There are few things less sexy than pension funding and investment reforms at the municipal level. During the past half-decade, however, there also have been few things less concerning for Cincinnatians.
Behind flashier discussions of streetcars and parking meters lies a $2.4 billion pension plan which is less than two-thirds funded. After several radical attempts by those concerned to solve the problem of the $862 million unfunded liability, Mayor Cranley agreed to an extensive period of negotiation which concluded on Dec. 31.
While many in Cincinnati rejoice that a plan has been formulated to rectify this lack of funding, City Councilman Chris Smitherman is using the headlines to claim that the pension funds were poorly invested and to grab for power by offering his services on the board which manages them.
The deal struck between Mayor Cranley, City Manager Harry Black and representatives of several public sector unions including the AFSCME included a contribution of $38 million dollars by the city next fiscal year, a transfer of $200 million from the retiree health care trust fund into the pension fund and a required contribution of 16.25 percent of the annual operating budget (up from 14 percent) for the next 30 years.
However, the unions were forced to give some ground as well, accepting some restrictions to future cost of living adjustments. Announced only an hour and 15 minutes before the new year, this deal (which has yet to be formally drawn up and enacted) provided a solution to a problem which had been left to fester for an irresponsibly long time.
How does one misplace $862 million from a defined pension plan? one might ask. Well, the Cincinnati pension fund is, simply put, a large reserve of money entrusted to an 11-person board to invest and save as they see appropriate.
The returns on their investments were steady and acceptable until the recession in the mid-2000s that brought about a negative 27 percent return on investment in 2008 and a lackluster 1.1 percent return in 2011. Previously, the public and politicians accepted that the $862 million gap was an unavoidable product of recession. With a new plan in place, however, some are pointing fingers elsewhere. Smitherman, who daylights as a financial advisor, spoke out on Jan. 14, suggesting that the money has been too passively managed by the 11-person board and that it keeps too little of its assets in cash as buffers against future downturns and fail to invest in local Fortune 500 companies when stock prices are low. The councilman proposed a bill which would allow elected officials to serve on the board that manages the pension fund (something which was permissible until 2011) and has offered himself as an option for appointment.
Mayor Cranley, who previously served as a member of the pension fund board and gave his blessing to the reintroduction of elected officials to the body, has not said whether he would appoint Smitherman, and, indeed, thinks the passive and low-risk investment strategies of recent years are the wiser route.
Smitherman’s proposal to appoint elected officials is a clear example of small-picture legislation. The councilman’s primary concern is his ability and desire to manage the pension fund, and his arguments make little appeal to the long-term implications of this.
In the greater picture, it appears risky to entrust officials concerned with reelection with the day-to-day investment of such a huge fund. It is not difficult to imagine a politician investing with only the next three, two or even one year until the next election in mind and choosing not to consider the possible instability of a stock beyond that timeframe. Smitherman, especially, seems suspect.
Although his credentials are sound as an investor, his wide streak of incendiary political maneuvers (see his comments from 2009 alleging that a regionalized waterworks could pump syphilis-filled water into black homes) and shaky ideological footing (a former democrat endorsed by the Tea Party) don’t suggest the type of solidness one might seek when choosing who should invest a troubled, $2.4 billion public fund.
Even if Smitherman’s intentions are good in offering to aid in managing the pension fund, and they likely are, he hardly presents the implicitly dependable sort of figure one would want to offer up as the poster boy for this sort of legislation.
And, while Cincinnati rightly breathes a sigh of relief at the pension funding plan compromise, it should be wary not to seize too readily on a preventative measure which appears suspect both in the abstract and in its execution.