Archive | Lose Millions – Staff Raises RSS for this section

Shenanigans At The PSPRS Pension Part Deux

http://www.pionline.com/article/20140623/PRINT/140629975/dust-up-in-the-desert

On this very day, one year ago…

The  #$%! Up In The Desert was made public.

                                            – Pensioners First

Dust-up in the desert

Arizona public safety fund is still grappling with a controversy over some real estate investments

Staff and board members of the underfunded $7.9 billion Arizona Public Safety Personnel Retirement System, Phoenix, continue to deal with fallout from questions about real estate valuations and legal matters involving former staff members who questioned those valuations.

Three portfolio managers, as well as the pension fund’s chief investment counsel, resigned between June and October 2013 over valuation of some of the properties in portfolios managed by Desert Troon Cos., Scottsdale, Ariz.

The FBI has interviewed at least two of the former portfolio managers, asking whether senior management had inflated the value of real estate managed in a joint venture between the pension fund and Desert Troon.

Mark Selfridge, a former portfolio manager, said in an interview with Pensions & Investments that FBI agents questioned him about the valuation issues. Anton Orlich, another former portfolio manager, testified in a deposition taken by the pension fund that he, too, was questioned by the FBI.

James Hacking, the pension fund’s administrator, said in a letter to P&I that the valuations used by PSPRS senior management — Chief Investment Officer Ryan Parham, Deputy CIO Marty Anderson and Mr. Hacking — for the Desert Troon portfolios “were reasonable” and “most accurately reflected” the underlying value of the real estate properties.

One month after this article was published, Administrator James Hacking was fired for lying to the Governor about suspended bonuses and hidden pay raises that were a direct result of these employee resignations.

                                                                                                               – Pensioners First

A federal grand jury has subpoenaed PSPRS for documents in connection with the FBI investigation.

The pension fund is suing Mr. Orlich, alleging he improperly took fund documents with him when he resigned. Mr. Orlich insists he had permission to take the documents. In addition, Desert Troon filed suit against the four people who resigned from PSPRS, alleging they made false statements to the media, including P&I, defaming the firm and senior officials at the pension fund.

One thing is certain: PSPRS won’t be entering into any other relationships structured like the joint venture with Desert Troon. Pension trustees voted earlier this year to prohibit PSPRS from investing in any new “joint venture real estate investments.”

Despite repeated written requests and phone calls, Desert Troon CEO Daniel Smith did not comment for this article.

The relationship

PSPRS and Desert Troon formed at least two real estate ventures that remain active today, part of a real estate investment program that Mr. Hacking said in an April 22 letter ”reflected PSPRS’ commitment to investment in the Arizona community.”

The first is DTR1 LLC, which Mr. Hacking said was formed in the mid-1990s. This is the joint venture that Messrs. Selfridge and Orlich said the FBI asked them about.

PSPRS owns between 85% and 100% of each property in the DTR1 portfolio; Desert Troon owns the remainder and manages all of it. The joint venture also contains what Mr. Hacking called “the majority of the … assets” that another real estate money manager, The Pivotal Group, had managed for the pension fund; Pivotal was terminated in 2009.

The second company, DTR1C LLC, was formed in 2009 as a wholly owned subsidiary of PSPRS, the assets of which are managed by Desert Troon. It was formed to assemble, reposition and sell distressed properties; the pension fund is the sole investor. The portfolio includes properties that had been managed by Apex Capital Management which, like Pivotal, had been hurtby the collapse of the real estate market and had poor performance.

The pension fund terminated Apex in 2011 and transferred about $30 million in properties managed by Apex to DTR1C in early 2012. The properties in DTR1C are 100% owned by the pension fund. DTR1C also contains some properties in which Desert Troon gave up its minority interest after the pension fund paid down debt on them, minutes from PSPRS board meetings show.

The assets managed by Desert Troon in both portfolios represented 55.08% of PSPRS’ overall real estate portfolio at the end of fiscal 2008. That dropped to 36.6% at the end of last year.

Overall, PSPRS has made capital commitments and/or investments of more than $550 million with Desert Troon during the 18-year relationship.

Desert Troon manages almost 4.7% of the pension fund’s total assets, according to PSPRS’ June 30, 2013, financial statement.

A report from Bank of New York Mellon (BK) Corp. (BK), the pension fund’s custodian, showed PSPRS’ investments with Desert Troon returned an annualized -6% net of fees on a time-weighted basis for the five-year period ended June 30, 2013. The NCREIF Property index returned an annualized 2.79% for the same period.

Mr. Hacking confirmed the pension fund uses the NCREIF index as a benchmark. But he said for accounting reasons, comparing the returns of DTR1 and DTR1C to that index “will result in material distortions and inaccuracies. Simply put, it is not an ‘apples-to-apples’ comparison.”

Most recent publicized public reports for Desert Troon’s investment performance

• -16.4% One-year performance
• -3.1% Three-year performance
• -4.7% Five –year performance

There appears to be an over-weighting of the real estate portfolio in Desert Troon while the portfolio itself has been consistently underperforming over the past five years.  Regardless, it does appear that the relationship will need to change so that PSPRS can diversify its real estate portfolio and not have its returns so closely tied to a single company.

       http://www.PSPRS.info (PSPRS Pension Watch blog)

Valuation

The value of the two portfolios Desert Troon managed led to a dispute in 2013 over whether Messrs. Parham and Hacking had used the appropriate appraisal methods during the previous four years.

