Harvard study: Public pensions are “enormously risky.”

A new study published by Harvard’s John F. Kennedy School of Government joins a growing chorus of academic research that has raised alarm bells over the state of public pension funding in the U.S.
The authors found that:
“…the existing status quo is enormously risky…The current system of pension accounting, whatever the discount rate used, doesn’t convey the risks inherent in the system and how policy choices affect those risk.”
GASB standards do not account for these risks in any meaningful way. While outcomes are better at the median, performance in the left tail of the return distribution are dramatically worse.”
While these comments were made in regards to U.S. public pension plans broadly, Nevada PERS is no exception to the rule.
From 1975 to 1995, it was reasonably safe to assume an 8 percent annual return simply by investing in Treasury bonds. But when bond yields started declining significantly in the early 2000s, PERS was confronted with a choice:
Reduce the system’s assumed investment return to reflect the changing market conditions, or move more of the portfolio into stocks — which offer the potential for higher returns to compensate for the higher levels of risk.
PERS chose the latter, going from a historical 50/50 split between stocks and bonds to a portfolio today that is now 72 percent stocks and private markets — the highest percentage in its history.
Compared to the hike in taxpayer and government workers’ retirement contributions that lowering the assumed rate of investment return would require, this move appeared painless.
But there was a cost to this shift, which as the Harvard study notes, has been totally ignored under the current accounting standards.
While the new portfolio may still be expected to return 8 percent on average, the damage done during periods of below-average returns is significantly higher. This is because, as PERS undertakes more risk, below-average returns move farther away from the expected mean (or midpoint) return of 8 percent.
In other words, the damage caused from periods of below-average investment periods grows exponentially, as the level of risk increases.
And as the size of the PERS fund grows — currently at $35 billion — so too does the potential destruction caused by such an event.
For example, there is currently a 10 percent chance that PERS will experience an additional shortfall of at least $6.56 billion in a single year!
This is equal to roughly 65 percent of all state and local tax revenue combined, or more than four times the amount government workers and taxpayers currently contribute to the system.
Yet, current accounting standards ignore risk entirely, which "is a clear hindrance to policymakers," according to the authors:
The existing reporting by public funds in no way conveys the wide range of possible funding outcomes. Existing accounting practices often recognize the impact of decisions on one part of the distribution of outcomes (say the mean or median) without indicating that they also affect other moments.
While using a higher discount rate appears beneficial in the short-term — by decreasing the amount that taxpayers and government workers must contribute — the study finds that this is ultimately a losing strategy:
Changes in the discount rate have a perverse immediate impact on liabilities and funded ratios in that funds with higher rates and lower contributions appear better funded on impact. Over time, though, the reduced contributions associated with higher discounting leads to more not less underfunding. (Emphasis mine.)
The study, Risky Choices: Simulating Public Pension funding Stress with Realistic Shocks, can be read on the Harvard website here.
For NPRI’s analyses of the Nevada PERS situation, visit: http://www.npri.org/issues/detail/pers


Treasurer's office email

Good afternoon ESA friends,

This is a quick note to update you on an email that some of you may have received from the treasurer’s office yesterday. 

The office was running a few system tests and emails were inadvertently sent out to some parents. If you did not get an email, don’t worry — not every application has been transferred to the system, so many parents who have sent in applications may not have received any email at all. 

Treasury staff is also still inputting the hardcopy applications received during 2016. The good thing to know, here, is that the treasurer’s office is moving forward, and working on the system. Yay!

As one more added precaution, you may want to check your junk or spam mailboxes if you didn’t see an email from “nevadatreasurer.net”. On the chance that you were one of the parents who received a test email, but it went into your junk or spam mailbox, you will want to fix your settings so future notices from the Treasurer actually go to your inbox.

One of the questions coming from parents who did receive the email has been “why did I only get one email when I submitted applications for 3 or 4 children?”

The treasurer’s office is working to make the system user friendly. Rather than having 4 different logins for 4 children, a parent will be able to access each child’s account with a single login. The goal is for parents to receive just one email, and one login, regardless of the number of applicants. If that’s what happened to you — yay — it worked.

If you haven’t received an email yet, don’t panic. The treasurer will be sending out emails to all parents at a later date.

Also of note, the treasurer’s office is still working to get the online enrollment opened.  According to the treasurer’s website, the prospective date for going live has moved to Monday, November 14. 

I know you are anxiously waiting. Please, bear with everyone as the Treasurer tries to bring this system out of hibernation.  Online enrollment will expedite the process — and best of all, online enrollment will give new applicants immediate confirmation that their application has been received!

