Wednesday, December 19, 2012

The Worker’s Compensation Nightmare Keeps on Coming.

On November 30, 2012 NYCERS sent an unsigned letter to a former subway conductor. NYCERS has been sending this disabled retiree $283.30 a month for the last 21 years.

The letter notified the retiree that 1) his benefit is subject to an offset of any Workers’ Compensation payment and 2) since he has been receiving $150 a week from the Workers’ Compensation Board that his pension will be suspended as of January, 2013. NYCERS provides no detail about how this Workers’ Compensation information came to light 21 years after the member retired. No statutory reference was given.

NYCERS will graciously continue to pay him a “nominal” amount so that he may retain his health insurance.

In addition NYCERS stated that since he has been receiving the $150/week Workers’ Compensation payment since 12/01/1991, his NYCERS disability benefit was and is equal to $0.00 per month.

While this can be argued to be legally correct, such a draconian result demands a close legal interpretation of the statute. This retiree contributed 3% of his salary to NYCERS for eight years before becoming disabled. This interpretation of the statute provides this member with nothing for the money he contributed. It is hard to conclude that this was the legislative intent.

The final thrust of the NYCERS letter is a claim by NYCERS against the retiree of a repayment of $99,355.18 for the monthly payment of $283.30 over the last 21 years. NYCERS states that it may take action to recoup the money. Of course, NYCERS offers the retiree the option of sending a check or money order payable to NYCERS for the full amount. It appears that the $99,355.18 includes all the cost of living adjustments (COLA) that the retiree received. I am almost certain that NYCERS does not have specific directions from the Law Department to deny COLA payments to such retirees. Of course NYCERS sent no calculations supporting the $99,355.18 amount.

Again, NYCERS graciously advises the retiree that if he has any questions he can call the pension payroll unit or visit customer service at Jay Street.

No one signed the letter.

I never cease to be amazed at how secretive, clumsy, insensitive and unprofessional NYCERS can be. This is especially true for an agency that has a budget that is free from the constraints that other city agencies have to work under.

Saturday, November 17, 2012

Private Equity: Disclosure (lack of) and Cutting Losses

In September, 2011 the NYCERS trustees hired an new investment consultant for private equity investments. The new firm is StepStone Group LLC. They replaced Pacific Corporate Group who had been under contact since 1998 when Hevesi was Comptroller.

At the September 25, 2012 NYCERS Board of Trustees investment meeting, StepStone issued a 36 page report on the March 31, 2012 status of the NYCERS private equity investments. The private equity reports always lag the reporting of the more traditional investments.

The copy of the report included in the "revised" public agenda for the meeting was missing the last 10 pages of the report which comprised two exhibits labeled:

--- IA) Portfolio Investments by Status
--- IB) Performance by Vintage Year

The "revised" agenda is available on the Comptroller’s web site. I suspect that the revision was due to the fact that the staff at the Comptroller’s office forgot to redact the information showing how bad the situation is with respect to the NYCERS private equity investments.

From my previous experience of requesting investment information under New York State F.O.I. Law, NYCERS purposely hides specific performance information about the private equity managers. NYCERS also hides information about the real estate managers. NYCERS is required by the NYS Freedom of Information Law to provide this information to the public. You can read a detailed advisory opinion (OML-AO-3931) from the State of New York Department of State - Committee on Open Government addressing this specific issue.

Of course, if an agency is not sued in court for violating the NYS Freedom of Information Law, it can effectively violate the law with impunity.

On a more basic level, the report was paid for with the members’ and retirees’ money. The report belongs to them and not the trustees, some of whom are not even participants of the pension system. StepStone tries to claim that the report is confidential but that is not possible when functioning in the public sector as indicated in the advisory opinion referenced above.

Sale of eleven PE partnerships

Equally disturbing is the start of the sale of NYCERS private equity partnerships in the secondary market.

In the part of the report released to the public StepStone notified the trustees of the sale of eleven of the 141 partnerships in the secondary market. The sale was done in two parts. The first included five partnerships sold at a 6.6% discount. The second included the remaining 6 sold at a 5.4% discount.

Stepstone does not indicate why they were sold. It does not indicate why these eleven were chosen. It does not indicate whether these eleven were highly rated assets or of inferior quality. It does not provide a cash flow history of any of the eleven partnerships. Without the cash flow history it is impossible to determine the final performance of any of the eleven partnerships.

StepStone does not detail the financial impact of the quoted discount of the two sales. It focuses on the idea that the sales have released NYCERS from an unfunded liability of $129.5M. This sounds a lot like cutting your losses.

Wednesday, November 14, 2012

Disaster Recovery and Hurricane Sandy

With Hurricane Sandy’s knockout of major office buildings in lower Manhattan, metro area organizations will all be reviewing the effectiveness of their disaster recovery plans.

In 2004, I began the effort to establish an alternative disaster recovery office site for NYCERS. It is unclear, eight years later, whether the NYCERS Long Island City recovery site would actually have been able to function as an effective disaster recovery site, if Hurricane Sandy had flooded 335 Adams Street as it did 55 Water Street, the home of the NYC Teachers Retirement System.

Monday, November 12, 2012

Wilderness

As of June 30, 2012 the Comptroller reported to the NYCERS Trustees that the assets of the system were valued at $41.620B. The June 30, 2011 value was $41.623B. That is a small drop for FY-2012.

As a point of reference the value in 2000 was $42.997B.

For the last 12 years this has truly been the wilderness for NYCERS investments.

The whole picture is even worse.

The annual benefit payments have gone from $2.11B in 2000 to $3.568B in 2011. In addition the trustees have for some reason chosen to expand into asset classes that are not prudent for a large mature public pension fund. The trustees have also allowed investment fees rise from $32M in 2000 to $145M in 2011.

You can see from the table below the effects of the Kool-Aid. Just because everyone else is jumping off the cliff, that doesn't mean it is a good idea.

NYCERS Asset Class Expansion
Asset Class200020112012
US Equity – Active Managers $3.196B $2.581B $2.447B
US Equity – Emerging Managers $0.247B $0.666B $0.667B
US Equity – Passive: Russell 3000 $20.733B $6.809B $5.962B
US Equity – Passive: S&P 500 $3.934B $3.392B
US Equity – Passive: Small & Mid-Cap $2.861B $2.550B
US Equity – Environmental $.064B $.063B
US Equity – Activist $.106B $.006B
International Equity – Active $4.460B $3.646B $2.293B
International Equity – Passive $2.040B $1.315B $1.390B
International Equity – Environmental $.180B $.173B
International Equity – Activist $.290B $.214B
International Equity – Emerging Markets – Active $1.478B $1.572B
International Equity – Emerging Markets – Passive $.558B $0.960B
Hedge Funds $0.078B $0.929B
Private Equity Managers $.008B $3.169B $3.655B
Real Estate Managers $1.268B $1.670B
US Fixed Income – Government/Mortgage/Corporate $9.811B
US Fixed Income – Government $1.070B $1.058B
US Fixed Income – Mortgage $2.845B $3.003B
US Fixed Income – Corporate $2.291B $3.006B
International Fixed Income $.053B $.057B
US Fixed Income – Treasury: Inflation Protected/Active $.762B $.695B
US Fixed Income – Treasury: Inflation Protected/Passive $.251B $.228B
Fixed Income – Emerging Managers $.095B $.104B
Fixed Income – High Yield $1.712B $1.288B $2.624B
Fixed Income – Convertible Bonds $.560B $.546B
Fixed Income – Opportunistic/Distressed $.450B $.435B
In-House - Short Term $.596B
External – Short Term $2.483B $1.384B
In-House Targeted $.118B $.466B $.500B
In-House Mortgage $.010B
Securities Lending & Bank CD’s $.007B $.007B
Total $42.997B $41.623B $41.620B

Wednesday, October 17, 2012

Administrative Expenses at NYCERS

I just read a October 12, 2012 NY Post article concerning administrative expenses at NYCERS. The Board refused the mayor's offer of $350,000 to pay for a consultant to come up with ways to cut the $120M/yr. administrative costs for the city's five pension funds.