The three former PSPRS portfolio managers — Messrs. Selfridge, Orlich and Paul Corens — and former Chief Investment Counsel Andrew Carriker cited the valuation dispute as a reason for their resignations.

Mr. Hacking acknowledged to P&I that the four men had disputed the valuation and “resigned, ostensibly over this issue.”

The controversy came to light last year after Messrs. Orlich and Carriker began questioning how PSPRS was valuing the Desert Troon portfolios.

The roots of the valuation dispute go back to 2009. That’s when the pension fund began using a market value for all appraisals. The purpose was to provide “meaningful insight into the value of (the pension fund’s) investments” and “specific asset values” in the preparation of PSPRS’ financial statements, Mr. Hacking said in a letter to P&I. (Until then, a cost basis — what it cost to acquire a property — was used.)

But in 2010, Messrs. Hacking and Parham discarded the market-value-based appraisal process. They agreed to Desert Troon’s request that the pension fund use an investment-value-based approach.

The Governmental Accounting Standards Board requires public pension funds’ real estate holdings to be appraised at market value, using factors such as comparable sales or an income approach using discounted cash flow analysis, said William Holder, a former GASB board member and dean of the Leventhal School of Accounting at the University of Southern California, Los Angeles. He is not involved in the PSPRS matter.

For the fiscal year ended June 30, 2012, Desert Troon valued the real estate it managed for the Arizona pension fund using investment value, “to reflect what it fully expected those assets would sell for in the future as the real estate markets revive, especially here in Arizona,” Mr. Hacking said in a July 2013 letter to Arizona Auditor General Debra K. Davenport, requesting that her office evaluate Desert Troon’s valuation methods.

He said Desert Troon used the income approach to analyze future cash flows from the properties, the same method used by independent appraiser Ernst & Young LLC.

But they used different discount rates.

While the auditor general said Desert Troon used a 5% discount rate for lifestyle and retail properties, which were the bulk of the portfolios, discount rates of 7.75% to 20.5% were used for commercial properties.

Ernst & Young, however, appraised every property using discount rates of 7.75% to 20.5%.

The auditor general said the 5% discount rate Desert Troon used for lifestyle and retail properties “may not be consistent with accounting standards.” But the auditor general also said the discount rates used for the commercial properties were ones “market participants would use,” and were appropriate.

As a result, Desert Troon’s appraisals for the year ended June 30, 2012, totaled $303.5 million; Ernst & Young’s appraisals totaled $213.6 million.

Desert Troon’s valuation was used in the pension fund’s financial statements for the year ended June 30, 2012, which led to a dispute the following year among PSPRS investment staff as to what discount rate to use. That disagreement ultimately led to the resignation of the three portfolio managers and the chief counsel.

Mr. Holder said the 5% discount rate was too low to reflect the market value of real estate, as required by the GASB. He said investors in real estate generally use at least 12% to 15% to reflect the speculative nature of real estate investments. He said 5% would be closer to a risk-free rate.

For the fiscal year ended June 30, 2013, Ernst & Young’s valuation was about $82 million less than the approximately $344 million Desert Troon had reported.

Mr. Hacking told P&I that using a market-based valuation would have understated the value of the Desert Troon portfolio by as much as $151 million combined in the two fiscal years ended June 30, 2013.

Valuation issues also surfaced in earlier years. In 2007, the joint venture with Desert Troon purchased Superstition Gateway, a shopping complex in Mesa, Ariz., and tracts of vacant land in other parts of metropolitan Phoenix.

In 2010, the pension fund hired CBRE Group Inc. to appraise the shopping center and land, using PSPRS’ new market-value appraisal policy, Christa Severns, the pension fund’s former external spokeswoman, has said.

Based on the appraisal by CBRE, the pension fund’s entire equity investment of $64.4 million in Superstition Gateway would have to be written down, according to a June 18, 2010, e-mail to Mr. Corens from Desert Troon CFO Daniel Hammons,who questioned the appraisals.

“These values seem criminal,” Mr. Hammons wrote.

That e-mail also said that based on the CBRE appraisal, the pension fund’s entire $31.7 million investment in Terra Verde, a partially completed office park in Scottsdale, would be wiped out.

In an e-mail to P&I, Ms. Severns said pension fund and Desert Troon executives were concerned that the market-based appraisals might have “produced ‘fire sale’ values that would have wiped out the (pension) system’s and DTC’s equity interests in some of those properties.”

“The resulting values could have arguably violated the loan covenants and potentially caused lenders to issue technical loan defaults or at the very least demand principal reductions,” she wrote.

Ms. Severns said after seeing market-based appraisals that showed a severe decline in property values, Desert Troon executives requested the pension fund use the investment-value approach for its joint-venture portfolio.

She said PSPRS’ CIO Mr. Parham then arranged a meeting in the summer of 2010 between Desert Troon and CBRE group officials and both agreed an investment-based methodology should be used to value the properties. And it was.

Mr. Hacking said in his July 2013 letter to the state auditor general that Desert Troon officials had argued in 2010 that it would be unreasonable to report then-current market values for the joint venture, DTR1, since those properties were not going to be sold immediately and could be sold at substantially higher prices in the future.

