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Tag Archives: Risk in public service

Social Security Not Nearly So Bad…

June 11, 2013
economy, finance, funding, management
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Previously I blogged about retirement systems since they were getting a lot of negative attention in the Florida Legislature and in Congress. One of my tenets was that the economy is more of an issue in dealing with the sustainability of retirement systems than most other factors. Specifically I outlined the current Social Security issues, noting that the long-term borrowing rate and number of people paying into the system affected the apparent long-term viability at any given point in time. I also suggested that as a result, trying to opine about the viability of any retirement system at a specific point in time is a futile exercise, unless there is some underlying political agenda. The economics changes constantly, so the long-term trends are far better means to view the viability of pension programs. After the 2008 economic collapse, few retirement systems looked like they were in good shape, yet a few years earlier, they appeared much better, much like Florida’s did..

Fast forward to 2013. After all the hoopla in Congress about the fate of Social Security and scary Congressional statements that Social Security will not be remain for future retirees unless drastic changes are made, guess what? The annual trustees’s report on Social Security (and you though Congress managed it!) reported that as a result of the economic uptick in the past couple years, the outlook for Social Security in the short term is good, and the long-term is far better than it has been in years. Surprised? Only if you don’t understand how pension systems work. The economy has improved, so the investments made by Social Security likely are getting a better return. The jobless rate has dropped, and more people are paying into the system, precisely the two things that improve the long-term sustainability of any pension system. But we don’t hear Congress talking about that because that doesn’t address the political agenda.

Worse for certain Congressional leaders, the report suggests that Social Security is positioned better than many 401K programs, the type of system some in Congress suggest should be the future of Social Security, because the risk are far lower with Social Security’s investment strategy than any 401k invested in the marketplace. They noted that most 401k programs lost half their value in the 2008 financial collapse, while Social Security’s portfolio, invested in far more conservatively, did not see near the same type of drop in investment value. The report outlined that the lower and middle class retirees were hit less severely buy the 2008 downturn than upper middle class pensioners who relied more on 401K returns. That should be no surprise either.

The findings are particularly important for lower and middle class families that receive 2/3 of their retirement income from Social Security as private pension systems become a thing of the past. Those private pension programs suffered from investments in private companies that can have shifting stock values and outsourcing of jobs to other countries – more risk and fewer payees equals unsustainable pension program. No surprise the private sector has shed many of those programs, but precisely why Social Security becomes more relevant for most Americans. The private pension systems are precisely the opposite of the Social Security model.

So why the push to try to change retirement programs? Some are in difficulty, especially where there are generous benefits, and fewer people paying in due to cuts in government employees, and at risk investments strategies that have performed poorly. All three are management issues, and the second is a political issue. Bash public employee pensioners, because fewer private entities offer them, seems to be politically popular, but it is a political means to pit people with pensions against those who do not to hide the real issue which is simply money. The investment value of Social Security’s portfolio is huge. Wall Street would love to see that portfolio in the stock market. More investment dollars will drive up stock prices. That seems good, but recall that the repeal of the 1930s vintage banking rules that prohibited banks from investing YOUR savings in the stock market, drove stock prices up fast in the 1990s, but it didn’t turn out so well in 2008. Investing Social Security’s portfolio similarly can be expected to have a similar result. And then, Social Security will really be in trouble and someone in Congress will tell you – I told you so. Maybe the better argument is that all these politicians should keep their fingers out of pension plans.

Does Delaying Decisions on Infrastructure Help Us?

May 21, 2013
Development loans, economy, Environment, funding, infrastructure, innovation, Insurance, Leadership, management, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized
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If you live on an island, and your groundwater table is tidal, what should your datum be for storm water planning purposes?  Average tide?  High tide?  Seasonal high tide?  If you are the local official with this problem, what do you do, realizing that the difference from mean tide and seasonal high tide (when most flooding occurs) is 1.5 feet?  Realizing that property and infrastructure is at much higher risk for periodic inundation, does the failure to address the problem indicate a lack of willingness, understanding, hope or leadership?  We see all four responses among local officials, but the “head in the sand” mode is the most curious.  It’s tough challenges that often define leaders.  With sea level rise, there is time to plan, construct infrastructure in stages, arrange funding, and lengthen the life of infrastructure and property.  Meanwhile, those insurers, banks and the public we talked about in a prior blog wait and watch.

