LYNN BERGMAN: NORTH DAKOTA’S CREDIT RATING PART II - THE “CALIFORNICATION” OF N.D.!
Improving North Dakota’s “Less than Perfect” Credit Rating
Part II - The “Californication” of North Dakota!
By Lynn Bergman
In Part I we referenced Jonathon R. Laing’s “Good, Bad, and Ugly” from Barron’s August 29, 2011 edition. We pointed out that three actions of legislators and our next governor are necessary to improve North Dakota’s credit rating from AA+ to AAA:
- Reduce North Dakota’s tax backed debt from 4.26% to 3.40% of state GDP
- Decline federal funds in new areas & reject them in historically funded areas
- Change state pension plans from “Defined Benefits” to “Defined Contributions”
In Part I we also noted that North Dakota emulates California in funding state pensions at 81%, both stuck in the “Defined Benefits” rut when many states have already switched to “Defined Contributions” plans so prevalent in the private sector. Laing’s “Good, Bad, and Ugly” may be found on line at:
In this Part II, we reference Thomas G. Donlan’s editorial commentary “Missing Opportunities” to be found in the December 24, 2011 edition of Barron’s. Donlan details the mistakes made by funding managers of the California Public Employees’ Retirement System (Calpers) as influenced by the platforms of California politicians. Donlan’s “Missing Opportunities” may be found on line at:
http://online.barrons.com/article/SB50001424052748704300804577114494075271500.html
Donlin’s editorial chronicles the erosion of sound stewardship of public pension funds from secure and long term (30+ years) fixed income investments… to equities with a reasonable chance of increased valuation over a period of a decade… to equities without dividends… to speculative, illiquid real estate or commodities. Each venture away from long term security was, of course, intended to increase returns without increasing risk. For those unfamiliar with California (and Washington DC, for that matter) politics, it is important to understand that in the golden state (and the DC beltway), intentions mean everything… so positive outcomes are only desired, not demanded or expected.
Calpers nearly doubled its allocation to real estate between mid-2005 and mid-2008. After the U.S. real estate bubble burst and equity markets plummeted from late 2007 to early 2009, Calpers sold equities ($0.37 Billion in Apple shares alone that would be worth 0.90 Billion today) to meet payout obligations… and lost $1.47 Billion from just two California “development” companies that went bankrupt.
From mid-2007 to mid-2009, Calpers’ fund balance fell 28.5% from $249 Billion to $178 Billion. California’s constitution puts public employee pension benefits ahead of all other state spending, so California taxpayers will ultimately foot the $71 Billion bill for Calpers’ mismanagement to date…unless our federal government bails California out…
Public pension funds in general are not managed with the taxpayers’ interests at heart. Most managers are beholden to public employee unions…some are public employees themselves…more interested in their benefits than their costs.
Nationwide, nonfederal public employees have been promised at least $2 Trillion more in benefits than there are assets to sustain such benefits.
We summarize with an admonishment similar to that found at the end of Part I:
All North Dakotans can be proud of our work ethic. But “courage” will be required of our elected officials to make us proud of THEM! Conversion of North Dakota’s public employee retirement systems from “Defined Benefit” to “Defined Contribution” is essential in the next legislative session… unless elected officials are already planning to use the “Legacy Fund” to bail out public unions instead of providing an oil & gas revenue replacement fund for future generations of taxpayers to draw from! Taxpayers must not allow North Dakota politicians to be influenced by public employee unions to the extent that fund managers have no recourse but to ruin our state’s economy like our federal government and California have ruined theirs.
District Reorganization Meetings
Please remind your legislators during the upcoming district reorganization meetings that they are elected to represent the taxpayers of North Dakota and that they are NOT members of state employee unions nor beholden to those unions. The meetings times and places can be found on the following web sites:
http://www.northdakotagop.org/2011/12/district-reorganization-meetings-announced/
“The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing,” Albert Einstein
© 2012 Lynn A. Bergman
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