This is a wild story. By statute NYCERS has to report all expenditures to OMB. (see S.13-103.g below) OMB is in the business of doing management audits of all city agencies. They don’t need to hire an outside consultant. The mayor just has to ask OMB to do the analysis.

The mayor can also instruct his representative on the Board to vote against the budget each year, if he is not happy with the way the executive director is running the agency (i.e. the LIC site ).

FYI: The Board had an extensive management audit done in 1996-1998. The trustees might try reading it.

In addition, by statute (S.13-103.g) the Comptroller is supposed to audit all NYCERS expenditures and is allowed to make recommendations, if he wishes to. Unfortunately, progress on the Comptroller’s heralded budget disclosure site has stalled.

NYCERS’s administrative budget (excluding loan operations:paid by members) has grown steadily in recent years.

  1. FY-2013=$43.838M (plus $7.532M fringe) (staff:380 full time & 25 par time)
  2. FY-2012=$44.538M (plus $6.603M fringe)
  3. FY-2011=$44.539M (plus $6.006M fringe)
  4. FY-2010=$43.825M (plus $5.362M fringe)
  5. FY-2009=$43,398M (plus $4.879M fringe)
  6. FY-2008=$41.908M (plus $4.799M fringe)
  7. FY-2007=$37.033M (plus $4.375M fringe)
  8. FY-2006=$34.939M (plus $4.076M fringe)
  9. FY-2005=$34.589M (plus $3.887M fringe) (staff:342 full time & 13 part time)

I was quite amused by the closing text from the article:

“The vote goes against all logic and is a lost opportunity to improve operations,” said Finance Commissioner David Frankel.
Why is Frankel commenting on a NYCERS Board of Trustees vote. He has nothing to do with NYCERS. Considering the ongoing mess at Finance he should focus on his own responsibilities.
Section 13-103.g of the NYC Admin Code dealing with the NYCERS adminitrative budget. g. All expenditures of the retirement system shall be subject to audit by the comptroller, who may make recommendations, including but not limited to, procedures designed to improve accounting and expenditure control. All expenditures of the retirement system shall be reported to the mayor's office of management and budget and the budgetary office of all participating employers.

Monday, October 15, 2012

Hedge Funds and NYCERS -- 2010-2012

As of June 30, 2010, NYCERS had no money invested in hedge funds.

As per a August 2, 2010 Wall Street article , Bloomberg appoints Nagaswami as "chair" of the NYCERS board. She was not employed at the time. Concurrently, Bloomberg appoints her to a paid position at the Department of Finance with a salary of $175,000/yr.

I use quotes around the word chair because for some strange reason since 2010 NYCERS has avoided stating for the record who the chair actually is. That in of itself is a warning sign. When a large financial organization can not identify who the Chair of the Board of Trustees is, you know there is trouble.

For the record, the mayor is not a trustee. The person he appoints is the trustee, not the mayor. This is completely different from the other ten trustees who are ex-officio members of the board.

As of June 30, 2011 NYCERS reported having $77.50M invested in hedge funds.

As of June 30, 2012 NYCERS reported having $960.48M invested in hedge funds. In the Comptroller's quarterly report these investments were reported to have a 2.14% loss for the fiscal year ending on June 30, 2012.

In August, 2012 Nagaswami resigned her position as "chair" of the NYCERS Board of Trustees. She announced that she was taking a job with the hedge fund Bridgewater Associates LP, the world’s biggest hedge fund.

In September, 2012 the trustees adopted a resolution thanking Nagaswami for her service to NYCERS.

This sequence is obviously outrageous.

While 85% of the money going into NYCERS comes from employer contributions, in FY-2011 the employees paid $410M in pension payroll deductions. That is an an average of $2,300 from each employee. When the trustees screw up, it is both the employees and the taxpayers who get pounded. The trustees get to go home to Greenwich and work for a hedge fund.

Tuesday, September 18, 2012

Delays in Loan Processing at NYCERS

NYCERS recently posted the following notice on its web site:

September 4, 2012

In order to better serve our members and retirees, NYCERS is upgrading its technology system. As a result, some transactions may take longer to process. For example, loan applications will take at least 20 days to process as we implement these technology improvements. Thank you for your patience and cooperation.

Loan processing is the most high profile service at NYCERS. Over 50,000 members a year apply to NYCERS for a loan backed by the members' pension contributions. For that reason it is the most automated system at NYCERS. The traditional turn around time for a loan is one week. Applications received between any given Thursday and the following Wednesday are vouchered the next Thursday and the loan checks are mailed out on Friday. A Wednesday application is actually mailed out two days after it is filed.

Almost all loans have a processing fee. It currently is $40. The members are paying for this service and are entitled to quick and accurate service. When I left NYCERS in 2005, the fee was $15.

NYCERS has allegedly "upgraded its technology system". Instead of the one week turn around, it will now take three weeks. I suspect there is a very serious problem with the loan processing system. NYCERS does not give an understandable explanation or a projected solution to this problem.

The loan system I left in place in 2005 was working very well and was less expensive to run than this new "upgraded" system. It would appear that new technology should make things better. NYCERS, however, is quite comfortable claiming the opposite. The fact that NYCERS does not see this contradiction, is troubling.

I suspect we are not being told the real reason for the delay. By the way, what are the other transactions being delayed?

This is a service that the members are paying for out of their paychecks. Is NYCERS giving the members a discount on the fee because of poor service? I don't think so.

Why did the trustees and the executive director allow this problem to occur?

Tuesday, September 11, 2012

Nagaswami and the Hedge Funds

2010 - Bloomberg appoints Nagaswami as his investment person on the city pension boards.

2011 - NYCERS starts investing in hedge funds

2012 - Nagaswami leaves the city pension funds and takes a job with a hedge fund.

Tuesday, September 4, 2012

Tier 6 - Disability Picture for NYC Police, Fire, Corrections, Sanitation, and Detective Investigators Members

Background

As of July 1, 2009 all new NYC police officers and fire fighters were covered by the Tier-3 pension benefit structure.

As of April 1, 2012 all new NYC police officers, fire fighters, correction officers, sanitation workers, and DA detective investigators are covered by the new Tier-6 pension benefit structure.

Tier 6 is an effort at pension benefit reform within New York State. It definitely cuts benefits. It is very expansive but I want to focus on one particular area, disability benefits for these Tier-6 workers.

With respect to these Tier 6 members, the new disability benefits are the old Tier 3 benefits put in place back in 1976, 37 years ago. The one difference is that these benefits are now based on compensation base equal to a five year average earnings as opposed to the old three year average.

The relevant sections of law in Tier 6/Tier 3 with respect to disability benefits are Sections 506 (Ordinary Disability) and 507 (Accident Disability) of the N.Y.S. Retirement &Social Security Law (RSSL).