The properties were ultimately reappraised higher, using investment value, as requested by Desert Troon. The properties — including Superstition Gateway and Terra Verde — were written down by approximately $50 million in 2011.

A 2010 appraisal that valued the properties at about $100 million less using market value was never used. Indeed, for the five fiscal years between July 1, 2009, and June 30, 2013, PSPRS used investment value in appraisals.

In a formal report to the pension fund’s board, Mr. Carriker, the chief investment counsel, contested those valuations. But the board adopted a report signed by Mr. Hacking and PSPRS’ outside fiduciary counsel Marc Lieberman that said the use of investment value calculations was proper.

Last November, the auditor general responded to Mr. Hacking’s July 2013 letter regarding the asset valuation methods, saying the pension fund must adhere to GASB rules of using fair, or market, value.

However, in another section of its report, the auditor general said for the properties in the joint venture, investment value can be used. It said PSPRS, as an investor in the entity that owns the real estate, doesn’t value its investments based on the appraisals but rather on values provided by Desert Troon under the joint venture’s operating agreement.

Because of that scenario, the auditor general quotes generally accepted accounting principles as allowing Desert Troon to estimate the value of PSPRS’ ownership interest. The pension fund used that number.

Mr. Holder, the USC dean, disagreed that PSPRS could report investment value for the Desert Troon joint venture portfolio. He said regardless of whether joint venture real estate assets can be sold at the time they are appraised, the GASB requires public pension funds to list real estate at fair, or market, value.

Timing

PSPRS mainly made direct real estate investments with several firms between 1990 and 2008 as the pension fund expanded its investments in Arizona strip shopping centers, office buildings, residential development and vacant land.

Most of the direct real estate investments were in the Phoenix area.

Concentrating investment in one area can be risky because a pension plan could expose itself to the vagaries of that market, said Robert Heinkel, a professor at the Sauder School of Business at the University of British Columbia, Vancouver, and co-author of the book, “The Role of Real Estate in a Pension Portfolio.”

While Mr. Heinkel isn’t familiar with the Arizona pension fund, he commented: “It’s real obvious that you want to diversify not just in real estate investments, but any investments. It’s dangerous not to do so.”

When Mr. Parham became CIO on May 27, 2009, the Arizona and Southwest real estate markets had collapsed, which meant such investments the pension plan made had already soured. Pension officials began publicly acknowledging problems in the real estate portfolio that year, board and investment committee meeting minutes show.

Problems with some properties emerged when the pension fund was called on to help Desert Troon repay debt from property investments for both portfolios.

Minutes of a January 2010 PSPRS investment committee meeting show Desert Troon was facing demands from bank lenders requiring immediate repayment of debt on properties, first in the joint venture (DTR1) and later in both portfolios.

When asked how much pension fund money was used to pay down debt on properties managed by Desert Troon, Mr. Hacking said in an e-mail: “We cannot say without research … but we have confirmed that since 2009, (PSPRS) has contributed $93 million to DTR1 and $76 million to DTR1C.“

In some cases, PSPRS was forced to repay the debt because it had guaranteed it would make payments if the joint venture — DTR1 — could not.

The pension fund’s pledge enabled the PSPRS Desert Troon joint venture to get a lower interest rate on loans, according to minutes from a PSPRS board meeting on Nov. 30, 2011.

“The decision to enter into recourse (debt) was made when debt was cheap for joint ventures and the market was doing well, in order to save money,” Don Stracke, a consultant from the pension fund’s general consultant NEPC LLC, was quoted in the minutes as saying. “The situation that has occurred was not foreseen and today we would never agree to recourse debt.”

Mr. Hacking said in a posting on the fund’s website in August 2013 that Desert Troon had done an excellent job managing depressed real estate assets back to health. He cited more than $37 million in real estate sales at that time, two to three times their value in December 2007, he said. He didn’t say how many properties were sold.

Mr. Hacking has said the pension fund intends to sell the properties managed by Desert Troon when the market recovers. For now, most of the properties in the two Desert Troon-managed portfolios remain unsold.

Desert Troon earns fees from PSPRS as its real estate manager, operating partner, developer and property manager as well as when properties are sold. The pension fund paid Desert Troon $12 million in fees in 2012, according to a report compiled by ORG Portfolio Management, the pension fund’s real estate investment consultant. The report concluded the fees were appropriate.

Performance monitoring

The valuation dispute is just one issue raised by the former employees. They also questioned the lack of quarterly reporting by Desert Troon about investment performance of the portfolios the company manages for the pension fund.

As the Arizona fund’s allocations to Desert Troon increased, PSPRS’ oversight of the manager did not keep up with Desert Troon’s expanding role, said Mr. Corens, who was real estate manager from 2006 to 2010.

Messrs. Corens and Selfridge said in separate interviews that Desert Troon failed to provide quarterly financial reports, which real estate investment consultants say are an industry standard.

The two former PSPRS employees said that while Desert Troon did provide annual performance reporting, that reporting generally was limited to only aggregate data on the overall Desert Troon portfolio. That, they said, made it difficult for the PSPRS staff to determine what pieces of the portfolio were performing well and which were underperforming.