Applications for this enrollment period run through December 31.  Although, the treasurer’s office is considering an extension given the delay in getting the enrollment period started.  I will let you know once there is final word. Remember, you will need to have your documents scanned to upload them during the application process.  If you need any help scanning documents, let me know.  I can scan them for you or send you to a location that is able to help.

To recap:

  • A test email was inadvertently sent out to some parents, and did not go out to every applicant, as the Treasurer is still inputting a large backlog of applications.
  • Account logins are being grouped by family so parents will have one login to gain access to their entire family’s account. This means that even if a parent submitted applications for three separate children, they will have only received a single test email from “nevadatreasurer.net” — if they received any email at all. 
  • Enrollment has been moved to Monday, November 14, and will be online. Once the link goes live, I will send you an email.

Finally, in honor of Veteran’s Day, the NevadaESA.com team would like to take a moment and express our deepest gratitude and thanks to all of our military members and their families.  Your service and sacrifice are much appreciated!  To all those who have previously served and fought for our freedom, you are treasured and we thank you.




Why hasn’t Metro PD been filling its vacancies?

Hundreds of budgeted positions are vacant — and have been since 2015 — as department lobbies for tax increase

By Daniel Honchariw

As county commissioners consider whether to increase the sales tax by one-tenth of a percentage point to strengthen Metro PD’s staffing levels, a large number of the department’s budgeted positions are vacant, according to Metro’s latest personnel summary.

As of October 24, 2016, Metro had 272 budgeted positions unfilled — meaning that nearly 10 percent of its authorized work-force had not been hired.

A review of past personnel reports indicates that such a high level of vacancies has been the norm — not the exception — throughout the past year, and before.

As the above chart demonstrates, at no point during the last year has Metro maintained fewer than 150 vacant positions, including in January 2016 when 300 positions were unfilled.

To be clear, these are budgeted positions, which means that money for them has been allocated. Thus, funding issues do not explain why these positions are vacant.

While Metro has accurately claimed that its current officer-to-population ratio stands at 1.7 officers per 1,000 residents, that ratio could reach almost to 1.9, were every budgeted position filled.

In this sense, Metro’s inability to reach what Sheriff Lombardo has called the 2.0 “magical” number he says the department needs, appears to stem more from Metro’s own hiring practices than from a lack of adequate funding.

These facts raise several questions:

  • Why hasn’t Metro filled these vacancies?
  • Are these positions being kept vacant so that Metro can point to an artificially-low officer-per-capita ratio as justification for increased taxes?
  • If Metro isn’t using its More Cops money for hiring more police now, how would additional tax revenues change that?

Sheriff Lombardo has repeatedly pledged not to comment on the issue until after the newest version of the More Cops tax — the Clark County Crime Prevention Act of 2016 — is decided.

Effectively, that means he’s declining to answer questions the public is justified in asking.

Daniel Honchariw, MPA, is a policy analyst at the Nevada Policy Research Institute.



In case you missed it...


Nevada PERS:

The Nevada Policy Research Institute released the most recent pension payout data from the Public Employees’ Retirement System of Nevada on TransparentNevada.com. The top payout went to former University of Nevada, Reno head coach of football Chris Ault who collected $278,497. “Even more shocking, however, is the fact that this is actually a reduced benefit,” explained Nevada Policy Research Institute Transparency Director Robert Fellner. (Read more)



It’s surprisingly easy for politicians to claim the title of “champions of small business.” And it’s a label that provides useful bragging rights. The reason? Few voters have the time to investigate what’s behind the label, which always looks authoritative on a politician’s brochure. But in the case of Nevada’s New Market Jobs Act, it means bowing to a politically connected company with a history of taking taxpayers for a ride. (Read more)


Fiscal and taxes:

When the next president takes office, he or she will be inheriting a national debt of more than $20 trillion — almost double what it was just eight years ago. To put that number in perspective, consider that the 500 major corporations in the S&P 500 — including Apple Inc., Exxon Mobile Corp., Facebook and others — have a combined value of just over $19 trillion. (Read more)



So much for “affordable” healthcare. Americans in their early twenties, earning an annual salary of $30,000 or more, will pay at least $2,484 in annual Obamacare premiums — and that is after taking into account the various subsidies and tax credits from the federal government, according to the Kaiser Family Foundation’s health insurance marketplace calculator. (Read more)



A federal appeals court has dealt another blow to a proposed wind farm near Searchlight. Apex Clean Energy was hoping to build 87 wind turbines on 9,300 acres of public land south of Las Vegas — but the court ruled that the company and federal authorities had not adequately assessed the environmental impact the windfarm would have on local wildlife. (Read more)



Your questions, answered

Hello again, ESA friends,

My email earlier this week triggered a few really good questions.  So, I’m going to go over those today. 

I applied during a previous enrollment period. Do I need to reapply?

No.  The Treasurer’s office asks that you do not reapply, even if you applied in 2015.

I previously applied and have not heard anything back from the Treasurer’s office.

The Treasurer’s office has not reached out to any applicants since January 9th.  Pending direction from the attorney general's office, the Treasurer will be contacting parents with updates and instructions. 

I previously applied with a paper application and did not turn in any documents.  Do I need to reapply and/or upload my documentation when applications go online?

No.  The Treasurer’s office asks that you do not reapply. Once the Treasurer has clear direction from the Attorney General’s office and has gotten the previous applications situated, they will be reaching out to parents with updates and directions.  Instructions will be given on how to upload your documents or update your file at that time. 

How can I check if the Treasurer received my child’s application?

Until the applications are entered into the database, there is no way to check if an application has been received.  The Treasurer’s staff asks for your patience while they work through the administrative details with the AG’s office and enter data.

If you mailed your application via certified or certified-return-receipt mail, that receipt is your proof of submission should something happen to your application.  Be sure to keep your certificate receipt or green confirmation card. You can track certified mailings by entering your certificate number in here.

When the Treasurer’s office opens enrollment and begins contacting parents, I will be sure to let you know.  In the meantime, please get your documents scanned and ready for uploading.  And, as we gear-up for the 2017 legislative session, please be sure to sign the petition to #LetOurChildrenSucceed.

Thank you to everyone who brought these pressing questions to my attention.  I hope this email helps bring some clarity and reassurance.

Stay strong!




Study: Nevada teachers’ retirement benefits slashed a national-high 14 percent to offset PERS debt

By Robert Fellner

Nevada teachers are paying more to bail out their share of the nation’s combined $1.75 trillion in public pension debt than teachers in any other state, according to a just-released study by Manhattan Institute Senior Fellow Josh B. McGee.

In Feeling the Squeeze: Pension Costs Are Crowding Out Education Spending, McGee documents how rising pension costs have siphoned resources from vitally needed education services, particularly teachers’ salaries and retirement benefits.

Nationally, McGee found that “teachers earned retirement benefits worth about 1.01% of payroll less in 2015 than in 2005” as states reduced the size of retirement benefits offered to new hires in an attempt to slow down the growth of pension debt. Nevada teachers, however, saw their retirement benefits reduced by an amount worth 14.07% of total payroll — which was the largest reduction experienced by teachers of any state.

Making matters worse, this reduction in retirement benefits has occurred alongside an increase in the amount today’s teachers must pay to PERS —as NPRI previously reported here, here and here.

As the below chart makes clear, Nevada teachers are paying PERS more, while getting much less in return.

McGee correctly pins the blame for this inequity on irresponsible benefit enhancements that were passed in earlier years, without properly accounting for their added cost.

The particulars of Nevada’s experiences with these types of enhancements — which occurred incrementally during the 1990s before ultimately culminating with the 2001 Senate Bill 349 — can be found here.

PERS itself had lobbied on behalf of those enhancements in the past — with former CEO George Pyne advocating for the now universally-reviled practice of using short-term investment gains to pay for enhancements, as opposed to saving for the inevitable market downturn.

Today, however, even current CEO Tina Leiss has correctly warned the Board to be wary of any requests for new enhancements, citing their potential to carry unanticipated additional costs.

McGee concludes by stressing just how devastating these costs can be:

“Now the cost of paying for legacy-benefit promises to teachers for work in yesterday’s classrooms is crowding out the salaries and benefits of teachers entering classroom todays, with potentially negative implications for students.”

The full study can be downloaded from the Manhattan Institute’s website here.

For NPRI’s analyses of the Nevada PERS situation, visit: http://www.npri.org/issues/detail/pers

Robert Fellner is the director of transparency for the Nevada Policy Research Institute, a nonpartisan, free-market think tank.


ESA Update: Delayed Enrollment

Hello ESA friends,

As many of you know, today should mark the start of a new ESA enrollment period.  However, the Treasurer’s office has delayed enrollment pending guidance from the Nevada Attorney General’s Office. The office hopes to open the online enrollment portal no later than November 8th, 2016. Yes, enrollment will go back to the online version where you will be prompted to upload your documents.  So, be sure get your documents scanned.

If you need help scanning documents, let me know and we can assist with that.  Documents needed:

  • Copy of the parent’s valid Government issued ID
  • A certified or verified copy of the student’s birth certificate (this can be a clear photo copy) AND Proof of legal guardianship (if you’re not the biological parent)
  • Copy of your most current utility bill (applicant parent name and address) OR
  • Copy of current property tax bill OR rental lease agreement (applicant parent name and address)
  • If you answered yes to your child having disabilities you must provide a copy of your current Individual Education Plan (IEP) or a letter from a doctor.
  • If you answered yes to your annual household income falling within the 185% poverty line you must provide proof by submitting (a copy of last year’s tax return (first 2 pages) or a current paystub)
  • If you are a military family currently serving in Nevada, you must provide a copy of your current orders

So, what about funding?

As you know, the Nevada Supreme Court declared the ESA program constitutional but found the Nevada legislature failed to correctly fund the program. Despite the lack of appropriation, it remains the goal of the Treasurer’s office to continue to accept enrollments into the program while a permanent funding solution is sought. But, folks, be sure to note that, due to a lack of an appropriation, applicants are not guaranteed funding at this time.

For the past several weeks, many parents have been calling on Governor Sandoval and Nevada lawmakers to fund ESA.  And, boy, was it a testament to the passion parents have for their children’s education! Unfortunately, it looks like there will continue to be a wait before lawmakers have an opportunity to present a fix. 

Even Treasurer Dan Schwartz, whose office expedited regulations, has fought and won two court cases, and who has worked day and night to get ESA funded, sent his apologies to Nevada families over the weekend.

“I can only apologize to Nevada moms and dads,” writes Treasurer Schwartz in an op-ed to the Reno-Gazette Journal, “for our party’s failure to keep our word.” He was referring to Governor Sandoval and Nevada’s Republican legislative leaders who failed to fund ESA during the last special session.

Friends, I admit, I felt deflated this morning. But, I am not defeated! 

Governor Sandoval has committed to fund ESA in 2017.  Nevadans, I have no doubt, will hold him to that.  Call me crazy, but I still have faith. So, I’m taking a moment, inhaling a deep breath and gearing up with the folks here at NevadaESA.com to fight strong in 2017. Treasurer Schwartz, Governor Sandoval and 8,000+ plus Nevada kiddos are going to need all the support they can get.  

Some of you may recall that NevadaESA.com launched a petition showing support for ESAs back in January.  If you have not already done so, be sure to check it out and sign on if you want Nevada’s officials to protect our ESA program.




PERS funding shortfall, despite strong investment returns, highlights need for reform

Kudos to Steve Edmundson’s low-cost investment approach that has helped the Nevada Public Employees’ Retirement System (PERS) outperform their peers in recent years (“Nevada goes passive to beat peers,” Oct. 19).

But exclusively focusing on investments overlooks PERS ultimate objective: to have enough money to make good on its promises. With a funded ratio of only 71 percent, the system is below average nationwide and far short of the 100 percent target the American Academy of Actuaries recommends.

Because U.S. public pensions discount liabilities by assumed investment returns — for PERS it’s 8 percent — anything less than that creates a funding shortfall. Consequently, PERS has fallen further into debt over the past decade, despite outperforming peers with a 6.2 percent annualized investment return.

But investment markets are inherently risky, which is why the best any fund manager can do is target an average return. In other words, even a portfolio perfectly built to hit PERS 8 percent expected target will underperform 50 percent of the time!

This is why pension systems in the private sector, the federal government and internationally use discount rates that reflect the strength of the promise made to retirees — who expect to get paid 100 percent of the time and not just during periods of strong investment returns.

The PERS Board should follow suit.

Alternatively, the Legislature could create a new PERS tier — similar to the reforms in neighboring Arizona and Utah — that would fund members’ promised benefits with the same level of certainty as their expectation of receiving them.

While this system would still benefit from above-average investment returns, it wouldn’t depend on them — which is far too great a burden to impose on any investment manager, no matter how talented.

Robert Fellner is the director of transparency research at the Nevada Policy Research Institute. A condensed version of this letter to the editor was originally published in the Wall Street Journal.


In case you missed it...

Eminent domain:

The family whose mining property overlooks top-secret Area 51 says the Air Force went too far when it seized the land. According to some independent appraisers, the property is estimated to be worth between $44 million and $116 million — a far cry from the $333,300 the government offered when it enforced eminent domain. (Read more)


Federal lands:

While the rest of the country celebrates Halloween, Nevada residents have another added bonus to the weekend: Nevada Day. The Silver State is one of the only states to continually celebrate the day it came into the union — but perhaps Nevadans should take a minute and think about what it actually means to be a state. One issue has continued to haunt us since the day Nevada first entered the union: our state lands. Currently about 87 percent of the land in our state is owned and managed by the federal government. Now that’s a scary thought. (Read more)



Obamacare — titled “The Affordable Care Act” — is not turning out to be “affordable” by any stretch of the imagination. The Obama administration’s own Department of Health and Human Services confirmed that Americans will experience double-digit premium hikes in the next year, and that one out of every five Americans will have only one health insurer to choose from. But now, as it seems Obamacare is in a death spiral, the president is planning on using taxpayer dollars to bail it out. (Read more)


Free speech:

Dr. Eric Walsh, a Seventh Day Adventist lay minister who was hired by the Georgia government in 2014 as a state health official, is fighting for his right to religious freedom. The state of Georgia began investigating Walsh’s “religious activities” back in 2014 and eventually ended up firing him due to activities related to his church. But things have since gotten even worse, with state officials now demanding that Walsh provide investigators with transcripts and notes of all of his sermons. (Read more)


Fraud and abuse:

Short of troops to fight in Iraq and Afghanistan a decade ago, the California National Guard enticed thousands of soldiers with bonuses of $15,000 or more to reenlist and go to war. The Pentagon, however, claims that the incentives were overused — often abused — by California National Guard authorities who were pressured to hit enlistment targets. As a result, nearly 10,000 soldiers have been ordered by the Pentagon to pay back the bonuses out of their own pocket. (Read more)


Hello ESA friends

I know you’ve recently received a lot of emails from me in a short period of time. Since the Supreme Court ruling, ESA has been very much a moving issue and I want to keep you as up-to-date as possible, and, hopefully inspire you as much as you have inspired me. So, please bear with me through this time.  

First, I just want to say, the recent outpouring from parents and community members for ESA has been absolutely awe-inspiring. Not just to me, but to those very folks you are trying to reach. Yesterday, I was speaking with one lawmaker who expressed heartfelt admiration for how respectful the letters and calls have been. Even letters expressing frustration and anger conveyed support, giving legislators the strength and drive to keep fighting. And, we’ve all needed some of that along the way.

I’m also told that the individualized stories of the children are beginning to resonate with lawmakers as real lives and futures, rather than mere statistics. That kind of impact is what really moves the needle.

As I told you last week, possible solutions to ESA funding exist. I’ve been told at least one solution is ready to go. However — there’s always a “but” — that solution will take a legislative act to implement. And, as we all know, that means Governor Sandoval must convene another special session and place ESAs on the agenda. Then, the legislature, of course, will have to approve any bill or bills.

I know, I know, it seems rather simple: Governor Sandoval can just call another special session and get this thing done. But, let’s be realistic, it’s never that simple. The Governor has many considerations he must weigh when making a decision. And, yes, that includes the political environment.

Make no mistake, friends: ESA is still a highly charged issue. Some witnessed fireworks during the recent special session — and we’ve all lived through it, given the lawsuits and the continuing organized campaigns to cripple the program. Senate Bill 302’s own legislative history demonstrates clearly the divide on the issue.

But, notwithstanding the divide, there still remains one overarching factor that all elected officials are cognizant of — the constituency.

Our government is built on the premise of “we the people.” And believe me, “you the people,” are having your voices heard. They’re now a living presence in this state. Lawmakers and others in Carson City are being inspired by your words and your stories. Your voices continue to be part of their conversation. I know I may sound repetitive, but I truly believe in our government system and the power of the people — the power of phone calls, emails, tweets and Facebook posts.

Governor Sandoval and all the elected in Carson City continue to listen to you. The very consistency of the public’s attention to this issue, I’m told, has made an immense impact. One just never knows when — or with whom — one’s heartfelt communications will push something as important as this over the hump and turn it into concrete reality.

You can share, or continue to share your thoughts with Governor Sandoval, by email at http://gov.nv.gov/Contact/Email-the-Governor/, by phone at 775-684-5670 or 702-486-2500. Governor Sandoval can also be reached on  Facebook and Twitter at @GovSandoval.

You may also want to contact the legislative leadership and let them know your thoughts.

Just last evening, in fact, a parent told me of a phone call she’d received back from Senator Roberson, the State Senate majority leader, that very day. Honestly, they really do want to hear your voices.

NevadaESA.com has posted the emails and social media contacts for Nevada lawmakers here. You can also find a directory and phone number for state Senators here and the Assembly Members here. Don’t forget to use the social media hashtags, #LetOurChildrenSucceed and #NVleg — and be sure to amplify each other’s voices by retweeting and sharing everyone’s Facebook posts.

Thank you for your inspiration. I continue to have faith.




Total Records: 2039

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