DiNapoli's Fuzzy Math

In my opinion, the strongest Republican campaign in New York has been Harry Wilson's run for comptroller. Wilson, a hedge fund manager with an M.B.A. from Harvard, recently wrote a report pointing out the deficiencies in the calculations of the state's pension fund. For you financial wonks out there, here is the paper.

From the NY Times:

When the state takes its snapshot of the fund, he says, it makes several mistakes, including two big ones. First, it counts money that is not in the fund — hoped-for investment gains that may or may not appear and future contributions from workers and taxpayers. Second, it does not take into account that the state pensions are worth more than other such promised money because they come with a constitutional guarantee.

The difference in dollars is huge, Mr. Wilson writes in a paper due out on Thursday. If New York recalculated its pension numbers with the stricter standards that companies use, it would come up $30 billion to $80 billion short, he says.

“The coming public pension crisis is the largest financial problem our nation faces at the state level,” he warns in the report, adding that it would eclipse the cost of the bailouts of companies like the American International Group and Fannie Mae, or the savings-and-loan industry in the 1980s.

New York’s retirees will not have their benefits cut, Mr. Wilson says, citing the constitutional guarantee. But over time, residents will see more cuts in public services and less money for infrastructure maintenance as public dollars are diverted to fill the hole in the pension fund.

The state’s plan to borrow billions more from the pension fund to get through this year’s fiscal squeeze, meanwhile, will drive the fund deeper into the hole.

Economists who were shown the paper said Mr. Wilson’s analysis of the problem was sound.

“That part of it is exactly spot on,” said Joshua D. Rauh, an associate professor of finance at the Kellogg School of Management at Northwestern University who has written extensively on the accuracy of state pension numbers. He stressed that he was not endorsing Mr. Wilson’s candidacy.

DiNapoli's Response? Pure political cover.

Mr. Tompkins, the comptroller’s spokesman, said he was “flabbergasted” that Mr. Wilson would claim the state pension fund had a shortfall. He cited a report in the August issue of Governing, a publication for state and local officials, that called New York State “the nationwide pension leader, with the country’s highest-funded public pension at 107 percent.”

Every year, Mr. Tompkins said, the state requires a team of actuaries to review all pension calculations in detail; if something is awry, the chief actuary must report it to the comptroller and recommend an adjustment.

“The comptroller cannot arbitrarily change that number,” Mr. Tompkins said. “This is one of the more clearly defined processes in the law.”

Only once, more than a decade ago, did a state comptroller try to squelch an actuary, he said, and in that case the actuary resigned.

“We do things right,” Mr. Tompkins said. “We’re not New Jersey. We’re not guessing here.”

But, as one expert states, that's the problem!

That is the problem, said Zvi Bodie, a finance professor at Boston University who was asked what he thought of Mr. Wilson’s report. The state was following all the accounting rules to a T, Dr. Bodie said, and was coming up with misleading numbers because the rules were flawed.

What a great illustration of a fundamental flaw in governing - we need to pick candidates who see the broken system and who have the know-how to fix it. We can't afford anymore pols who stick their head in the sand and hide behind flawed systems. They care more about themselves than they do about us.