As of 2009, only the NY Police Pension Fund (NYPPF) and the FDNY Pension Fund (FDNYPF) were involved with the Tier 3 throwback.

As of 2012, Tier 6/Tier 3 involves three pension systems, NYPPF, FDNYPF, and NYCERS. These three systems will have to resurrect the old Tier-3 procedures from the 1976 to 1983 time period. Of the three systems, only NYCERS administered Tier-3 benefits during that time. In 1976, the benefit structure for both NYPPF and FDNYPF remained in Tier 2.

In 1983, Tier 4 superseded Tier 3 state wide. One of the big reasons for the change over to Tier 4 was the administrative problems inherent in Tier 3, especially the Social Security coordination and its tie-in to disability determinations.

These lower Tier 6 disability benefit levels will reduce the number of members retiring for disability. The VSF benefit, for police, fire, and corrections, is only available to service retirees. This benefit along with the long term earnings limitations will push many members to continue working until their 22nd year even when they may qualify for a disability benefit. Members who are profoundly disabled, however, will have no choice but apply for whatever disability benefit they qualify for.

The FDNY will have a special management problem supervising two groups of employees, one with an accident disability benefit = 45% (new fire fighters) and another with a line of duty disability benefit = 75% for all EMS workers, even Tier 6 ones. This makes one think that there will definitely be future changes to this part of Tier 6.

Ordinary Disability Benefits (S.506)

The new Tier 6 ordinary disability benefit is equal to

  1. The greater of 33&1/3% of the five year average FAS or 2% times years of service up to 30 years
  2. Minus 50% of the primary SS disability benefit or at age 62, 50% of the primary SS retirement benefit (if ineligible for SS disability)
  3. Minus 100% of any Workers Compensation (WC) payable
  4. Plus full immediate escalation.

To be eligible the member must in active service and have at least 5 years of credited service. Continuous employment in active public service immediately prior to the date of membership in the appropriate retirement system shall also count towards the 5 year requirement. There is no age requirement for the ordinary disability benefit.

The member must be determined to by disabled by the Social Security Administration. If you are older than 65 or do not have a enough quarters to be eligible for SS disability, then the approppriate retirement system Medical Board will make the disability determination. The cause of the disability is not pertinent to granting the benefit.

Retirees receiving ordinary disability benefits are subject to post retirement income limitations. These limitations are the same as apply to the accident disability benefit. See below.

Note: Workers Compensation

NYC police officers, fire fighters, and sanitation workers are not covered by Workers Compensation. Therefore, there is no WC offset for their disability benefits.

Correction officers and DA detective investigations are, however, covered by the city's WC structure. This means there will be WC offsets to their disability benefits, if the member receives any WC payments.

It may be prudent for these members not to claim WC payments since the NYCERS benefit might be reduced to zero by the offset. This would put their city health insurance as retirees at risk. However the WC payments might be greater than the NYCERS benefit with or without the SS offset. The member needs to do some arithmetic to properly balance their benefit structure. I'm sure the relevant unions will provide advice.

A WC offset for an ordinary disability benefit is unusual and raises the issue of whether this benefit is exempt from federal income tax in the same way that accident disability benefits are. The NYC Law Department will have to resolve this issue.

Accident Disability Benefits (S.507)

The Tier-6 benefit is equal to

  1. 50% of the five year average FAS
  2. Minus 50% of the primary SS disability benefit or at age 62, 50% of the primary SS retirement benefit (if ineligible for SS disability)
  3. Minus 100% of any Workers Compensation payable.
  4. Plus immediate full escalation. See the escalation section below.

To be eligible the member must in active service. There is no two year filing limitation that existed in Tier-2. There is no service or age requirement for the accident disability benefit. It appears to me that police officers and fire fighters with 22 or more years of service are not eligible while NYCERS members are free of that limitation. This issue will not arise for many years and probably will be changed sometime in the future.

The member must be determined to by disabled either by the Social Security Administration or the appropriate pension Medical Board. In either case, the Medical Board must make a recommendation on whether the associated incident on the job caused the disability and the incident was an accident as per retirement system's legal definition of an accident. These causation and accident determinations are the same as in Tier-2.

The appropriate Board of Trustees makes the final determination on causation and accident. The final disability decision, however, rests with the Social Security Administration or the retirement system's Medical Board.

Members must waive any right to any statutory presumption (i.e. heart bill or lung bill) relating to the cause of the disability or eligibility for disability benefits. This does not apply to World Trade Center presumptions.

Retirees receiving accident disability benefits are subject to post retirement income limitations. See below.

Limitations on Income after Disability Retirement (S.507.d)

There are significant long term income limitations for disability retirees, both for accident and ordinary disability. I have included the exact wording from the statute (S.507.d) below because of the harshness of the restriction. If the retiree loses his/her SS disability benefit or engages in employment or business activity that would make him/her ineligible for SS disability benefits, then his/her retirement system disability benefits cease. This is not just a suspension. The only reprieve is being placed on a preferred eligible list.
S.507.d.

If a member shall cease to be eligible for primary social security benefits before attaining age sixty-five, or, if receipt of social security benefits is not a condition for disability benefits hereunder, shall engage in such employment or business activity as would render such member ineligible for social security disability benefits (had he or she otherwise been eligible), benefits hereunder shall cease.

Provided, however, if such member is otherwise eligible, the state civil service department or appropriate municipal commission shall place the name of such person, as a preferred eligible, on the appropriate eligible lists prepared by it for positions for which such person is stated to be qualified in a salary grade not exceeding that from which such person retired.

In such event, disability benefits shall be continued for such member until such member first shall be offered a position in public service at such salary grade.

Escalation (S.510)

Escalation is designed to provide some protection from the negative effects of inflation over time. A Tier-6 member who retires for either disability benefit is eligible every April 1 for a percentage increase in his/her benefit based on the lesser of 3% or the consumer price index (all items- US city averages as per US Bureau of Labor Statistics) as of the previous December 31.

In the event of a decrease in the CPI, the benefit is decreased by the lesser of 3% or the CPI. The benefit will not decrease below the original benefit.

The CPI changes are cumulative and are brought forward each year. So in effect, there are two running escalation indexes, the all 3% index and the all CPI index.

Escalation becomes payable: 1) For eligible service or vested benefits on April 1 following the 25th anniversary date. The first year is prorated on monthly basis. 2) For accident and ordinary disability and death benefits on April 1st following the date the benefits start. Again the first year is prorated.

Social Security Offset (S.511)

Calculating this offset can get very complicated. But roughly speaking the amount is computed at the time that the member retires from the appropriate retirement system and not at the member’s 62nd birthdate. It does not include any private sector income in computing the Social Security benefit. Only wages from employers who participate in NYS public pension plans are used. All other wages are set to zero. The offset will not include any increases to the Social Security benefit which occur after the member's retirement date. The complexity of this offset is one of the prime reasons that New York State moved to Tier 4 (the SS offset was dropped completely along with automatic escalation) in 1983.

Tuesday, August 28, 2012

Investment Loss - Allegra Capital

I previously commented on the notice that Allegra Capital Partners IV, LP had exited its limited partnership with NYCERS as of the first quarter of 2011. Pacific Corporate Group had notified the NYCERS trustees of this on September 16, 2011.  NYCERS first invested in the Allegra private equity deal in FY-2000. It was the third private equity deal NYCERS entered into. NYCERS currently has approximately 150 open private equity investments.

Allegra is the second deal to exit. The first was Emerald Infrastructure Development Fund which was a total loss ($1M) of capital for NYCERS.

