By: Mark Glennon*
A few years ago I finished an article criticizing local universities for sitting out the pension debate. With all their research capability and billions in funding, I thought they should be helping pull the covers off the growing crisis and offering some ideas.
“But wait,” I thought as I finished. “With all the craziness in universities today, who’d want them involved?” So I didn’t publish the article.
Well, the executive director at the Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy is confirming those fears. He has an idea for us, published this week in Crain’s.
Chicago could just transfer ownership of city assets to its pensions. Voila, the net position and funded ratio of the pensions would immediately improve by the value of the assets conveyed. Midway Airport is a good candidate for an asset transfer, says the author.
Good grief. Where to begin?
• Transferring ownership to the pensions wouldn’t improve the city’s position by a dime. The city is ultimately on the hook for its pension obligations and it’s the city’s overall position, consolidated with its pensions, that counts.
• Pension boards of trustee and their staffs aren’t remotely qualified to manage the assets. Look at the trustee bios. Sorry to be harsh, but many have no financial or business training or experience whatsoever. They shouldn’t be running pensions, much less taking on management of operational assets. Their staffs are mostly very qualified, but at indirect investing. Almost all their work is comprised of picking fund managers who invest money for them. They rarely invest directly, and certainly don’t manage hard assets like airports.
• The valuation of the asset, by which the pensions’ position would be marked up, would be rigged. This is Chicago, after all. Would anybody trust that valuation? Even if it were done in good faith, determining true value of public purpose assets would be extremely controversial.
• The public assets transferred would be at risk of being liquidated to pay pension benefits. That’s why the assets are there! The author of the article claims the opposite — that “An additional benefit is that the asset remains in the public domain.” No, the asset would be locked in trust for the benefit of the pension only. Since Chicago is insolvent and its net position wouldn’t change, transferring assets would only put those assets at direct risk of liquidation.
The Harris School, by the way, is very progressive, bearing little resemblance, philosophically, to U of C, historically. It would sure be nice if they bounced their ideas off some of the straight thinkers in the business school or old timers in the Economics Department.
*Mark Glennon is founder and executive editor of Wirepoints.