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The pension deal: What does John Liu walk away with?

Friday, October 28, 2011 - 05:00 PM

Getty / Slaven Vlasic

Yesterday’s announcement that Mayor Michael Bloomberg and Comptroller John Liu had agreed to a major overhauling of how the city’s pension system would be run surprised many people. These two haven’t exactly seen eye-to-eye when it comes to pensions. And considering the fact that Liu wants the job currently occupied by Bloomberg, it’s worth looking at the deal a little further to see what Liu actually gets out of it.

First, what exactly did they agree to? The mayor’s and comptroller’s offices, along with labor leaders who’s members pay into the funds, agreed to push to have the city’s five separate funds brought under the control of one board, with an outside manager hired to run the whole thing.

I say “push” because the plan, which is being hailed as a financialboon to both city taxpayers and pensioners, has to clear major hurdles—like having the state legislature and the Governor sign off on the change, among other things—to clear before any changes would take effect.

That being said, the most interesting thing is that the agreement essentially strips the Comptroller’s office—this or future ones—of one of its main duties. There’s this line from the press release:

The proposal would place investment advisory authority for all five of the currently independent City pension funds under one new pension board, supported by an independent, full-time staff led by a Chief Investment Officer, who would be appointed to a fixed term.

Right now, the Comptroller is the city’s Chief Investment Officer, with a staff that works with the five funds, and has investment advisory authority. While this might make little sense from a Comptroller’s standpoint to give up so much control, it’s being praised and Liu is reaping the rewards.

“The Comptroller pledged during his campaign that he was going to approach pension management in a different way and remove the opportunity for corruption and he is accomplishing that goal with this proposal," said Dick Dadey, executive director of the non-partisan good government group Citizens Union. “Should this be achieved this will be a hallmark to his tenure as comptroller and will accrue to his benefit.”

The biggest benefit being Liu’s anticipated run for mayor in 2013.

“[I]t seems to me that this is a real plus for Liu,” Jerry Skurnik, a political consultant and former Koch aide, said. “[Former Comptroller] Jay Goldin ran against Ed Koch as mayor, and Bill Thompson ran against Bloomberg, and both of them at various times worked with the mayor on certain things that made both [the mayor and comptroller] look good."

“It gives Liu more credentials with the establishment, that always viewed him suspiciously because he was a maverick,” said one long-time observer. “Now that he’s done that, it looks like a good-government stance that he’s taken and it enhances his image, politically.”

The Comptroller could use some help with his political image. The recent Times story that cast major—and as of yet unresolved—doubt on Liu’s fundraising efforts have resulted in a whisper campaign about his viability as a mayoral candidate. That piece of the puzzle didn’t escape Scott Levenson, president of the political consulting firm the Advance Group.

“Any time an elected official abdicates power for the greater good they deserve a tremendous amount of credit,” he said. “In this case one has to wonder if there's any linkage between the decision to do that and the comptrollers investigations by the CFB and the New York Times.”

The decision to give up that power, according to Michael Tobman of the political consulting firm Hudson TG, is a problem, not a benefit.

“You're supposed, as comptroller—as an independent, elected city official—you’re supposed to say no to this,” Tobman said, who went on to call the move an “abrogation of independence and responsibility.” He held up State Comptroller Thomas DiNapoli, who has resisted calls to change the rules governing the oversight of the state’s system, as the example Liu was failing to follow.

Tobman also didn’t see the move as helping Liu’s 2013 aspirations.

“Viewed through the prism of 2013, I don’t see how not being a fighter for the job you were elected to do gets you anything,” he said. Who does he see it helping? “Bill de Blasio, as the only citywide official right now who has a track record and a history of saying ‘no’ to the mayor.”

So many details of the plan are so far from firm that the ultimate result of these efforts is uncertain. Whether or it ends up coming to pass or not, the label of reform is certainly something the Comptroller is hoping to get out of this deal. At the very least, he’s likely managed to keep the Mayor’s office out of his hair moving forward.

And, as noted, if this really does end  up coming to pass, future candidate for Mayor John Liu has a major initiative to point to during his time as Comptroller of the City of New York.

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Comments [1]

Larry Littlefield

I guess Liu gains two things.

First, he washes the stink off the office put there by Alan Hevesi.  

Second, since assets are overvalued and the economy is indebted, we are in the middle of a period of low investment returns.  He could have been unfairly blamed for those low returns.

I'm not entirely convinced of the "good government" aspect of this proposal, if by that you mean good corporate governance.   One of the reason the gains from the economy became so lopsided is the power of the de facto union of corporate executives and directors.  Executive pay has soared, and dividends for investors have plunged.

Basically, the executives sit on each other's boards and vote each other a higher and higher share of private sector wealth.  They all hire the same pliable executive pay consultants, the way people like Liu hire pliable pension actuaries to justify and hide the cost of retroactive public employee pension enhancements, knowing they will recommend ever rising pay.  Every increase they give in one company becomes a precedent for more for themselves later.  This has nothing to do with any free labor market.  It is rapacious rent seeking, nothing more.

What about shareholders?  Won't they vote for new directors, to get a better deal?  No, most of the shares are in fact controlled by intermediaries in the financial sector, who are even more overpaid themselves.  Just about the only shareholder activism, aside from corporate raiders, has come from public employee pension funds.  Not in New York.  Here Comptrollers have been sucking campaign contributions from both sets of predators using their power to suck money away from the serfs:  the executive class and the political/union class.  But elsewhere.

But there was always the possibility that someone could have run for Comptroller on a platform designed to terrify the top 1.0% while dodging the usual accusations of "socialism" or whatever:  "Cut executive pay, increase dividends."  This will remove that theoretical check.

For a full explanation of what has happened to investors despite the alleged "power" of corporations, read this.

http://www.r8ny.com/blog/larry_littlefield/point_of_intersection_between_the_years_in_retirement_rich_and_the_bonus_rich.html

Oct. 29 2011 11:59 AM

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