Mr. Hacking in his e-mailed answers to questions, said Desert Troon “has always complied, and continues to comply, with all of its financial reporting obligations under the DTR1 Operating Agreement and the DTR1C Management Agreement.”

This article originally appeared in the June 23, 2014 print issue as, “Dust-up in the desert”.

LINK: Desert Troon Potentially Linked to Scam In Norway (Dagens Næringsliv report)

Does The Arizona Police and Fire Pension Mirror The Dallas Police and Fire Fund?

LINK: Dallas Police And Fire Pension   vs. Arizona Public Safety

Review of Dallas police-fire pension confirms overvaluation of real estate

DallasNews.com

Updated: 21 January 2015 -By STEVE THOMPSON

First, the Dallas Police and Fire Pension System plunged into risky real estate ventures at the height of last decade’s bubble.

Then, when the city wanted to audit the value of those investments, pension officials refused to hand over documents, and the standoff threatened to spiral into a lawsuit.

Finally, after a year of wrangling and delay, an independent review of the $3.3 billion fund has confirmed what many suspected: accounting problems.

The review, which focused on the fund’s real estate holdings in 2013, estimates that it overvalued some properties by tens of millions of dollars.

Those least shocked may be police officers and firefighters. They saw their fund suffer about $96 million in losses on risky real estate investments in 2013. Much or all of these losses were write-downs that followed new appraisals of real estate properties.

The new appraisals and the city’s push for an audit came after The Dallas Morning News flagged problems with the fund’s accounting. The News reported in early 2013 that the fund valued many of its real estate ventures by what it had invested, rather than by appraisals or other methods. This was contrary to widely accepted standards.

“This report shows we need better governance and more transparency into our pension fund so we can address issues as they come up — not years after the damage has been done,” said Mayor Pro Tem Tennell Atkins, reading from a statement at a news conference he called Tuesday.

Atkins was one of several City Council members whom Mayor Mike Rawlings installed on the pension’s board as he shook it up in mid-2013. The board consists of four council members and eight current and retired police officers and firefighters.

Rawlings took a keen interest in the fund’s heavy investment in “alternative” assets — such as real estate — that often don’t have clear market values like stocks and bonds.

The fund’s real estate investments surpassed $1.5 billion in the middle of 2012 — equivalent then to about 50 percent of the fund’s net worth. That investment strategy is unusual. Among large public pension funds, the median share invested in real estate was then less than 5 percent.

The News reported that much of the fund’s real estate consisted of risky ventures such as a luxury resort and vineyard in Napa County, Calif., ultra-luxury homes in Hawaii, and large tracts of land in Arizona and Idaho.

Rawlings knew that state law requires the city to audit its pension funds every five years. The next was due in 2013. So the mayor pushed to include a review of the fund’s alternative assets.

Pension officials fought the add-on review, saying it was not within the scope provided by state law. The fund, which has significant autonomy from the city because it is organized under state law, refused to hand over documents. The city and the fund edged to the brink of a lawsuit.

That’s where Atkins came in. Because he was a fund trustee, its officials could not avoid turning over documents to him if he demanded them. Over months of wrangling, attorneys for the city and the fund, as well as Atkins’ personal attorney, hammered out a deal under which Atkins would direct an auditing firm to do the review. The pension fund and the city split the cost for Atkins to hire an affiliate of the firm Deloitte.

Atkins released a summary of Deloitte’s report Tuesday. The firm focused on $1.287 billion in alternative assets held by the fund at the end of 2013.

Of these, Deloitte found that $772 million in assets were at risk of being overvalued “because the valuation approaches or methods … appear to have been improperly applied and/or inconsistent with commonly accepted valuation practice.”

From this pool, Deloitte selected nine large assets that the fund had valued collectively at $585 million. The firm estimated the actual value of these assets instead to be between $507 million and $559 million.

Overvaluing assets on a fund’s books can create a falsely optimistic picture of its overall health, leaving police, firefighters and taxpayers on the hook for the future.

Fund officials, in a statement released Tuesday by their public relations firm, called the overvaluation flagged by Deloitte “financially immaterial when measured against DPFP’s entire investment portfolio.”

“However, we understand that even a small variance is unacceptable since our mission is to protect the financial futures of the police officers and firefighters who protect us,” the statement said.

Atkins declined to say which of the fund’s real estate investments were included in the review, but he said the fund’s controversial Museum Tower luxury condominium building was not among them.

“The report will speak for itself — but I can tell you there are significant problems at the [pension] system,” Atkins said. “I challenge the board and the system’s administration to address these problems.”

The mayor, reached by phone Tuesday, said the review’s findings come as no surprise.

“We just needed to confirm this,” Rawlings said. “The good news is we’ve made progress.”

The pension fund’s board ousted its top staffer, Richard Tettamant, last year after real estate write-downs helped prompt poor investment returns. The fund is searching for his replacement.

The fund’s chief financial officer left his post as the city’s audit got underway. The new CFO pushed for accounting changes that are likely to have already corrected the valuation problems pointed out by Deloitte’s review. Atkins could not confirm this.

Board members, meanwhile, have aligned around more conservative investing strategies.

Still, the fund’s financial situation concerns city and fund officials. This is in part because of real estate losses but due more to a lucrative pension perk — the deferred retirement program known as DROP.

