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Obviously having noted that demonizing natural gas has been a useful strategy for New York Governor Andrew Cuomo, New York City Mayor Bill DeBlasio decided to pursue the same path this week.
First, DeBlasio filed a lawsuit against five major oil companies – ExxonMobil, BP, Shell, Chevron and ConocoPhillips – seeking to pry billions from them for their alleged role in creating climate change and the impacts of that on New York City. This includes costs related to improving the city’s resiliency when storms like 2012’s Hurricane Sandy hit. As the New York Post notes, DeBlasio’s suit comes at a time when he is aggressively encouraging new building and development all along the city’s waterfront. DeBlasio himself neglected to mention that fact, and it is fair to wonder why, if he truly believes his city is about to be inundated by rising sea levels, he would continue to promote multi-billion-dollar investments in new developments in low-lying areas.
But consistency of thought and the communication of full information has never been a part of the Cuomo playbook, and apparently is not a part of DeBlasio’s either.
DeBlasio next announced that he was endorsing New York City Comptroller Scott Stringer in his goal of divesting New York City’s five public pension funds' holdings of more than $5 billion in investments in fossil fuel stocks. He neglected to mention that his announcement comes at a time when the oil and gas industry is in the early stages of a new boom, and that the stocks he’s planning to divest have added a great deal of wealth to those pension funds’ balances over the years.
DeBlasio and Comptroller Stringer also failed to note the real state of the city’s public pension funds – funds that should be in the news for their burden on taxpayers, not for more political games.
For starters, it seems questionable at best that New Yorkers want their retirement savings caught up in political decision making. According to new research, surveyed members of pension funds in California and New York appear to be woefully misinformed about their pensions by their fund manager. That study, conducted by Spectrem Group, polled the opinion of almost 1,600 members of the California Public Employee’s Retirement System, CalPERS, and New York City Retirement Systems, to explore exactly what they know about how their funds are being managed. Over half of the pension members surveyed claimed to be knowledgeable about the status of their investments, with almost 50 percent believing that their fund had out-performed the market. Moreover, 80 percent of NYC fund members and 60 percent of CalPERS’ believe that their pension is fully funded, with sufficient monies to cover all their liabilities.
Sadly, neither assumption is anywhere near the truth.
On Thursday, the day after DeBlasio announced his campaign to demonize the oil and gas industry, another relevant study was released. This study, conducted by The American Council for Capital Formation, finds that “New York City Public Pension Funds are suffering from a precipitous decline, reporting unfunded liabilities of nearly $65 billion in fiscal 2016.”
The harsh reality is the five pension funds that make up the New York City Retirement System are only 62 percent funded on average , well under the national average of 72.9 percent. Even more concerning, the report finds city taxpayers’ contributions to the pension funds stand at $9.3 billion in fiscal 2017 – up from only $1.4 billion in fiscal 2002. That means if you live in New York City, four of every five dollars you pay towards New York City’s personal income tax is spent paying down the city’s public pension fund system’s liabilities.
Similar findings have played out at CalPERS, which – as I’ve written previously – has turned a $2.9 billion surplus in 2007 to a deficit of more than $138 billion today, despite a strong market. What exactly is going on at these pension funds?
The ACCF report alleges that one of the main reasons for the recent increase in unfunded liabilities at New York City’s public pension funds has been the investing decisions made by Comptroller Stringer. Mr. Stringer has placed increasing emphasis on investing more heavily in social performance initiatives – like the Developed Environmental Activist asset class – that have “underperformed the overall funds’ returns by an average of 600 basis points over the last three calendar years.”
Mr. Stringer has also placed heavy emphasis on social performance shareholder proposals, submitting an incredible 92 such proposals to 88 different companies during FY 2017. Very few of these proposals have anything to do with increasing these companies’ fiscal performance.
These are all details that should be known by pensioners whose money, after all, is funding this activity. But keeping people properly informed is not a part of New York City’s playbook here.
DeBlasio didn’t advise New York’s residents to stop heating their homes with natural gas, which most of them do. He also failed to advise them to stop consuming electricity, 40% of which is generated using natural gas in the state. He didn’t even tell New Yorkers to stop driving their gasoline-powered cars to get to his announcement. Instead, he called to give up some shares of companies to win some headlines at the expense of New York retirees.
The Spectrem survey mentioned above finds “at least 80-89% of respondents said their pension boards should focus on making money and not advancing social or political causes.” Good advice, but sadly not a part of the New York political playbook, and that playbook is placing pensions in peril.
