I will protect your pensions. Nothing about your pension is going to change when I am governor. - Chris Christie, "An Open Letter to the Teachers of NJ" October, 2009

Saturday, December 20, 2014

@GovChristie's Pension Mess: Fat Wall St. Firms, Screwed Public Employees

David Sirota of the IBT has been doing stellar work on the conflicts of interest that have become a staple of the Christie administration. And no where is the skirting of ethics more brazen than in New Jersey's management of public employee pensions:
During today's meeting of the New Jersey State Investment Council, private equity executive Robert Grady announced he is stepping down from the chairmanship of the panel. Christie has called Grady a "friend of mine for nearly 40 years" whom he relies on for political advice.
In recent months, campaign finance documents revealed that under Grady’s leadership, the state has awarded lucrative pension management contracts to hedge fund, private equity, venture capital and other so-called “alternative investment” firms whose executives made campaign contributions to Christie's campaign, his state party, the Christie-led Republican Governors Association and the Republican National Committee. The donations included a $10,000 contribution from Massachusetts Republican Gov.-elect Charlie Baker to the New Jersey Republican State Committee just months before Baker’s firm was given a New Jersey pension investment. 
The donations were made despite New Jersey and federal rules aiming to restrict contributions to state officials like Christie who oversee pension investment decisions. Documents uncovered by International Business Times showed that Grady, a former Carlyle Group executive, was in regular communication with Christie’s campaign officials at the time the campaign was raising money and he was overseeing the state's pension investments. Grady pushed New Jersey to move pension money into an investment in which his private financial firm was also investing, documents revealed. New Jersey also invested in Carlyle Group funds during Grady's tenure, though he recused himself from final votes on those investments. 
New Jersey's largest union has filed a complaint with the state ethics commission about the donations, and New Jersey lawmakers are currently considering legislation to strengthen existing restrictions on campaign donations to state officials from firms managing state pension money.
Good luck with that one, guys: you can't even get Christie to agree to keep his promise to partially fund the pension according to a timetable he agreed to back in 2011.

As in so many areas of policy, Christie is nothing more than a tumbleweed of contradictions, blowing wherever the political winds take him. He rails against the pensions being far too generous, even though that is demonstrably untrue. But he has never come out and said he wants to shut them down; in fact, his plan so far has been to get public workers to pump in more money, against our wills, into the system.

There are two reasons for this. First, and most obviously, is that the system would collapse far faster if public employees are ever given the option to opt out of the system. I've made this offer a bunch of times, and I'll make it again: give me back my money and I'll get out of the pension. All the state has to do is pay me back what I put into the pension funds, with interest, and include what they were supposed to put in, with interest.

I'll renegotiate with my district to make up the lost compensation (the taxpayers of my district can take up with the state whether they want to continue to subside a pension that doesn't accrue to their employees). Then I'll manage my own retirement in cooperation with my district. Isn't that fair?

The problem, of course, is that the current retirees, to whom the state has a contractual obligation, need to be paid. No court in the land will ever allow an entire state to go bankrupt; in fact, the courts have even said Christie's attempt to take away the cost of living adjustments for current retirees is unconstitutional. If you can't even mess with COLAs, how can you cut payments themselves?

You can't. The truth is this state could easily raise taxes -- particularly on the wealthy and corporations, although that most likely won't do it all. But that would kill Chris Christie's presidential ambitions, and nothing comes before that, including rational and honest governance.

Which brings us to the contradiction on Christie's pension policy, and the second reason he won't call for phasing out the pensions. Because as much as Christie doesn't want to raise taxes, he and his Wall Street pals just love, love, love that great big pile of pension money, ripe for the plucking.

They just don't want to put in their share -- they'd rather have us teachers and cops and firefighters and state workers and municipal employees pony up more and more, all while they shave off larger and larger slices for themselves.

Which is why anyone who has been paying attention shouldn't be the slightest bit surprised by this:
When the New Jersey pension system terminated a $150 million investment in a fund called Angelo, Gordon & Co. in 2011, that did not close the books on the deal. In the three years since state officials ordered the withdrawal of that state money, New Jersey taxpayers have forked over hundreds of thousands of dollars in fees to the firm. As those fees kept flowing, Angelo Gordon made a prominent hire: Mary Pat Christie, wife of Gov. Chris Christie, who joined the company in 2012 as a managing director and now earns $475,000 annually, according to the governor's most recent tax return.
The disclosure that New Jersey taxpayers have been paying substantial fees to a firm that employs the governor's spouse -- years after state officials said the investment was terminated -- emerged in documents released by the Christie administration to International Business Times through a public records request.
A spokesman for the New Jersey Treasury Department, Christopher Santarelli, said via email that while New Jersey “ended its investment” with Angelo Gordon in 2011, the payments were legitimate because the state continues to hold an “illiquid” investment in the firm. Christie officials declined to disclose details of what exactly that illiquid investment is and the justification for continuing to pay fees to Angelo Gordon. The governor, Mary Pat Christie and executives at Angelo Gordon all declined to comment. [emphasis mine]
Now that is a conflict of interest so outrageous that even the Star-Ledger's Editorial Board took notice -- even if their response is, as always, to make excuses for the governor:
Only some perspective is needed here, starting with the fact that the original $150 million investment with Angelo, Gordon & Co. – a monolithic hedge fund, with tentacles that reach every corner of the investment world – was made in 2006 and closed in 2011. 
The reason the fees keep coming is that a vestige of the original investment (about $6.5 million) is illiquid, which means it cannot be sold because there are no interested buyers. And while it may be suspicious that Mary Pat Christie’s firm won’t disclose details of the deal in question, industry experts will tell you that Angelo Gordon either has no obligation to reveal it, or it has a contract that mandates as much[emphasis mine]
Oh, yes, let's take lessons in ethics and disclosure from the very industry that is screwing the taxpayers of New Jersey! Way to stand up for your readers, Star-Ledger!