Fund members voted last year for significant changes to DROP, but several beneficiaries sued, and a judge said the changes violated the Texas Constitution. The board then voted to suspend new entrants to the program beginning April 1. But its benefits to those already in the program will continue to sap the fund.

MORE:  Dallas Fund Is Ticking Time Bomb

MORE:  Pensions A State Embarrassment

MORE:  Deferred Retirement Option Plan, or DROP, now has burned a hole in the pension system’s pockets

Pensioners First – The parallels between the Dallas Police and Fire Pension and the Arizona Public Safety Personnel Retirement System are scary…

PSPRS: All Lawyered Up Spending Other People’s Money

http://www.azcentral.com/story/news/politics/investigations/2015/02/24/outside-legal-tab-puts-pension-system-million-budget/23921855/

Outside legal tab puts pension system $1 million over budget

Craig Harris, The Republic | azcentral.com February 24, 2015

Story Highlights

  • Outside legal bills are expected to push PSPRS $1 million over budget.
  • The legal tab is rising despite warnings from the Attorney General’s Office to cut outside costs.
  • The PSPRS board is expected to address the budget problem at a meeting Wednesday, February 25, 2015

The state Public Safety Personnel Retirement System is projected to exceed its budget by at least $1 million because of unexpected expenses for outside legal advice.

Trustees for the pension system for police officers, firefighters, elected officials and correctional officers are expected to address the issue at a Wednesday board meeting.

The news comes at a difficult time for the pension system. The fund’s deteriorating financial condition during the recession was accompanied by staff turmoil and a turnover last year in top leadership.

The system responded to financial challenges by raising pension-fund contributions from Arizona public-safety workers and their government employers. Many employers have been forced to consider service cuts because of the rising cost.

RELATED: Pension fund told to cut legal cost after $1.7 million bill

RELATED: More pension stories

Meanwhile, the fund was told last fall to reduce its legal tab after its large outside legal fees caught the attention of the Arizona Attorney General’s Office.

However, spending on outside counsel has continued under acting Administrator Jared Smout, and the trust is projected to be at least $1 million over budget with four months left in the fiscal year.

Smout took over temporarily last July when his successor was forced to retire. Smout is a finalist for the top job. He did not respond to a request for comment on the budget issue.

The $8.1 billion pension system pays its administrative costs from investment earnings and payments from public employers and employees who are retirement-system members. It does not rely directly on general-fund dollars for its operation.

The trust runs on an $11.2 million annual budget that pays for personnel, operating expenses and outside consultants such as private attorneys. Legal bills are paid from various accounts.

The $1 million in excess legal fees means the trust is projected to exceed its budget by nearly 10 percent.

Christian Palmer, a fund spokesman, said most of the additional legal expenses stem from hiring outside attorneys who specialize in investment advice. Records show 70 percent of the additional legal costs arose from investment issues, while 30 percent involved administrative issues.

“It’s a good problem to have. We had older investments that came to realization,” Palmer said. “As older investments have realized a return, we had to find new investments. You have to bring in a due-diligence process.”

The budget imbalance could be addressed by taking money from contributions paid by employees and employers, or by transferring money directly from the trust fund.

The Arizona Republic last week filed a public-records request seeking the hourly rates for the outside counselors and firms that were paid. Palmer said the trust likely would not be able to provide that information until Wednesday’s board meeting.

While the trust has relied heavily on outside counsel, it also has a full-time, in-house investment attorney paid $215,000 annually, and it also is represented by the state Attorney General’s Office.

A legislative budget hawk questioned the agency’s continued reliance on outside counsel.

“That is interesting,” said state Sen. John Kavanagh, R-Fountain Hills. “It certainly raises a yellow flag, but it’s hard to say if it’s an abuse.”

Kavanagh, who has unsuccessfully proposed changes to the trust’s governance in the past, said he would like to examine the legal bills to see what kind of work is being done.

The Attorney General’s Office in October told the fund to limit its reliance on Kutak Rock, a law firm that was paid $1.76 million last fiscal year. The Attorney General’s Office told the trust at the time to rely more on state attorneys.

Records prepared for Wednesday’s board meeting show Kutak Rock has continued to provide legal advice, but the records lack a precise breakdown of what the firm and others have been paid.

Marc Lieberman, a Kutak Rock attorney representing the trust, said his firm’s work for the retirement system has dramatically decreased since the Attorney General’s Office last fall instructed the trust to decrease its use of outside counsel.

Lieberman said he believes the trust uses at least 13 outside law firms, including nine that specialize in investments.

The trust is run by a volunteer seven-member board appointed by the governor. Former Gov. Jan Brewer appointed the current members. A spokesman for Gov. Doug Ducey, who is proposing an austere state budget because of lower revenues, said Ducey did not have enough information to comment.

Major contributors to the trust on behalf of their employees include Arizona’s departments of corrections and public safety.

Because They Know They Can Get Away With It

http://www.azcentral.com/story/laurieroberts/2015/01/01/brewer-gives-goodbye-bonuses-to-staff/21118903/

 It’s why the Public Safety Personnel Retirement System this year offered 20, 35 and 42 percent raises to three members of the crack investment staff of the state’s most poorly managed pension system.

