Looks like you better get out your hip waders

11 May

As of today over 100 people have downloaded the video of the 9/23/20 City of Chico Finance Committee. Have you seen it?

https://gofile.io/d/8JVqub

I’ve got it loaded into my laptop, and have watched it myself a few times. Every time I watch it, I see something I had not seen before. This time I caught a very quick exchange between Ann Schwab and Scott Dowell regarding the earnings on the Pension Stabilization Trust (Fund 115) that Staff set up a few years ago.

As Dowell explained this scheme to me, the PST/Fund 115 takes money from every department payroll based on a percentage. The money is invested in the stock market, trying to make money for annual “extra” payments to CalPERS. Last July, Dowell reported the city made a $11.5 million “extra” payment.

The consultant who gave the 9/23/20 presentation explained that the PST/Fund 115 is one strategy to manage pension costs. He said making these “extra” payments saves the city three and a half percent (3.5%) in interest.

Schwab asked a good question – yeah, sometimes I miss you Ann – she asked, “do you know what our interest rate is on the Trust (115) funds?”

Dowell quickly replied, “they run about 4%, 3 to 4%.” Ann said, “Okay, thank you.” Followed by an uncomfortable pause, and Dowell added, “it may be a little bit lower right now…” – another uncomfortable pause – “but, but, it… it’s ran that way…”

Wow. That’s kind of troubling. The city wants us to trust them to invest borrowed money, but as it is right now, they are making investments with city funds that aren’t paying off well enough to cover the service on the money they want to borrow. Not to mention that big Elephant in the Room, the UAL. Hey, that’s what Mark Orme calls it! Staff has to make enough money off the Pension Obligation Bonds to cover both the payments on the money they are borrowing, at 3 – 4%, and the 7% owed to CalPERS. Or, excuse me, we’re going to be hip-deep in elephant shit!

I guess the consultant felt the need to come to Dowell’s rescue. But from where I stand, he just dug Dowell into a bigger hole.

With this type of trust (115), “one thing that’s different from CalPERS is that the city does have options in how to invest that money. Most of these companies that manage that 115 trust provide different options, sort of like a 401K, with like 10 different options with portfolios based on risk tolerance so a lot of them are set up so it’s not as aggressive as CalPERS so not the expectation to earn 7% but more downside protection from a market downturn.

I hear three important points here. First, there is a company that manages these trusts, and they charge money. Second, Staff gets to decide what investments to make. Third, they aren’t going to earn 7%. And I’ll add a fourth – he admits there could be a market downturn. That’s what I’ve been seeing on the news every day lately, the market is in the red, and looking to stay there.

I will stop here, because I’m waiting for a response from Dowell – I asked him what the 115 Trust is making now. I will have to ask him who manages the fund and how much they charge.

And here’s another question: if, as Dowell reported on 9/23/20, we only had $2 million in the PST Fund 115, and we only make “3 – 4%…or “lower”, how does he plan to make the next “extra” payment?

Next time on This Old Lady Goes to the Stock Market!

4 Responses to “Looks like you better get out your hip waders”

  1. kerygmalori May 11, 2021 at 4:13 pm #

    Thanks Juanita. We are a part of Freedom Coaliton of Butte County and would like to see these things get changed.

    • Juanita Sumner May 12, 2021 at 6:13 am #

      Thanks to you and the coalition for sticking your heads out there, it’s a crazy world these days. Here are some things I’d like to see changed:
      1) fire city manager Mark Orme and hire a new manager with a proven record of controlling employee costs
      2) dump the Pension Obligation Bond scheme and close the Pension Stabilization Trust into the General Fund to be distributed back to the department funds from which it was stolen
      3) demand that employees pay more for their own benefits, or leave
      4) Coolidge out of the mayor’s seat, and he and Morgan censured for telling fibs to the public. I’d actually like to see those guys in stocks and every citizen over the age of 8 handed a bucket of tomatoes, but yeah, I think that’s probably not allowed anymore.

    • Juanita Sumner May 12, 2021 at 12:17 pm #

      Thanks Jim, this is a good read, I’ll post it on the main page.

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