In my house we watch Heidi Klum.
My spouse and daughter like the designers’ drama and the runway stuff they create out of kites and awnings and faux fur boas.
I watch Heidi.
And, one of my very favorite parts of that show is when she gets into her famous pose and tones in her Nordo-Germanic ‘tude the truth about the fashion runway trade: “One day you’re in, and the next, you’re out!
So, I’m thinking about darling Kroll, and the fantastic designs and outfits they cobbled together to display to Heidi Sanders and the other panelist-critics on the Council.
Certainly, the preparation portion for that show had all the weeping, drama, and tension building elements of any of the best episodes. By the time the runway was lit and the recommendations were paraded before the critics, we were all as lathered up for the “in” and “out” decisions as any television audience waiting to hear from Heidi and that guy with the weird hat and the Elton John style glasses.
Only here, since we already paid the $20 million to buy all the dresses, (and we did so because we had been told in no uncertain terms that the way we used to do things offended every sense of fashion, style and basic decency) we expected the three panelists to agree to keep, and wear proudly, the recommended treasures.
But wait…
No sooner was the show complete and the brilliance of the designs confirmed by the style director of the local newspaper, we heard from Heidi Sanders words that did not sound like we would keep them all. In fact, the way it sounded was, “these are nice but we won’t be doing all of them.” [The U-T reported that Sanders and his top aides had suggested the recommendations might be discarded for cost or policy reasons.]
“One day you’re in, and the next, you’re out!”
We weren’t told who (what) was out, so we are left to wait for the next episode. But, in the meantime, we can certainly have some fun speculating what’s out!
Here are some of my out picks:
- Out! Don’t Do Pension Bonds.
Arthur Levitt said in no uncertain terms, don’t do bonds to try to “borrow” your way out of the massive pension deficit. This was Kroll’s most important and outcome determinative recommendation, blowing up the “borrow our way into oblivion” plan. He correctly told us that borrowing hundreds of millions to back fill the pension crater will kill the financial health of the city for a really, really long time, and leave a financial time bomb for our children. The mayor and CFO responded in the U-T with a discussion of rate spreads and market access, as if Levitt’s remarks were aimed at rates, which of course they were not. What he meant was, don’t do it! It’s a really bad idea. Like the warnings to the last mayor and Council to not do MPII. It’s really bad. Don’t do it. But, I suspect massive bonding indebtedness is the only plan they ever had since they had eliminated bankruptcy to adjust debt down and taxes to adjust revenue up. They will ignore Kroll and do the massive debt gambit if they can get away with it.
- Out! Include “contingent” Corbett obligations in the city’s pension funding requirements and the calculation of the UAAL.
This has been recommended by a raft of intelligent folks for some time, but not done because it would show that the city’s annual contribution amount is way higher than what we have been pretending it to be (and, because back in the ‘sweaty ’01-’02 time frame, it would have caused us to earlier hit the 82.3 percent “trigger” – shhhh, don’t tell anyone). Kroll is pretty clear that it should be included as a “prudent view of economic reality.”
We don’t calculate our obligations or keep our books in accordance with “a prudent view of economic reality” so this will be out unless some regulatory body insists.
- Out! Achieve a funded ration of 100 percent, not 82.3 percent.
Kroll advises that the real ARC (not the phony ones we get cooked from the pension board) achieves a 100 percent funded ratio and is not set to 82.3 percent ratio which was the MPI “trigger.” The city’s CFO has made noises that the 82.3 percent figure could be acceptable, but Kroll recognizes that the deficiency of 17.7 percent continues the San Diego practice of carrying “off book” obligations which accrue “secret” interest at the 8 percent assumed rate of return. So, this should be changed. It won’t, because full funding costs more than partial funding in the short term, which is the only term we’re interested in.
- Out! Provide the Public With Information Regarding Long-Term Liabilities. Kroll believes that, “If the public is expected to make sacrifices – and they most surely will – then the public is entitled to know what is coming.” They recommend long term projections of the amortization of all long term obligations, and a pension UAAL amortization schedule “that assures that current taxpayers are paying for the full cost of services rendered by employees of the City and not passed on to future generations.” This happens to be the law in California. But, we don’t care and we won’t do it. The numbers are too big, and the public will be unhappy if they learn of it, so this will definitely be out!
And finally,
- Out! Hire a Bunch of Monitors to Watch Over the Folks Doing the City’s Numbers.
Monitors? Independent Auditor General? Reporting directly to the SEC? Are you guys crazy? Where do you think you are?
These probably aren’t the only gowns that will be left behind when the trunks are filled with the in recommendations. That’s the way of fashion.
And for Kroll, a word of encouragement. We probably would have looked really good in all this stuff.
Maybe we could ask for a partial refund for these and the other frocks that will be found too tight for us to wear comfortably.
– Pat Shea