This is the perfect example of how the elite think. “We are the deserving people”. They don’t see the “little” people, the homeless Vet, the Mom and kids living in a shabby flop house with all hope gone, the dead & abused children from a lack of CPA funding. Because of their already high salaries they don’t live in run-down, crime infested neighborhoods. They don’t see the unemployed, or under employed guy/gal working 2 part time jobs, who are paying their 8+% sales tax on shoes and tires having meatless days and no milk till the next payday. They only see a pile of tax dollars, they can increase at will! What’s 160K? Just close another homeless shelter, short the schools, and bury another kid who wasn’t reached in time. Can we really expect them to do their jobs at peak performance for 100-175K a year? Guess not!

Commentary by Lois Keating       AZ Central 1-3-15

Gov. Brewer’s staff cashes in on way out the door

Laurie Roberts, columnist | azcentral.com – January 2, 2015

Fresh off her farewell world tour – you know, that “trade mission” to China in the waning weeks of her term — Gov. Jan Brewer decided to send off her staff with a little something extra.

That’s right, here in a state that’s broke and getting broker, the outgoing governor reached for the checkbook (ours, of course) and played Santa to her staff.

According to Republic reporter Craig Harris, Brewer doled out $10,000 in bonuses to each of 10 employees, eight of whom already pull down $125,000 or more a year.

In all, she gave $160,000 in bonus pay to 22 staffers, many of whom already earn five or more times the median income of the mere taxpayers who must foot the bill. Half of the money was awarded in July and the rest this month.

This, as the state faces a $1.5 billion shortfall.

Brewer, naturally, was unavailable for comment. Because a lame duck governor in her last week is just sooooo busy and can’t possibly come to the phone to explain her final act as steward of our state and our money.

But readers sure had plenty to say it, responding to my azcentral.com blog on Brewer’s publicly funded largesse.

“Let’s see,” wrote Cindy Mendenhall Rosenberg, of Phoenix. “The Legislature spends $800k on remodeling, and the Gov hands out $100k in bonuses, but not a penny to spare for court-ordered funding for the schools.”

“Simply disgusting,” wrote Cindy Hersh, of Phoenix. “So, if I decide to not pay taxes will that help curtail this irresponsible spending! Goodbye and good riddance!”

“They do it,” Sam Fernandez wrote, “simply because they can and there is nobody there to stop them!”

“There needs to be real reform in many levels of government,” wrote Kim Fisher, of Phoenix. “The question is, will people support those working towards it or just complain about it.

I’m guessing we know the answer to that, which is why so many of our leading lights act as they do.

Because they know they can get away with it.

It’s why they felt entitled to give unauthorized raises to 169 state employees in the year that ended in July – that is, raises that weren’t approved by the Department of Administration as required. Of those 169 raises, 59 went to staffers who work for outgoing Attorney General Tom Horne and 47 work for outgoing state Superintendent John Huppenthal. Another 37 work for the Corporation Commission.

It’s why the Public Safety Personnel Retirement System this year offered 20, 35 and 42 percent raises to three members of the crack investment staff of the state’s most poorly managed pension system.

It’s why outgoing Corporation Commissioner Brenda Burns gave a $10,000 bonus to her $99,501-a-year assistant Thomas Galvin this year.

It’s why Corporation Commissioner Susan Bitter Smith gave a $10,500 bonus to her $94,500-a-year assistant Laurie Woodall.

And why the Corporation Commission gave Utilities Division Director Steven Olea a 21.5 percent raise, to $150,000 last year.

Rebecca Wilder, spokeswoman for the commission, said the bonuses were “due to exemplary performance and extra workload”.

Because as we all know, top aides are the only ones who go above and beyond.

In Brewer’s office, they surely must.

Among those who got $10,000 raises were Chief of Staff Scott Smith (to go with his $175,000 salary), Deputy Chief of Staff Kathy Peckardt ($165,000), Budget Director John Arnold ($147,000) and General Counsel Joe Sciarrotta Jr. ($143,325).

Also, Policy Director Michael Hunter ($139,125), Communications Director Andrew Wilder ($135,000), Deputy Policy Director Donald Hughes ($125,000), Federal Relations Director Ryan Serote ($125,000), Legislative Affairs Director Lorna Romero ($88,000) and Special Assistant to the Governor Susan Myers ($85,775).

Andrew Wilder described the bonuses as “retention payments.”

As if earning $135,000 a year to be the governor’s mouthpiece wasn’t enough of an incentive to stick around.

Meanwhile, per capita income in Arizona is $25,358.

Me? I’m thinking more of us ought to go into “public service.”

And The Circle Is Now Complete

http://www.azcentral.com/story/news/arizona/investigations/2014/12/30/gov-brewer-gives-staff-big-bonuses-despite-budget-cuts/21084433/

Gov. Brewer gives staff big bonuses despite budget cuts

Craig Harris, The Republic | December 30, 2014

Of All The Gin Joints In All The Towns In All The World

In all the world it a has been determined that one of PSPRS’ consummate insiders is found to be one of the best candidates for the top leadership position at the troubled Arizona Public Safety Personnel Retirement System pension?

Or are the trustees and the staff simply protecting their interests by nominating one of their own?

Smout was the PSPRS pension Deputy Administrator who authorized pay increases that ultimately resulted in raises of as much  $27,000 and in PSPRS Administrator James Hacking’s termination with prejudice.

