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Cypen & Cypen
NEWSLETTER
for
September 12, 2013

Stephen H. Cypen, Esq., Editor

1.    THE PUBLIC SAFETY TIPPING POINT (WHEN SAVING MONEY LOSES LIVES):  Writing in Governing, Dr. Marc Funkhouser, former Mayor of Kanas City, Missouri, recounts an event as he and his wife were strolling along the shore in Long Beach, N.Y.  He watched a lifeguard perform a water rescue of a couple who were in serious trouble. Fortunately, everything turned out okay. Funkhouser was impressed that he had seen a government employee do her job superbly. Aside from the strength and determination displayed by her swimming, it takes skill to watch hundreds of people in the water and identify, at a distance of many yards, someone who is in trouble. The job is important not just to the individuals assisted and their families, but to the economy of the city of Long Beach itself.  Like many cities, Long Beach has financial problems, and has been cutting spending and reducing the number of public employees, including lifeguards. The money budgeted for lifeguards in Long Beach has been cut by more than 18% in the past year. Not every city has a beach, but lifeguards are essentially public safety employees, just like cops and firefighters, whom every city has. How many you need and how much to pay them is a tough call. If things are going well, you could be spending way more than needed and not really notice. In tough financial times, you can cut a little and maybe nothing bad happens. So you cut a little more.  So how low can you go in public safety? How many cops, firefighters -- or lifeguards – are too few? Essentially, the only way to tell when you are not spending enough on public safety is when it is too late -- bad things are happening. The cycle continues. The number of first responders is reduced, and their pay and support are cut until a tipping point is reached. That rescued couple in Long Beach did not make the news, but it surely would have if one or both of them had drowned. When a family is deciding where to take a beach vacation or where to shop, the news that the place they are thinking about is unsafe will send them elsewhere. The first priority in taking care of the money is to spend it on what matters, and nothing matters more than public safety.  Amen. 
 
2.  CRIME, NOT DEBT, IS DETROIT’S BIGGEST PROBLEM:Speaking of tipping points and losing lives (see above item 1), two powerful women in Detroit are pushing hard for the city to focus its resources on fighting its high violent crime rate, which in 2012 was five times the national average. Governing says the answer to Detroit’s problems will not be found in new business ventures or in how the city restructures its debt. Rather, it is in bringing crime under control and making neighborhoods livable again. One woman is a county prosecutor and the other is a state representative. They say Detroit has the highest rate of violent crime of any U.S. city with a population over 200,000. Its murder clearance rate was just 11.3%, compared to Cleveland’s (35.1%) and St. Louis’s (66.4%). They say all the urban development you want and all the business people you attract are not going to come if the city is not safe.  Or, if they do come, they are not going to stay. But the county prosecutor had to sue her own county commission over cuts to her budget -- money she needs to prosecute more than 80,000 felony cases annually. Despite reaching a $7.4 million settlement, the commission rejected it as too costly. The state representative also believes the focus should be on public safety. Her biggest concern is that crime is driving residents away and keeping others from moving in. She sees the toll it is taking on the city every day, when she drives her two sons to school. Along with violent crime, scrap metal theft is leaving properties looking decrepit and vandalized. Stop the stripping of homes, historic churches and other valuable buildings, you can stop decay from taking root. Both women understand Detroit’s need for better schools, more development, good leadership and, yes, a solution to the city’s long-term debt problem. But they argue that ultimately Detroit’s survival comes down to something as basic as the perception of safety.  There are many different things that different people want for Detroit, but everybody wants safe streets (and remember, pensions are not the problem -- see C & C Newsletter for August 1, 2013 Item 4.)
 
 3. EMPLOYERS NOT CUTTING EMPLOYEES’ HOURS BECAUSE OF ACA:  There is a myth floating around (what a surprise) that because of the Affordable Care Act, employers are cutting employees’ hours. Not true, at least according to the United States Department of Labor.  While there are more part-time workers today than there were a decade ago, the trend of businesses hiring more part-time workers has been in evidence since 2007, years before the ACA was even introduced. A Center for Economic and Policy Research study observed that employers do not appear to be changing hours in large numbers in response to the sanctions in the ACA. An analysis from the Center on Budget and Policy Priorities observes that there is scant evidence that health reform is causing a significant shift toward part-time work, noting that the percentage of involuntary part-time workers has decreased since the ACA was signed.  So, there. 
 
4.
  HEDGE FUNDS CUT FEES:  Until a few years ago, most funds were like upscale New York restaurants: some succeeded, others failed, but almost none cut prices. The Wall Street Journal says this pricing power was a product of the tens of billions of dollars that flowed into the industry after the tech meltdown of 2000, when savvy investments by some hedge funds shielded their investors from the drubbing suffered by holders of broad stock funds. Impressive subsequent performance made hedge funds even less likely to trim the so-called 2 and 20 fees that made many money managers wealthy.  But, since the financial crisis, failure of many hedge funds to produce returns perceived to be commensurate with their high costs has given rise to more assertive customers -- notably pension funds and other institutions with billions to invest. Today, the average hedge fund charges an annual management fee of about 1.6% of assets, while claiming around 18% of investment gains. Investors willing to lock their money up for several years, write a big check or bet on a new fund can get even lower fees and other concessions. Because hedge funds manage $2.41 trillion, change of a few percentage points adds up to a lot of dollars. Last year, hedge funds pocketed $50.5 billion in management fees and performance fees, meaning the share of profits. The pressure to cut fees is felt most acutely by managers focusing on stocks and commodities, rather than bonds, because equity and commodity funds generally have not posted outsize returns recently. Some debt strategies are more complex and expensive to implement, which tends to keep those fees higher. 
 
5.  LOCAL GOVERNMENTS DO NOT COMPLETELY CONTROL PENSIONS: 
Many U.S. local governments have large pension liabilities, but few control the management, reforms and investments of their retirement plans, according to a report by Moody's Investors Service.  Altogether, an estimated 75% of the 8,000 U.S. local government pensions surveyed are run through centrally administered plans, such as state "cost-sharing" systems. School districts in particular have little pension independence, as all but a handful of school district pensions are run by cost-sharing plans. In addition, more than a dozen states pay part or all of school districts' annual pension contributions. The aggregate net pension liabilities for the thousands of governments it studied are equivalent to 150% of their outstanding direct debt. In budgetary terms, the approximate median pension liability for the governments is equivalent to 100% of annual operations. State governments have generally received more scrutiny during the heated battles over public employees' retirement benefits.  The Pew Center on the States found the most populous 61 U.S. cities are short by a collective $99 billion for pensions. Local pensions face other risks, as well, such as exposure to changes in financial markets. Centrally administered plans have been moving out of fixed-income investments and into equities in search of higher returns. In half the states, many local governments of all types are directly linked to asset performance of one or two large pension plans. Management of this market risk is beyond control of most local governments in cost-sharing plans, where they typically have little if any influence over investment policy or decisions. Pension contributions may have more bearing on credit quality than local government control. A strong history of funding based on conservative financial assumptions confers low risk even if plan types are not conducive to local control of benefits or funding, or if state law constrains the ability to alter benefits.
 
6. FPPTA TRUSTEES SCHOOL: Florida Public Pension Trustees Association Trustees School will take place on September 29 - October 2, 2013 at the PGA National Resort & Spa at Palm Beach Gardens, Florida. To access information please log on towww.fppta.org. All board of trustee members, and anyone interested in the administration and operation of the Chapters 112, 175 and 185 pension plans should attend trustee school.
 
7. FLORIDA DIVISION OF RETIREMENT ANNUAL POLICE OFFICERS’ AND FIREFIGHTERS’ PENSION TRUSTEES’ FALL CONFERENCE: 
The 43rd Annual Police Officers' and Firefighters' Pension Trustees Fall Conference will take place on October 22-24, 2013. You may access information and updates about the Fall Conference, including area maps, a copy of the program when completed, and links to register with at the Doubletree by Hilton Hotel Orlando at Seaworld. Please continue to check the FRS website for updates regarding the program at www.myflorida.com/frs/mpf. All police officer and firefighter plan participants, board of trustee members, plan sponsors, and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this unique, insightful and informative program.

8. JEWISH WISDOMS: Too bad that all the people who know how to run this country are busy driving taxis and cutting hair.  George Burns

9. DID I READ THAT SIGN CORRECTLY? Man Struck By Lightning: Faces Battery Charge. He probably IS the battery charge!

10. TODAY IN HISTORY: In 1935, Millionaire Howard Hughes flies his own designated plane at 352.46 mpg. 

11. KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 
 
12. PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription. Many pension board administrators provide hard copies in their meeting agenda. Other administrators forward the newsletter electronically to trustees. In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.

 

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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