My Response: Sounds Like He's Running for Treasurer Again
Set out below is my response to Ron Elmer's critique of my column in the News & Observer on January 26th, 2014.
Much of Mr. Elmer’s critique is designed to be sensational rather than accurate. He is correct; the present value of the state’s pension liabilities are understated, and the new GASB rules will not fully account for them. I’m certain that Treasurer Cowell is well versed on the subject and could ably stand in for Professor Rauh.
Everyone acknowledges that the estimated liabilities exceed the assets. However, it is illogical to measure the deficit as two-years worth of revenues. The gap is a long-term liability and needs to be closed over twenty or thirty years. We have far bigger deficits in infrastructure and education. No one characterizes them in this manner.
The decline in the funded ratio is due, for the most part, to the state’s dramatically reduced contributions in the 2000s. Investment performance played a secondary role.
The underperformance of the pension plan relative to its peers isn’t due to alternatives. We’ve historically been 6% to 7% less weighted in equities than any other state, which accounts for most of the difference. Alternatives were not large enough over the past 15 years to be the culprit.
While I recommended just under $1 billion in alternatives, the portfolio was built after my departure a decade ago and now stands at over $9 billion. I share Mr. Elmer’s skepticism about alternatives. However, their efficacy or failure lies in the future, not the past.
Mr. Elmer sounds like he’s running for Treasurer again. Rather than trying to understand the pension plan’s true condition, he’s decided to exaggerate its deficiencies. Rest assured I’m not running for anything.