Governor Outraged: Administrator Fired. Deputy Administrator Smout Approves Then Fails To Disclose Raises

According to the Arizona Republic’s July 14, 2014, article, “Trust records show that Deputy Administrator Jared Smout authorized the retroactive raises in December [2013]. Smout could not be reached for comment.”

http://www.azcentral.com/story/news/politics/2014/12/19/state-pension-system-finalists-top-job/20679263/

 State pension system down to 3 finalists for top job

Craig Harris, The Republic | December 19, 2014

PSPRS Underperforms ASRS, Again

Be thankful you are an Arizona teacher or janitor.

The Public Safety Personnel Retirement System (PSPRS) has managed to under-perform the Arizona State Retirement System again.

PSPRS earned approximately 28% less on its investments than ASRS.

PSPRS could have made approximately an extra $300-400 MILLION more had they just copied ASRS’ investment philosophy!

ASRS Bests PSPRS Again

ASRS Bests PSPRS Again

For those of you who don’t know, ASRS’ investment returns (Chief Executive Paul Matson) have historically outperformed PSPRS’ investment returns year-after-year.

The same was true for this past fiscal year (FY2013/2014).

Arizona State Retirement System (ASRS) performance for FY2013/2014:

  • 19.2% fiscal year investment return (before expenses)
  • Approximately 76% funded

Arizona Republic – August 4, 2014

[ASRS Chief Executive Paul] Matson said ASRS likely will have one of the best investment returns in the country for public pensions with its 18.6 percent net investment growth. A net return is the bottom line after investment fees are paid. The gross return is projected to be 19.2 percent.

Public Safety Personnel Retirement System (PSPRS) performance for FY2013/2014:

  • 13.8% fiscal year investment return (before expenses)
  • Approximately 59% funded

 Arizona Republic – August 4, 2014

At PSPRS, the most recently published combined funded ratio for its three plans was about 59 percent.

Rene Guillen Jr., League of Arizona Cities and Towns legislative director,…  said ASRS also is doing better because its management and board have been active in curbing pension abuses that artificially inflate retirement benefits.

PSPRS’ investment returns =  13.8%

ASRS’ investment returns = 19.2%

PSPRS earned approximately 28% less on its investments than ASRS.

PSPRS’ management appears to be quite proud of their under-performance because they issued the following press release stating-

PRWEB September 8, 2014- (press release excerpt)

We are absolutely pleased with our return rates for the 2014 fiscal year, said PSPRS Chief Investment Officer Ryan Parham.

PSPRS could have made approximately an extra $300-400 MILLION more had they just copied ASRS’ investment philosophy!

PSPRS’ real estate portfolio partially contributed to the significant under-performance relative to the Arizona State Retirement System-

Excerpts from the PSPRS Pension Watch blog at PSPRS.info (Thursday, Sept. 4, 2014)-

“The most glaring thing in the report is the real estate portfolio, which was the only category that lost money.  Real estate had a -0.62% return for the year versus a benchmark return of 11.21%.  PSPRS’ real estate investments are the source of so many problems, so I guess we should not be surprised that these investments are still causing problems.  If real estate investments had achieved a return of just half the benchmark, the PSPRS total fund would have met its benchmark for the fiscal year.”

Doh

 

MORE: Public Safety Pension Is Missing $97 Million

MORE: Complete coverage of pension system

 

PSPRS FBI Subpoena Sought Files Related To Desert Troon Companies And CIO Ryan Parham’s Confidential Letters

http://www.pionline.com/article/20140812/ONLINE/140819961/arizona-psprs-subpoena-sought-files-related-to-desert-troon-cio-letters

By Randy Diamond | August 12, 2014

A federal grand jury investigating the $7.9 billion Arizona Public Safety Personnel Retirement System sought several hundred files related to PSPRS’ investments with its largest real estate manager, Desert Troon Cos., and confidential letters the pension fund’s Chief Investment Officer Ryan Parham wrote to PSPRS board members, the subpoena shows.

Judicial Watch provided the document to Pensions &Investments on Tuesday morning.

The vote by the board to release the document came on the same day the board voted 4-2 to give Mr. Parham a two-year contract extension as the pension fund’s CIO.

Mr. Parham, who makes $268,000 a year and is the highest paid state employee in Arizona, will not be getting a raise. But he will receive two $25,000 retention bonuses over the next two years.

Mr. Parham was a key proponent of a plan that increased the value of PSPRS’ portfolio with Desert Troon by calculating the investments at its value based on recovery of the Arizona real estate market, instead of its market value.

The portfolio had declined in value after the collapse of the Arizona real estate market during the recession.

Three of the pension fund’s investment officers and the chief counsel for its investment office all resigned last year over the valuation dispute, maintaining it was improper for the retirement system to calculate the Desert Troon investments at potential future value instead of a market-based appraisal.

The documents requested by the federal grand jury include valuation records regarding appraisal of the Desert Troon portfolio and confidential written investment reports Mr. Parham sent to the PSPRS board between 2010 and 2013. Sources say those reports included Mr. Parham’s comments on the performance and value of the Desert Troon portfolio.

James Hacking, the pension fund’s former administrator, has insisted that retirement system officials acted properly and in the best interests of PSPRS regarding the valuation of the Desert Troon portfolio.