On December 9, 2011, I asked NYCERS, under the NYS freedom of information law, for the cash flow history between NYCERS and Allegra during the life of the partnership. On July 2, 2012, seven months later, NYCERS notified me that the Comptroller’s office had the cash flow history. I have to assume NYCERS did not have the information even though NYCERS did not specifically say that the agency did not have it.

On July 9, 2012, I requested the information from the Comptroller’s office. I was told it would be sent on August 20, 2012, a six week delay. That is not bad for a FOIL request and I actually received the information on August 20, 2012.

The response, however, was a bit strange. Let me quote the wording of the Comptroller’s email:

“The cash flows below have been provided by the Stepstone Group LLC, the Private Equity consultant to NYCERS.” 

This is troubling since this implies that the Comptroller’s office does not have this information in its own files. This would mean that neither NYCERS nor the Comptroller records what money is moving between NYCERS bank accounts and the private equity managers. 

I suspect that each private equity manager has a blanket approval to draw down against NYCERS bank accounts up to a fixed maximum limit set by contract. It would appear that the only way that the consultant would have this information is from the private equity manager since the Comptroller does not have it.

Bottom line, the private equity managers have direct access to NYCERS bank accounts without NYCERS disbursement authorization and without notification to NYCERS or the Comptroller.  

There is a very specific requirement in the NYCERS section of the NYC Administrative Code. It states as follows:

 “ §  13-137  Payments  from funds. All payments from such funds shall be made by such comptroller upon a voucher signed by the executive director  of the retirement system.”.
It is true that modern investing requires managers to move quickly before a voucher can be processed. All other investment actions, however,  are subsequently reported to NYCERS and the necessary vouchers are produced. This allows NYCERS to keep accounting control of its assets. Of course, private equity investing is not high frequency trading and a 24 hour approval cycle would be reasonable for disbursements to private equity managers.

Legally, NYCERS is responsible for the proper accounting of its assets, not the Comptroller and not a third party private firm.  In addition, as of June 30, 2011, Stepstone was not under contract to NYCERS. Assuming they  began working for NYCERS in FY-2012 any information they have is dependent on work that was done by another contractor, Pacific Corporate Group, over  the last twelve years. 

The cash flows reported may be totally accurate but it is not possible to confirm their accuracy. I don’t know any prudent person who would turn over his check book to a third party.

Now let’s look at the really bad news. With cash flow information provided, the Allegra investment had a rate of return equal to negative 8.24% per year over eleven years. This is equal to a steady loss of  8.24% for 11 years in a row, not just a bad quarter or a year.

NYCERS invested $24M and got back $11.66M. 

On top of the loss of accounting control this was a disastrous investment for NYCERS. As I said before NYCERS has about 150 private equity deals in play. The law of averages projects that NYCERS will break even on these deals, if it’s lucky. It definitely will pay huge annual fees.

This is clearly an imprudent investment strategy for a large pension fund. Heck, it’s a bad strategy for anyone.

For some strange reason the Comptroller is still carrying Allegra on his NYCERS quarterly reports as of March 31, 2012 at a value of $4.74M. This makes you question the accuracy of the quarterly reports.

Friday, August 17, 2012

How far does $10 a month go?

I previously commented on the Workers' Comp issue at NYCERS, specifically as it effects a retired transit police officer who retired 28 years ago on an accident disability benefit.

This week the Chief wrote a front page story about the terrible treatment that this retiree has had to endure at the hands of the current management at NYCERS. It appears that NYCERS is going after 37 disabled retirees for WC payments that NYCERS claims it failed to withhold from the retirees' benefit.

The Chief particularly quotes the NYCERS legal director, Ms. Mazza, as follows: "we're trying to leave them with something in their pocket at the end of the month," referring to the 37 lucky retirees. I guess $10 counts as something or maybe $5 is good enough.

So two weeks ago I get a call from a retired bus driver. He had retired from NYCERS 27 years ago on a accident disability benefit. His bus had been hit by a truck. You guessed it. NYCERS is coming after him for WC payments that NYCERS claims it had not deducted from his $1,486 monthly benefit check. The original benefit was $1,012 and the increase was due to cost of living adjustments over the years.

We're talking about high finance here. In 1985 NYCERS approved the retiree for an annual accident disability benefit equal to the grand amount of $12,151.

In a January 20, 2012 unsigned letter, without any due process, NYCERS notifies the retiree that NYCERS is reducing his monthly pension from $1,486 to $943. Then in June NYCERS comes with the coup de gras. In a June 1, 2012 unsigned letter, NYCERS tells him that he owes NYCERS $173,522 and that NYCERS is going to further reduce his pension to $10 a month until 2027. Yes, I said $10 a month for the next 15 years.

I wonder if Local 100, T.W.U. is aware of this situation. The president of Local 100 is a permanent NYCERS trustee.

First, it has not been determined that there should be a WC offset in this case. It is NYCERS's responsibility to determine whether the WC payments are for the same disability. The Transit Authority WC division should be able to provide NYCERS whith the information to make that determination. NYCERS can then properly notify the retiree of the determination and the evidence supporting the decision. The retiree just might have some information to support a no offset decision. We have to always remember that this is 27 years after the point when this decision should have been made.

Second, if there is an offset, it was NYCERS fault that the offset was not taken. There is no statutory repayment schedule. That means the repayment schedule is discretionary and under no circumstances should it be punitive. In fact, NYCERS needs to be as conciliatory as possible since the agency caused this problem, not the retiree. In fact, there is a legitimate argument that NYCERS has no right to withhold any of the cost of living adjustment amounts.

Monday, August 13, 2012

NYS Department of Financial Services - British Banks or NYS Public Pension Funds

I guess British banks are more important to the NYS Department of Financial Services than in-state public pension funds.

It's been ten years since the NYS DFS has done a meaningful and mandated audit of NYS pension funds but they have time for foreign affairs.

7%: in limbo

I recently commented on the actuary's recommendation and proposed legislation dealing with a new interest rate assumption .

Strangely, the proposed bill was not passed by the legislature in Albany. There was a third bill introduced, S.7804, along with the original two, S.7646 and S.7693. They all seem to be in the rules committee.

I wonder what the budgetary impact will be due to the delay. The city had put aside $900M for this contingency in FY-2012.

Friday, July 13, 2012

Disaster Recovery Site: Has NYCERS Fixed the Problem?

Last week I received a copy of the NYCERS Administrative Budget for FY-2013.

In September, 2011, I commented on the five year delay in completing the NYCERS Long Island City (LIC) disaster recovery (DR) site.

Based on the NYCERS budget proposal for 2012-2013, the site is now “nearing” completion with a date sometime before June 30, 2013.

There continues to be an ongoing confusion about the completion of this project. On March 25, 2012 in response to a newspaper article about the five year delay in getting the LIC site operational Karen Mazza, the NYCERS legal director, stated that the site would be ready to open on April 1, 2012. Considering the history of this project we’ll need to see the certificate of occupancy before being sure that the site is open. Of course, having a fully functioning alternative site for all agency operations is a whole other story.

The rent for the LIC site for the coming year is $496,500.

In its FY-2013 budget NYCERS’s has increased its headcount to a total of 394 F/T and 25 P/T positions. In addition there are always a significant number of consultants working at NYCERS.

As per the budget document the DR site is projected to only support 150 people at any one time or 300 people using a two shift schedule. The certificate of occupancy and the FDNY inspection will actually determine the working capacity of the site.

The two shift schedule raises contract issues with the unions involved and creates serious hardships for employees stuck with off hours schedules. It also leaves a problem for the remaining 94 employees and consultants and their associated work.

Part of the long delayed plan is to install a second mainframe at LIC with the idea of ending the use of the IBM DR site at Sterling Forest, NY.

This is fundamentally a bad idea. The elimination of the Sterling Forest site means that NYCERS will lose flexibility in its ability to respond to unknown disasters. It also creates personnel, management, and cost challenges in keeping the LIC mainframe in synch with the Adams Street machine. NYCERS is a relatively small organization which needs to avoid high overhead and to leverage its skills with the use of the Sterling Forest site.

Prior to 2005 NYCERS had an IT expert as the executive director. The current executive director has no business experience prior to 2005. This makes NYCERS very susceptible to “pie in the sky” schemes as evidenced by the six year delay in getting this project off the ground.

As per the budget document, NYCERS is also planning to move its document management, training, and IT testing/backup functions to this site.

It is not clear what NYCERS will do with its modern training center at Adams Street. Adams Street is the site where all NYCERS employees are currently working. It is clearly a more efficient site to train employees than LIC.

Moving document management to Long Island City will only create delays in agency functions and increase the difficulty in controlling documents that arrive at Adams Street and then will have to be transported to LIC site for processing.

The current offsite record storage at Bergen Street will be moved to the DR site. This was a pre-2005 concept. I wonder how it survived.

Wednesday, June 27, 2012

The New 7% Law - Pension Costs for the City

The legislature is looking at two pieces of proposed legislation dealing with the assumed rate of interest for the five city pension funds. The two pieces of legislation both incorporate the NYCERS & TRS actuary's recommendation for a new five year assumed interest rate dropping it from the current 8% to 7%.

The recommendation is three years late. The actuary has not written a fiscal note for either of the two bills. I suspect the actuary doesn't want to be on record describing the details of his own recommendations. Both bills are the same except for language dealing withh the FDNY VSF funds and possible funding shortfalls in those funds.

The actuary is appointed by the NYCERS trustees and the NYCTRS trustees. He is, however, paid directly by the city or in other words by the mayor. His annual salary is $250,000.

In the table below is the budget impact of the interest change. There are many other changes being implemented at the same time which I will outline below.

SystemCity AmountsAll MembersAll Retiree
FY-2012 & 8%FY-2012 & 7%FY_2013 & 7% June 30, 2010June 30, 2010
TRS: $2,564.4M$2,656.4M$2,755.0M 130,620 72,356
Police:$2,203.7M$2,432.7M$2,441.0M37,28144,634
NYCERS:$1,423.0M$1,569.M$1,618.5M213,255132,487
Fire:$948.7M$1,004.7M$1,005.4M 11,13617,140
BERS:$161.7M$213.7M$204.5M 27,18413,969
Contingency for 7%: $950.9M***********
City Totals$8,252.5M$7,876.6M$8,024.3M

Note: Only 55%, approximately, of the NYCERS members & retirees are city workers.

The impact of the interest rate change has obviously been blunted. But it is also clear from the chart that pension costs vary greatly over the work force. This in turn creates difficult management problems. I don't pretend to have solutions for them but they should not be hidden behind blanket characterizations.

As I previously noted, this legislation allows the city and the other participating employers to amortized investment expense costs rather than pay them two years later. This created a significant short term savings in pension costs starting in FY-2012, the year that the 7% rate becomes effective. Specifically, the savings for FY-2012 will be $493M and for FY-23 $453M.

In FY-1997 the pension funds started paying these investment expenses directly as opposed to the city paying them out of the Comptroller's operating budget. In 1999, legislation was passed requiring the city and the other employers to reimburse the pension funds the following year for these expenses plus one year's interest. This was done to separate long term liabilities from short term expenses. In 2006, legislation was passed to change the payment year from one to two years later plus interest.

The proposed legislation also has provisions to guarantee the VSF funds. Listed below is the wording for the Correction VSF at NYCERS. There comaparable sections for the two Police and the two Fire VSF funds. These provisions may or may not be necessary but they definitely have nothing to do with the assumed rate of interest for the pension funds.

§ 6. Subparagraph 3 of paragraph (e) of subdivision 4 of section 13-194 of the administrative code of the city of New York, as added by chapter 255 of the laws of 2000, is amended to read as follows:

(3) Except as otherwise provided in subdivision eleven of this section and in sections 13-195 and 13-195.1 of this chapter, nothing contained in this section shall create or impose any obligation on the part of the retirement system, or the funds or monies thereof, or authorize such funds or monies to be appropriated or used for any payment under this section or for any purpose thereof.

§ 7. Section 13-194 of the administrative code of the city of New York is amended by adding a new subdivision 11 to read as follows:

11. In the event that, for any calendar year covered by a payment guarantee, the assets of the variable supplements fund are not suffi- cient to pay benefits under this section for such year, an amount suffi- cient to pay such benefits shall be appropriated from the contingent reserve fund of the retirement system and transferred to the correction officers' variable supplements fund.

The mayor, in his FY-2013 budget presentation, stated the following recommendations from the actuary:

  1. Seven percent actuarial interest rate assumption (legislation)
  2. new life expectancy tables
  3. new experince relating to rates of retirement and disability
  4. a new funding method, Entry-Age Normal Cost Method (legislation)
  5. implementation of a market value restart
There was no mention of the delay in paying investment expenses or the mandated funding for shortages in the VSF funds. In addition the market value restart (taking immediate credit for the current recovery in the market) provides funding relief but is not sound actuarial practice.

Friday, June 22, 2012

Tier 6 Costs and the new 7% Interest Rate - June, 2012

Now that the final specifics of Tier 6 have been locked into place and the legislature is about to adopt a new reduced assumed rate of interest (7%), I wanted rework my previous cost estimates for an average Tier 6 benefit.

I just caught the story that North didn't put a fiscal note of his new 7% assumed interest rate recommendation. This is after delaying his recommendation for three years. This forced the governor to issue a message of necessity. He hates doing that especially for someone else. Of course, this allows North to avoid giving the plain English specifics of this proposed legislation.

For instance, this law will allow the the city to postpone replacing the pension investment expenses paid in FY-2010 and any years later. There was a $493M payment scheduled to be made in FY-2012 and a $453M payment to be made in FY-2013. They will be rolled into long term pension costs paid back over 22 years. This was quite a trick on North's part.

If a person starts working at age 21 for the city under Tier 6 with a salary of $25,000 and retires at age 63 with a final salary that went up 2.5% per year ($67,126), his/her pension would be $45,215 after 42 years of service with the city.

If NYCERS earns an annual rate of return of 7% on its investments and uses a 7% annuity factor, this benefit will only cost the city 2.15% of payroll, $39,151, over the 42 years. That is an average of $933 a year. The employee will have contributed $60,127 over the 42 years.

Even though 7% is better than 8%, it is still far from realistic. Unfortunately, a more prudent 5% interest rate would also be a more costly interest rate. The bottom line with 7% is that the city is still underfunding its pension costs, even the reduced Tier 6 benefit structure.

In contrast to the 7% assumption, if NYCERS uses a 5.5% target on its investments and uses a 5% annuity factor, the city's cost for the $45,215 benefit rises from 2.15% to 4.43% of payroll, $80,670, over 42 years. That is average of $1,921 per year.

I know these numbers just make peoples eyes glaze over but that is one of the reason poor decisions continue to be made. If done right, pension can have reasonable costs and reasonable benefits.

As I have said before, it is every clear how important it is to the city and the employee that the pension fund trustees are prudent about their investment decisions. High risk/high cost strategies do not work for pension funds.

Monday, June 11, 2012

After 28 years...

I just received an email from a retired Transit Police officer. I have listed it below. He retired from NYCERS on an accident disability benefit in 1984.

Generally a transit police accident disability benefit is offset by the workers’ compensation (WC) award granted to the police officer, but only if that award was for the same disability for which NYCERS granted the accident disability pension.

As part of the process of paying the accident disability benefit NYCERS initially lowers the ¾’s benefit by the amount of a full WC award. I remember it being $400/week. NYCERS then waits for the documentation on the WC award. When NYCERS receives the notice of award, it finalizes the monthly accident disability award for the pensioner. In this case, finalized in 1984, NYCERS did not offset the NYCERS benefit by the WC award.

Most likely this was done because the WC award was not related to the disability on which NYCERS was retiring the member. It appears from the retiree’s comments below that that was the case.

In February, NYCERS initially suspended this retiree’s pension for four months with the resulting health insurance nightmare. In June NYCERS has notified the retiree that it will restore the pension but with a 75% reduction in order to recoup the WC payments for the last 28 years. This will take 8 years. The retiree is now 70 years old.

NYCERS is legally required to correct its errors and this can be very harsh sometimes on members and retirees. Any corrective action, however, needs to be supported by clear evidence and proper notice. Failure to file out a discretionary form does not create the legal authority to suspend and/or reduce a pension benefit.

NYCERS in the last seven years has adopted an autocratic atitude towards its members and pensioners. It has forgotten that the purpose of the agency is to serve the members and retirees, not the other way around. I directly have seen many mistakes by NYCERS and failures to communicate to its members and retirees.

The ironic part of this disregard is that NYCERS has an independent administrative budget which the legislature granted the agency to insure that there was sufficient resources so that the agency could properly serve the members and retirees.

As this case stands right now, in order to restore his full pension this retiree may have to mount a legal challenge against NYCERS. Where does a retiree with a reduced pension get the money to hire a lawyer?

If the NYCERS trustees are unaware of this arbitrary and capricious behavior, they are now on notice.

Sent 5/26/2012

Dear Mr. Murphy,

NYCERS has suspended my pension. They claim since I am receiving Workers' Comp it should be deducted from my Accidental Disability pension. I told them the Workers' Comp is for a different injury than what I received my Accidental Disability pension. I have not received a written response from NYCERS to any of my written requests. I have constantly been given the run around from them. Promised phone calls never materialize. Requests for my file were ignored until recently when I received 3 pages after repeated letters and phone calls from me.

The suspension of my pension was initiated when I didn't return a form they allegedly sent me. On Feb 1, 2012 I checked my bank account before writing checks to pay my bills. I discovered that my pension had not been deposited. I called NYCERS and they said I had to fill out form F354 asking if I was receiving Workers' Comp payments and if I was I had to also submit the most recent "Notice of Decision" from Workers' Compensation Board.

I told them any "Notice of Decision" would be over 28 years old or more and I didn't have it and would have to get it from Workers' Comp. They said they would not restore my pension until NYCERS received both form F354 and and the "Notice of Decision".

I asked NYCERS to send me a form F354 and called the Workers' Compensation Board who said my files were archived in Albany. I wrote to Albany requesting my files. What I eventually received was the "Notice of Decision", a statement of discontinuance of other cases and a letter stating that my file had been destroyed. The "Notice of Decision" said I was receiving Workers' Comp for injury to my "right thumb".

I requested my retirement records from NYCERS to see if that was the same injury as I was granted my Accidental Disability pension for. I was given a run around, medical said payroll had it, payroll said medical had it, then I was told it was archived etc etc. Without that information, I could not complete form F354. The suspension of my pension continued.

In addition, earlier this month I went for a medical exam and was told I needed an MRI to see if I had a tumor in my head, I was also told my health insurance was discontinued as of April 1st of this year. Neither NYCERS nor the NYC Health Benefits Program Retirees Unit notified me that my health insurance would be cut off, or of this discontinuance of my health plan. So as of this date, every medical visit I made had unknowingly to me at the time, has gone unpaid by my insurance plan and I cannot afford to seek medical attention without my pension. This put me a horrible position, no pension, no medical insurance for my wife and my self.

When I finally received some information from NYCERS, I discovered that the records indicate that I received my Accidental Disability pension for injury to my right wrist (carpal tunnel syndrome) and my back, there was no mention of injury to my right thumb as the "Notice of Decision" granted me Workers' Comp for. I filled out form F354 and wrote on it that the Workers' Comp payment may not be related to my pension and followed that up with calls to NYCERS payroll and legal telling them I believed the Workers' Comp and Accidental disability were from different injuries. My statements fell on deaf ears. They said they were going to start deducting my current Workers Comp payment from my pension starting with the June check which they said they will send barring any problem, and they will have to figure out how much I owe going back 28 years and how they were going to get it.

I called the NYC Health Benefits Program Retirees Unit who told me that in order to get my health insurance reinstated they needed a letter of reinstatement from NYCERS and that it could be faxed to them.

I called NYCERS and spoke to the Legal Dept who said that Payroll Dept would have to issue the letter of reinstatement, that they would email and phone Payroll to have them fax the letter and explain to them the urgency of it.

As of this date my insurance has not been reinstated, I have received no mailing of a letter of reinstatement that I could send to the Health Benefits program. Certified letters, emails requesting this have been ignored. Phone calls to legal only gets me an answering machine, but my message has gone unanswered.

Workers Comp records have been destroyed, my 28 to 30 year old records from the medical facility where I was treated have been destroyed. It seems patently unfair for NYCERS to wait this long when most of the evidence supporting my position has been destroyed to raise this issue. It seems also unfair that my pension was suspended without my receiving due process.

I was a very active cop, making many arrests of violent suspects and received many injuries over the course of my career serving the people of NY City. Besides the financial and medical hardships NYCERS has imposed on me and my family, I took their actions very personal.

I learned CPR on my own time to better serve the community and recommended that the Dept. have all police officers learn it and that resuscitators should be placed in every RMP, which the Dept followed up on and I used to save lives. I gave up two weeks of my vacation time to attend a course in practical Spanish language authorized by the Dept. to help the Spanish speaking community in NYC.

I have received many commendations for my actions as a police officer including Cop of the Month and Cop of the Year awards. So you can see why I find it hurtful to be treated by NYCERS in this manner after all the good work I did for the City.

Even if I were able to work, at my age, in my medical condition and in this economy I doubt if I could find a job that I could do to make up for any reduction in my pension

I would appreciate any assistance you can give me.

Respectfully,

Friday, June 1, 2012

NYCERS Investment History: 2002 – 2009

In light of the recent negative investigative findings by DOI of the former NYCERS Chair of the Board of Trustees, it would be prudent for the trustees to review the investment decisions that occurred during her tenure from 2002 to 2009.

As background, DOI found that the Chair failed to implement corrective actions with respect to the city’s property valuation system. Such actions were agreed upon by all parties in response to a major 2002 bribery scandal in the property valuation system. The Chair subsequently lied about implementing these actions. During this seven year period NYCERS’s started making significant real estate investments, as outlined below.

In addition, there is an alleged claim of interference by the Chair in the property valuation of the Met-Life Building just prior to its 2005 sale for $1.74B to a limited partnership which included both NYCERS and NYCTRS. The NYCERS Chair was also the Chair at NYCTRS at the time. This allegation was reported to the Manhattan DA’s office in 2006 but no action was taken. The new DOI report should prod the DA to wake up.

Considering the huge increase in private equity investments during the same period along with the associated scandal at the NYSLERS pension fund in Albany, the trustees should expand their review to this asset class also.

To complete their due diligence the Trustees should review the unresolved perjury and conspiracy charges still pending against senior NYCERS management.

As of June 30, 2002 the assets of NYCERS were reported to be worth $32.2B with no real estate investments and $96M in private equity.

As of June 30, 2009 the assets of NYCERS were reported to be worth $30.9B with $885M in real estate investments and $1.9B in private equity.

Friday, May 11, 2012

The Collapse of the Pension Revision Process

NYCERS appears to have stopped doing revisions of pension benefits. The need for a revision can be caused by several events. The most common is the payment of back pay paid by the former employer after a retiree's benefit has been finalized by NYCERS.

Right now there are retro payments that were paid over 20 months ago that have not been processed. What is worse is that NYCERS is refusing to communicate to the effected retirees the reason for the delays or tell them when the new benefit will finally be paid along with the significant retro payment.

NYCERS has an independent administrative budget controlled by the trustees. NYCERS has no legitimate reason not to provide timely service to members and retirees.

Thursday, May 10, 2012

Sex, Lies, and Martha Stark

2011 DOI report on Stark

Last week DOI released a June, 2011 investigative report on allegations about Martha Stark that were pending at the time she was forced to resign in April, 2009. Stark, in clear sign of problems, refused to be questioned by DOI. So much for DOI's subpoena power. Stark is still teaching at Baruch College earning over $100K and still earning pension credit at NYCERS. How's that for connections. She also seems to have landed a second job, teaching at Columbia. You can't make this stuff up.

The prime source of evidence for this report were emails, going back to at least November 2003, from Stark and other Finance employees. Finance employees, at least six, had no fear of lying under oath to DOI. Without the emails DOI would have been stymied. I guess DOI learned their lesson from their inept 2004 investigation at NYCERS. Of course, they might be using honest intelligent investigators now. Why are any of these Finance employees are still working for the city.

DOI appears to have only addressed the specific allegations pending as of April, 2009. I can only wonder what else DOI stumbled on in reviewing the history of Stark's emails.

Stark should have borrowed Kin Mak from NYCERS to clean up her email trail. Of course, she knew he'd make a copy of everything and then a lot people would be looking over their shoulders.

It is now clear why NYCERS has tolerated the continued employment of high level staff members who have lied under oath. It is a common practice at the city.

This report is 111 pages long and clearly represents an enormous amount of work by DOI. The report is a fantastic read. You will not be able to put it down. It is impossible to quickly characterize it. You just have to read it.

DOI has forwarded this report to the Manhattan DA'a office. What are they doing with this report since June, 2011? Perjury, bribery, and tax evasion are within the DA's jurisdiction, not COIB's.

2002

Bribery at Finance

In February, 2002 the mayor appointed Stark as Finance Commissioner. This is an unclassified title which means there are no qualifications for the job. Stark is an openly gay female African-American. The problem was that she was not really qualified to run Finance. Of course, that's never stopped mayors before. But somewhere along the line the romance went cold.

On February 26, 2002 the NY Times reported the indictment of 18 NYC Finance tax assessors, one of which was a woman named Roberta Hand. DOI determined that at some point Stark and Hand were involved. This bribery scheme had been in existence for almost 25 years.

In response to the scandal, Stark agrees to implement key remedial measures recommended in an August, 2002 DOI/DOF preliminary report. DOI reports that these measures were never fully implemented "leaving glaring corruption vulnerabilities unaddressed". In addition, Stark lied in the 2004 final report about actually implementing these measures.

In the end, this is where Stark probably did the most damage. The tax mess from 2002 was never cleaned up and appears to have only gotten worse under her reign. Her escapades, however insane, with multitude female Finance employees are just a messy side show. In addition, the mayor has provided no evidence that he has corrected the chaos at Finance.

In September, 2002 the mayor appointed Stark to the NYCERS and TRS pension boards. Stark was the chair of the NYCERS board.

For many years Rochelle Patricof's husband, Allan, had worked as an administrative law judge at Finance. In 2002, when Stark made Rochelle the first deputy commissioner, she asked COIB for letter giving her clearance for the appointment and the obvious conflict with her husband working at Finance. There was also a 1997 COIB letter dealing with this issue when Patricof became general counsel at Finance.

In November, 2002 COIB issued a letter to Patricof approving her appointment as first deputy commissioner contingent on her recusing herself from any matters that involved her husband.

2003

In January, 2003 as part of the reform process Stark appoints an outside real estate tax expert, Linda Yancey, as the new Assistant Commissioner of Real Property at Finance. By April 22, 2003, as reported by the N.Y. Daily News, Yancey had resigned in despair and had notified the City Council of her serious concerns about the property tax system and its lack of equity. In retrospect, Stark's comment in the article was completely false. City Hall had fair warning of serious problems at Finance.

On September 8, 2003 DOI determines that Rochelle Patricof, first deputy commissioner at Finance, violated COIB law by invoving herself in matters that potentially affected her husband's compensation as a Finance ALJ.

In October, 2003 DOI concluded that Allan Patricof presented an intimidating presence that people were reluctant to respond to because of his wife's position at DOF.

In the fall of 2003 Stark begins a long running affair with Dara Ottley-Brown, a married female Finance employee who was working in the Bronx at the time. From November 16, 2003 to June 5, 2005, Ottley-Brown's salary went from $84,460 to $131,175.

In order to get a feel for this relationship consider this email exchange between Ottley-Brown and Stark concerning Ottley-Brown's impending promotion. In a November 25, 2003 Finance email titled" The Biggie" Ottley-Brown writes to stark "Okay, here is the big question: If you are vetting me, have you tentatively set my future salary? If so what would it be? Is this open to negotiation? Would Negotiation be contentious? Dara B."

The response from Stark, 20 minutes later, is equally outrageous. I'm too tired to type the whole fawning email but let me give you the last sentence as the coup de gras: "I don't want to disappoint you in any way but I'll let you know if I can do what you want."

Everyone in the city should read this report. It goes to the heart of why the civil service system was invented. Elected officials and their appointees must be tightly constrained when it comes personnel issues.

Also in the fall of 2003 Carol DeFreitas, a female employee at Finance, allegedly asked Stark for a change in her work assignment. In December, 2003 Stark and Rochelle Patricof, the first deputy commissioner, assigned DeFreitas to work at DOI. DeFreitas continued to be paid by Finance for many years while working at DOI. At the very least, this is a violation of the city charter but also appears to be a pattern of Stark's behavior with female Finance employees.

2004

In January, 2004 Stark appointed Ottley-Brown to the position vacated by Yancey the year before. It is hard to ignore the suspicion that Stark wanted back door control of the real property division.
It is comical to go back in time and read Stark's press release:
FOR IMMEDIATE RELEASE... January 16, 2004

DEPARTMENT OF FINANCE, DEPARTMENT OF INVESTIGATION RELEASE FINAL REPORT ON ASSESSOR REFORM; FY05 TENTATIVE PROPERTY ASSESSMENT ROLL PUBLISHED

Property Valuation Process Less Vulnerable to Corruption, More Efficient, Easier to Understand

Finance Commissioner Martha E. Stark and Department of Investigation Commissioner Rose Gill Hearn today released a report describing steps Finance has taken to reduce the risk of corruption in the property valuation process, and ways Finance will continue to improve the valuation process and make it easier for the public to understand.

