty
Please feel free to reach out at m.cunninghamcook@gmail.com if you’re interested in discussing further.