How Long should the Leadership vision be?

April 29, 2013
Climate, Environment, finance, groundwater, infrastructure, Leadership, management, planning, sustainability, Uncategorized, water sewer management, water supplies
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We do 5, 10 and 20 year plans for infrastructure.  But how long do we expect to this infrastructure to last?  For example, how many roads only last 10 or 20 years?  Most roads only seem to grow with time.  Ancient Roman roads are the basis for many current roads.  We keep adding roads – few are ever abandoned. They simply do not go away.   So a 5, 10 or 20 year planning period makes little sense.

Roads are not the only limit.  The WPA-era water mains are approaching 80 years old, and still providing good service, and our Clean Water Act-era sewer improvements are approaching 40.  Sewer lines are similarly situated.  Many water plants are over 70; we celebrate 100 years on many.  Again, planning for only 20 years makes little sense in the context of the larger length of time.

More interesting, we rarely borrow money to pay for these projects for less than 20, 30 or 40 years.  So our infrastructure outlives our plans and our borrowing.  Often permits are less that the borrowing for infrastructure, which can cause stranded capacity in plants that may never be used.  Miami-Dade County has such a situation – they are not alone.

Let’s look at this in the context of groundwater withdrawals.  There are areas across the US where groundwater levels have fallen. They have fallen because of human activity to pump them for crops and water use.  Colorado has a 100 year management plan in the Denver basin which is basically make the water last 100 years.  Then what?  Texas has shorter plans.  The eastern Carolina drained parts of the Black Creek already, so this is not a theoretical western state issue only.  How do we address this?

Or let’s go back to Miami-Dade County the outer banks of North Carolina, historical downtown Charleston, SC, and many other venues where sea level rise could impact water, sewer, storm water and roadway infrastructure. As we redevelop those area, should plans look at the true life of those assets (100 years) vs. the 20 year plan?

Both issues involve the sustainability of infrastructure systems, which means the ability to adapt them to changing future conditions.  We have known for 10-15 years that stationarity is no longer accepted for future projections.  But we need leadership to move the infrastructure planning to the future changing conditions.

Barriers to Public Sector Leaders?

April 1, 2013
infrastructure, innovation, Leadership, management, Uncategorized, water sewer management
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One of the issues that arises in the public water utility sector is where are the leaders?  A recent online discussion of the issue identified a number of barriers to public sector leadership, which differentiates the public sector from the private sector.  The three issues were associated with risk tolerance in the public sector which stifles innovation, application of business principles to public sector efforts, and the lack of vision and understanding of consequences.  Related to the latter is the understanding of the various types and perspectives of expertise within the industry.  Over the next three blogs, we will talk about each.  Comments welcome of course.

So the first one.  For the most part, public officials, city managers, finance directors and elected officials, are particularly risk averse individuals as a group.  For one thing, their tenure in any given job is relatively short (city manager are aground 2-3 years).  Elected officials spend much of their time trying to stay in office, so clearly their leadership is guided by public opinion, never a strong point for leadership. Regulatory agencies can only be criticized, so why be innovative? For all three, plus the employees working beneath these folks, their performance is in the public eye and the public is rarely forgiving of continued or significant failures.  However, innovation is often correlated with risk, which suggests that the risk associated with failure may limit the pursuit or acceptance of innovation – instead keep doing what you have been doing because that creates no waves.  Nevermind that the same old way may be inefficient or outdated, the concern is the risk if a new idea fails.  The reality is to “stick with what works,” a mantra that has existed in the industry for many yeas, does not accept innovation easily.  Particularly of issue is organizations where many mid- and often upper division managers avoid decision-making, but may be particularly poignant in pointing out decision failures of others as a means to improve their own stock – “I’ve never made a bad decision.”  But as in baseball, sitting on the bench 0 for 0, means you have never had an at bat, so you have accomplished nothing, while the person who is 6/10 may have accomplished a lot.  It is successful risk taking that may lead to changes in the organization, changes in doing business, improvements in efficiency and new means to accomplish tasks or deliver services.  You need to think “outside the box,” to use an overused euphemism.

So the question is how do we get the public and the public officials to accept risk taking, and to relax their risk averseness?  For innovation to grow, we need leadership, which means risk tolerance.  After all doing the same thing over and over, and expecting different results is the definition of insanity isn’t it?