Feb 1, 2013|
Treasurer Steve Grossman on Pension Reform
Transcript - Not for consumer use. Robot overlords only. Will not be accurate.
June it's a busy news day so this story. Deserves a lot more attention -- it's getting content and it has to do with the state of Illinois now Illinois we talked about them in the past they are in. Deep trouble they've got major. Problems financial problems in the state of Illinois. They were supposed to do a bond auction bid at a news is nobody who loaned by the couple that's that's a very bad sign. Fortunately we are not in that. Type of fiscal condition and we are joined by our state treasurer mr. Steve Grossman who joins us today to talk about the Illinois probably more XT -- don't. Mourning period thanks for having me. So give us the inside skinny you you know if you -- talk to each other Illinois -- they had to postpone their bond offering yesterday that is not a good sign Steve. No it's never a good sign I think there are two issues here for them one because they just got a downgrade. In terms of their bond rating. I don't think you can go out and -- on the investor community before the news has the chance to circulate immediate after. Potentially rewrite your disclosure statements and important comply with -- all the rules and regulations so full disclosure is critical and second at all. More important reasons why they were downgraded. I mean there's a clear. Perception. That. They are not doing what they need to do. To get their house in order while it may take many many years to move in that direction. Clearly you gotta start somewhere. I mean I think we recognize that even with significant unfunded pension liabilities here in Massachusetts. Even when it unfunded. Open at liabilities so I have to those who don't know what it means her. Other post employment benefits most notably retiree health benefits we -- significant liability spoke at the state level. And at the municipal level but I think the point is we're doing something about it or not. Sitting here do you do if nature of all the sudden you've got to tap on the shoulder Deval Patrick said hey we just trade aged Illinois. -- your go to Chicago what would you do if you're the treasurer of Illinois as opposed to being the treasurer mass choose. Well a lot of the fact that I don't. Like to comment on other people's problems when I don't know the facts about the problems. But the -- is 896 billion dollar pension deficits the. And I would hit his what I would do I would put a checklist together all the things we have heat of the gun to do or continue to do here that are putting us in -- position -- one -- only two states in the country. That -- and improve on -- Standard and Poor's in the last couple of years the Alaska. I would take a look and say what have you done in pension reform did you create a later retirement age Picchu reduce incentives for early retirement. Did you take your tobacco money I mean we did something that most people aren't aware of we took -- tobacco money. And we're taking 10% of that increasing each year. This year's budget 10% of the tobacco money this is the long term tobacco settlement in the tobacco companies so we took 10% of that about 25 million. In the fiscal thirteen budget. And we put aside for a long term health benefits. Next year fiscal 1420%. Fiscal 1530%. We're gonna wrap up over ten years so that. -- ten over ten year period and after that we will use all of our tobacco money set aside for help did you do that Illinois. The -- Steve I'll tell you the answer because I studied it they haven't done anything on any given anything in a little I haven't done anything California. I would change I mean we changed the way we handle capital gains taxes in the old days all capital gains taxes could go right into the budget and be spent by the legislature. Can't do that anymore -- capital gains over a billion dollars have to be put into the stabilization fund by the rating cut it's one of the reasons like right here in Massachusetts now we've that. One of the only. Only one -- three states. That has a rated and over a billion dollars investors want you to keep the savings account for a rainy days so I would ask them what are you doing obliterated on. What are you doing a virtual your your post employment health benefits what reforms you making what do you do with you tobacco money. Are you -- in retirement ages and other incentives -- early retirement. These are things that you we had to do have to do have to continue to do. To be financially prudent to be financially stable to be fiscally response. Think they go bankruptcy the Cali Cali in Illinois he do you think they declare bankruptcy in the next five years. You know I would want to predict what a state might or might do but I will predict that. Investors will. They're gonna buy the debt. Ike Ike is as a consumer Steve -- I would not buy that debt. But those bonds they could pay me 10% interest -- I would not buy an Illinois municipal. So my guess is that. They will redo this bond offering enables seller half million -- have a billion dollars in bonds. Sometime in the near future at a rate that is substantially higher than any other state. As having to pay ten and that has. Long term consequences because the more you paid for your debt and the more -- Out of your operating budget the money that you need because Massachusetts is now that the lowest cost of capital we've ever at. We're able to use those funds save money in the budget and be able put together it decently balanced budget so. Reform is the bottom line is based sound boring but -- the candidates the last two. How we do as Steve has our pension nose last time I talked -- think you're what 24000000023. Billion under fun. 123 point six billion dollar unfunded liability the good news is of course we did earned thirteen point 9% last year. In our state pension funds that's a number that. Was reported at our investment committee will be reported at the board meeting that's calendar performance that's better create a quarter percent we had to -- certainly been in the 8% which are new -- It's gonna take a lot of years buried -- earned thirteen point 9%. Pressed to begin to dig into that unfunded liability the the point is we're doing it we've -- a long term plan we are engaging in reform it's not easy to reform. But we're able to get people at the table with very different perspectives and they look we can't put that helped. Of cities and towns or the commonwealth in jeopardy by failing to do. You have to tell belong to you got it wrong long term perspectives PE you have to deal these -- because you know what. He's thirty years from now Steve you're losing your grandchildren are still going to be here. This one last thing we haven't talked about and edit the economic prospects the reality is that because we have positioned ourselves. As an innovation economy as a knowledge based economy even in a year that didn't show much growth last year we still create over 50000 jobs is that enough. It's not enough but at least it build a bright future at least at the foundation on which to build long term. Investment in people infrastructure. Education clearly priorities but even when we invest in those things. Let's not forget fiscal responsibility. Prudence and the financial stability at the state and its citizens. See even read you might wanna suggest to the governor that it's a bad time to raise taxes just a thought but you know as well as I do your -- back to economics one of one. In a weak economy it's a bad idea to raise income taxes. But I'm always gonna come back to fundamental principle. You have to reform and invest in transportation. Infrastructure and education but you also have to do it in the context. Fiscal stability responsibility and prudence and that's just not the states. On rating and the states -- capital it's what goes on in the pocketbooks of every single citizen of this commonwealth every single day. All right Steve thanks for your time very Steve Grossman state treasurer here in Massachusetts. I will -- who we are in better shape than a lot of the other states in my opinion we have not done enough. That's money my thought -- on the top mumbling just camera. Him an easy look easy to increase comes on a Governor Patrick I've invited him on him not. In -- I've not heard back to wait while he's been busy now pointing. He may be -- c'mon next week.