Jersey Jazzman reads the Star-Ledger's editorials (artist's conception)

I want to acknowledge one thing before continuing: many times, when the press reports on the business dealings of wives of powerful politicians, there is more than a little air of sexism surrounding the story. Back in the day, Hillary Clinton took heat for being a successful lawyer in her own right while her husband was governor of Arkansas; most of that was unfair (some, however, was rightfully questioned, in my opinion). 

It's quite legitimate to question Mary Pat Christie's critics as to whether they are suggesting that she is not allowed to have a career separate from her husband's simply because he holds public office. That said: this case is so clearly tied to New Jersey's pensions and Chris Christie's policies that, at the very least, the deal should have been disclosed in real time the moment Mary Pat Christie took the job. Even the S-L agrees with that: 
Yes, in an ideal world, disclosure is a tenet of good governance, and transparency is the best disinfectant.
Here comes the "but...":
But [see? -- JJ] while New Jersey is governed by someone who often thinks differently – check out his administration’s record on OPRA requests sometime – it’s hard to find the fire beneath the smoke in this case. 
For starters, the fund was purchased by the State Investment Council three years before Christie was elected.
Which actually makes Mary Pat Christie's hiring even more suspicious. Why didn't the state just walk away from paying fees on the investment if it's "illiquid"? Because that would be "illegal"? It's no more illegal than reneging on promises made in statute to fund pensions, isn't it?

The a real question here is whether the hiring of Mary Pat Christie was a way to ensure the money kept flowing to her firm, even though the investment is now illiquid. It's a question Sirota asks -- because he is a real journalist -- in his article:
Spokesman Santarelli told IBTimes that while “New Jersey redeemed its interest in the AG fund and ended its investment [in 2011] we still have a remaining market value of $6.6 million invested related to illiquid investments, which have been winding down slowly over the last few years.” 
That explanation “does not pass the smell test,” financial analyst Susan Webber, who covers alternative investments at the website Naked Capitalism, said.
“Either they don't want to accept a market price and recognize a big loss, or the investment is something so complex and exotic they can’t sell it at all,” she told IBTimes. 
In all since 2006, state documents show New Jersey has paid more than $11.8 million in fees to Angelo Gordon -- more than the amount the state currently says it is projected to make on its investment in the firm. Former hedge fund manager Marshall Auerback told IBTimes that the outstanding illiquid investment is unusual. 
"The obvious question here is, why is the Christie administration allowing fees to be paid to a financial firm for three years after the state terminated its investment?" Auerback, who is now an executive at the economic policy group Institute for New Economic Thinking, said. "This seems like a very one-sided deal for the manager. After three years, there doesn’t seem to be a time frame for selling the illiquid parts of the investment, and yet the manager gets to keep collecting fees. It's a great deal for Mary Pat Christie's firm, but a terrible deal for taxpayers and for the public employees whose pension money is being used to pay the fees."
Thomas Byrne, the Christie-appointed acting chairman of the New Jersey State Investment Council, countered that argument. "This is standard; we are not doing something different here that is outside the norms of the financial industry and the world of private partnerships," he said. [emphasis mine]
And that, of course, is exactly the problem.

One other point the Star-Ledger conveniently forgets: Chris Christie is chairman of the Republican Governor's Association, which means he now has influence over many state pension plans. What are Angelo, Gordon's interests in pensions located in states in which Christie was directly involved in gubernatorial elections?

This entire thing stinks on ice, even leaving Mary Pat Christie's part in it aside. Under Chris Christie, Wall Street firms are getting fat off of the mandatory contributions of public employees, all while our pensions continue to degrade in value. There is no transparency and no accountability in these investments, yet the state continues to take our money while attempting to slash our earned compensations.

This is perhaps the best reason for the NJ Legislature to insist that the wealthy start kicking in more to the pensions. Because maybe if these plutocrats started having to put their own money on the line, they wouldn't allow these sort of shenanigans to occur. Maybe if the wealthy had as much skin in the game as we public employees do, these sort of outrageous practices would cease.

In any case, it's well past time for public employees to start standing up and demanding that our money be managed responsibly and with full transparency. Chris Christie shouldn't be allowed to use our compensation to enrich his cronies without any safeguards in place to protect our interests.

But, but, but... JOB CREATORS! Or something...


P. Grunther said...

Thank you once again JJ for a crisply clear analysis of what Christie is up to...now if we could only get this out there into the mainstream media, that would be nice...ah, what wishful thinking!

Giuseppe said...

Christie eliminated the COLA for current public employee retirees while taxes were lowered for the wealthy and the big corporations. Shared sacrifice for the little people as JJ has illustrated and documented. The oligarchs and economic royalists are determined to eliminate pensions for ordinary people. But wait, there's more, billionaires like Pete Peterson are spending millions to also eliminate and or privatize Social Security, Medicare, Medicaid and the pathetic ACA. The hyper wealthy are also working overtime to gut and water down the few regulations that were enacted after the great financial meltdown of 2008. This means that we are being set up for another and maybe worse financial catastrophe that could leave tens of millions in financial distress. This is criminal.