Mr. Hacking was terminated last month over another controversy involving his approval of pay raises for some members of the retirement system’s investment staff without the required approval of the Arizona State Department of Administration.

The documents named in the federal grand jury subpoena are a subset of documents taken from PSPRS by Anton Orlich, one of the investment staffers who resigned over the controversy involving Desert Troon.

The pension fund had filed a lawsuit in Maricopa County Superior Court last October demanding the return of the documents that Mr. Orlich said in legal filings he took to protect them from being destroyed.

Mr. Orlich received a federal grand jury subpoena earlier this year for the documents. But he turned over the documents to the Maricopa County Superior Court for safekeeping as part of an agreement with PSPRS until the legal dispute was settled.

The federal grand jury then subpoenaed PSPRS for the documents related to Desert Troon.

No Confidence With The Current Board Of Trustees

I am willing to march and hold signs……

As a retired LEO my retirement check barely pays my bills and with the high costs of medical insurance I just don’t see how I will be able to keep up financially. How can we as retirees organize and make OUR voices heard? I have NO confidence with the current board. Time for change and time that our elected or soon to be elected officials wake up. I am willing to march and hold signs or do whatever it takes to save our retirements that WE all have worked and sacrificed for……

 

-Ray

Chairman Brian Tobin Fails To Fire Pension Administrator Who Broke The Law

http://www.azcentral.com/story/laurieroberts/2014/07/25/hacking-settlement-psprs/13163241/

Arizona taxpayers get slapped in the face – again

Laurie Roberts, columnist | azcentral.com – July 25, 2014

Question of the day: what the heck does it take to fire a public official?


Answer: Apparently, it can’t be done.


Exhibit A: Jim Hacking.


The guy has been in charge of Arizona’s Public Safety Personnel Retirement System and Elected Officials Retirement Plan since 2005.

During his tenure, the PSPRS trust has plummeted in value, forcing taxpayers and public safety workers to pony up ever-larger amounts of money to keep the thing afloat.


PSPRS is now under criminal investigation by the FBI.

This, after four high-level employees last fall resigned amid allegations that the trust was using inflated real-estate values in annual reports to improve its financial status, triggering ridiculous bonuses for the staff – the folks whose investments helped drive down the value of the trust.


The PSPRS’s board’s reaction to those allegations? In December, board members voted to extend Hacking’s contract by a year.


Earlier this month, The Arizona Republic’s Craig Harris uncovered evidence that Hacking has authorized illegal raises for five staffers.

It seems the Hack-man secretly handed out raises of up to 27 percent to the trust’s investment staff late last year, with the approval of the PSPRS board.

This, to replace those ridiculous bonuses that were rescinded last fall once they hit public view.


Harris was told that the state Department of Administration had approved the raises, as required by a 2012 personnel reform law. Turns out DOA had no idea what Hacking and the board were up to.


So what’s a PSPRS board to do, now that its dirty laundry is waving wildly in the breeze?

Hacking’s contract allowed for him to be fired from his $234,000-a-year job for cause.


So it fired his a$$, right?
Wrong.


This week, PSPRS Board Chairman Brian Tobin offered Hacking $107,250 to please go away.

His severance package will include a commitment to cover his bills should he be named “in any legal proceeding” and to even pay his travel expenses from his Minnesota home, should he have to return to Arizona to testify. In exchange, he agrees not to sue us.


And, of course, he also walks away with the usual lovely parting gifts: a $86,704 pension for life and $16,406 for all his unused vacation time.

Not bad for nine years of work, capped off by an illegal act.


The PSPRS board should have fired Hacking.


Since it didn’t, Gov. Jan Brewer should fire the PSPRS board.

She, after all, appointed all seven of its members and thus is ultimately responsible.


We – the taxpayers and every police officer and firefighter in the state – have a financial stake in this mess.

How do you trust this board to oversee a grossly underfunded $7.9 billion pension system when it has proven to be blind?

Pensioners First-

Who are those pension trustees/ board members that have proven to be blind?

The Arizona PSPRS Board of Trustees:

Brian Tobin, Chairman

For more on Phoenix Fire Chief Brian Tobin:  http://www.azcentral.com/arizonarepublic/opinions/articles/20110816tuelets164.html

Greg Ferguson, Vice Chairman

For more on Yuma County Supervisor Greg Ferguson: http://www.yumarepublicans.org/?page_id=677

Randie A. Stein

For more on Stone & Youngberg’s financial expert Randie Stein: http://www.businesswire.com/news/home/20040927005873/en/Stone-Youngberg-Hires-Executive-Director-State-Arizona#.U9Xkdycn-nw

Richard J. Petrenka

For more on Davidson Fixed Income’s financial expert Richard Petrenka: http://www.davidsoncompanies.com/fim/a_about/people_template.cfm?eid=3136&Petrenka

Lauren Kingry

For more on Arizona Department of Financial Institutions’ Lauren Kingry: http://www.bizjournals.com/phoenix/stories/2010/07/12/story9.html?page=all

Jeff Allen McHenry, Tempe Police Department

William (Bill) Davis

For more on Piper Jaffray’s financial expert Bill Davis: http://www.piperjaffray.com/3col.aspx?id=481

MORE: Complete coverage of public pensions

%d bloggers like this: