This past weekend, New York City Comptroller John Liu told an attentive audience at the South Shore Democratic Club, “They may throw in the kitchen sink, but it’s only the kitchen sink. I’m sure the stove is on its way, and they’ll tee up the refrigerator after that.”
The stove and refrigerator may already be here.
Back in late October, Liu announced a proposal that would change how the city handles pensions for public employees. Liu wants to turn over investment management of city pension funds to what he describes as a nonpolitical board of financial professionals.
There are currently five pension boards, which include people appointed by elected official and by union officials whose members are the beneficiaries of the pensions themselves. Liu claims his plan will consolidate the boards and “professionalize” the process. Several unions are up in arms because in the new plan they will have no say in how their members’ money is invested.
The five pensions that the comptroller oversees are the New York City Employees Retirement System, the Teachers’ Retirement System of the City of New York, the New York City Fire Department Pension Fund, the Board of Education Retirement System of the City of New York and the New York City Police Pension Fund.
There is no unity in terms of how the unions view Liu’s plan. The United Federation of Teachers (UFT) has already come out in support of the bill, alongside DC37, the largest public employee union in the city, and the Uniformed Firefighters Association. UFT President Michael Mulgrew explained their position.
“The idea is to find ways to boost the fund’s performance by streamlining and modernizing the process by which investments are made, thereby increasing the fund’s efficiency and the rate of returns,” said Mulgrew. “That includes removing extra layers of consultants and further depoliticizing the investment process.”
In a press release, the UFT said, “While the TRS pension fund is already high-performing, UFT officials are hopeful that the new investment process, with its lower up-front costs, could allow the fund to earn 1 to 2 percentage points a year more.”
In an email to union members, Mulgrew said, “We are always looking for opportunities to expand and enhance the efficiency and value of the Teachers’ Retirement System pension fund.”
But Greg Floyd, president of Teamsters Local 237, isn’t a fan of Liu’s plans. Since a large number of the city’s public employees are people of color, Floyd is worried about the effect a significant dip in the stock market could have on future public pensions if the plans go through. Floyd’s union first took to the local airwaves to bring their grievances to the people.
In a 60-second spot that has aired on 1010 WINS and WCBS 880 since December, a voice says, “You’ve probably heard an awful lot about New York City Comptroller John Liu and his affairs. The scandal. The indictment and arrest of his fundraiser. The federal investigation of his campaign. Now we learn that John Liu has a plan to deliver your tax dollars, with limited oversight, to Wall Street bankers. John Liu. He’s all wrong. Remember that Liu wants to give Wall Street bankers your money on top of everything else.”
Floyd spoke with the AmNews to elaborate on some of the problems he has with Liu’s potential overhaul.
“You come in with a plan and you don’t have the paperwork to back it up?” said Floyd. “You can’t just talk rhetoric when $120 billion is involved. You have to come up with a plan.” A month ago, Liu said official plans hadn’t been finalized yet, and there haven’t been any significant updates since.
“The comptroller was elected by the people of New York City to be the custodian of the New York City pension funds, and he has arbitrarily decided that he is going to give away his function to an unknown person who is not elected by anyone in New York City,” said Floyd. “The office of comptroller is not his to give parts of it away.”
Floyd is also unhappy with the lack of checks and balances in what he’s heard of the plan so far and is afraid of the potential for corruption. “You’re going to have a person who is not accountable to New York City; right now, the majority of the board has to approve these investments. You can just come in and bribe or corrupt any member of the board the way they’ve set it up.”
The city’s pension funds total $120 billion. Last year, Mayor Michael Bloomberg expressed hope that the pension investments, through Liu’s overhaul, would equal those of Ivy League schools like Yale and Harvard. Yale’s endowment had an annualized return of 10.1 percent over the last decade, while Harvard’s averaged 9.4 percent. The city’s pension return has averaged a 2.7 percent rate the past decade.
While Bloomberg wouldn’t mind if city pension managers made investments in the style of Yale or Harvard, just three years ago, university endowments overall had their worst year since the Great Depression, according to a study by the National Association of College & University Business Officers and the Commonfund Institute.
How did Harvard and Yale do in 2009? Harvard lost $11 billion, 29.8 percent, from their endowment because of the stock market-the greatest asset value drop among endowments that were valued at $1 billion or more (At the time, after the loss, Harvard’s endowment was $25.7 billion.) As for Yale? They lost $6.5
billion, or 28.6 percent, of their endowment.
The Liu camp claims, “The plan aims to lower pension costs and lessen taxpayers’ burden without changing benefits, depoliticize and professionalize the pension investment process and improve performance and enhance returns,” said Liu spokesperson Stephanie Hoo. “Both employees and elected officials would continue to be represented in the reformed investment process.”
But Floyd does not buy their perspective or the Liu administration’s aggressive approach to the process. “We were never briefed about the proposal and we clearly understand that this is a takeover from the union and a giveaway to Wall Street,” he said. “[This plan] has the possibility of giving money to Wall Street to lose.”