Commissioner Stark also introduced Dara Ottley-Brown, newly-selected Assistant Commissioner for Property, who will serve in an acting capacity for three months. They described the data in the Fiscal Year 2005 tentative assessment roll and recent management changes that contributed to a more efficient, transparent valuation process. Ottley-Brown replaces John McBride, who served very ably as Acting Assistant Commissioner for Property. "With this report and this assessment roll, we have ended a chapter in the City’s history and have begun an exciting era of renewed faith in the way we value people’s property,” Commissioner Stark said. “In less than two years, we have vastly improved the way we do our jobs, and we have begun to turn a confusing, secretive process into something that New Yorkers can actually understand and believe in.”

Prior to her selection as Assistant Commissioner for Property, OttleyBrown served in various management positions at Finance, including Property. Before joining the division as Deputy Assistant Commissioner, Ottley-Brown worked most recently as Deputy City Register in the Bronx Office. "I'm excited to lead the effort to transform the process of valuing property in this great City, bringing our practices into the 21st century so New Yorkers can be proud of the work we do for them,” Ottley-Brown said. "I want to thank Dara for taking on this challenge, and also thank John McBride for doing such a good job in transition and for identifying Dara as the person best able to do this job,” Commissioner Stark said. “But most of all, I want to thank the assessors and other staff in Property who have worked tirelessly not just to produce an accurate roll but, more importantly, to change the culture into one that is honest, creative and forward-thinking.”

This is a clear indication of Stark's absolute arrogance. You have to wonder what McBride thought at the time.

If the relationship was genuine, the one thing Stark should not have done was promote Ottley-Brown three months after starting the relationship. In fact, Stark should have left her in the Bronx forever. If Ottley-Brown was competent, she would have gotten promoted on her own, of course, not at Finance.

Ironically, in June, 2004, Stark requests that DOI investigate my relationship with a woman who was and is still working at NYCERS. At the time I was executive director of NYCERS and Stark was chair of the NYCERS Board of Trustees. The woman is now my wife.

2005

In March 2005, Stark starts working for Tarragon, a private real estate firm.

This is an absolute violation of the city charter. No commissioner can have outside employment. There is no exception.

It appears COIB was fooled into issuing an approval for work under Chapter 68 of the city charter. You will notice there is no reported approval from the Law Department who could possibly have issued a "colorable" approval but they did not.

Stop for a moment and realize that for seven years the mayor let Stark invest the city pension funds!!!

Even with the COIB approval, Stark was told not use her position to help Tarragon or to use any city equipment or personnel. Stark proceeds to do extensive work for Tarragon during office hours, use her official position and letterhead, and use city resources and personnel, including Rochelle Patricof, to do her Tarragon work. Over a three year period she made at least $120,000. Nice second job!

NYCERS

On March 2, 2005 based on an investigation by Vincent Green and Carol Defreitas, DOI sends Stark a letter falsely accusing me of promoting the woman I was involved with. This investigation bordered on the corrupt with the suppression of evidence and acts of perjury by NYCERS staff. I now suspect DeFreitas was involved with Stark at some point.

On the evening of March 10, 2005 Stark calls me at home and tells me that I have been fired from my position as executive director at NYCERS.

On May 31, 2005 COIB finds that there are no Chapter 68 violations involving me or my wife.

On June 1, 2005 Stark demotes my wife from the position which she had earned on her own merits and without any help from me. At this point both Rochelle Patricof, the first deputy commissioner, and her husband, Allan, an administrative law judge, were working for Finance.

Back to Finance

In March, 2005 Subordinate 2, a married female, starts to work at Finance as a college aide at $12.50/hr in the executive office.

In May 2005, Stark begins trying to find job (public/private) for Ottley-Brown's ex-husband. Rochelle Patricof is brought into the process. Stark's first attempt was with DOITT as per a May 13, 2005 email. Stark eventually hires Mr. Brown at Finance for $78,000 in 2007. I think there was some child support issues involved with this hire.

On June 21, 2005 Stark tries to get Ottley-Brown's ex-husband, Jodie Brown at job at Bloomberg LP.

As of June 30, 2005 Fenella Ramsami was working at NYCERS at a salary of $26,351. Ms. Ramsami is the sister of Felita Baksh/Ramsami the NYCERS HR director. By June 30, 2006 Fenalla was working at Finance at salary of $28,316. Within a year she was earning $42,510. She now is earning $65,000.

In September, 2005 in response to an anonymous email from an alleged Finance employee I notified the Law Department that Stark was involved with two female Finance employees, Dara Ottley-Brown and Roberta Hand. In addition there was an allegation that in the spring of 2005 there was improper interference by Stark and Ottley-Brown with the property valuation of the Met-Life Building in conjunction with its May, 2005 sale to NYCERS and TRS. The email listed five specific assessors caught in the interference. The property sold for $1.74B, a record amount at the time. Stark was the mayor's representative on both boards.

In light of the truth concerning the two women, the Manhattan DA's office should review its non-response to the notice I gave to that office in May, 2006.

As far back as 2005 Stark and Ottley-Brown attended public functions and in at least one case were photographed for the Prospect Park Alliance's annual report. As of late 2005, it would have been very difficult for City Hall not to have known about Stark and Ottley-Brown.

After March 2005, Finance employees would approach me in public and tell me about Stark and Ottley-Brown and that they were afraid to report them to DOI. Previous reports had gotten back to Stark. At the time Vincent Green was the I.G. for Finance and Stark was supplying resources to DOI.

In October, 2005 Stark along with the other NYCERS Trustees appointed Diane D'Alessandro as the new executive director. D'Alessandro is an openly gay woman. The executive director position is classified as a non-competitive position under NY Civil Service Law which means that it has specific minimum education and work experience requirements. D'Alessandro had none of the required work experience or a "satisfactory equivalent".

By October 30, 2005 Subordinate 2 is working as a Special Assistant to Stark at a annual salary of $$49,512 up from $12.50/hr in March.

2006

On April 10, 2006 Ottley-Brown signs the infamous Yankee Stadium property valuation letter. Long story short, Ottley-Brown, as part of the documentation for the stadium bond deal, wrote to Goldman Sachs that the land on which the new stadium was to be built was worth $204M. At the same time in a May 9, 2006 letter, the NYC Parks Dept. reported to the federal government that the land was worth $21M. You can guess who who has a tighter grip on reality. If you want the gory details, you can view the Congressional hearing on this issue and read a review of the hearing.

In May, 2006, I notified Dan Castleman at the Manhattan DA's office about Stark, Ottley-Brown and the Met-Life Building deal.

By August 13, 2006 Subordinate 2 is making $63,240/yr up from $49,512 in October.

On Sept 19, 2006 the City Council approves the mayor's appointment of Ottley-Brown as a commissioner to Board of Standards and Appeals, one of the two non-professional positions on a five person board. DOI determined that Stark had recommended her to city hall as possible candidate without declaring their relationship. I suspect that after the DA's office got notice all parties involved wanted to make this problem go away.

In early December 2006 Stark first hits on Subordinate 2 and within weeks they began a sexual affair that Subordinate 2 claims only lasted several months. This is based on testimony from Subordinate 2. It was given to DOI during a third interview on March 2, 2011 with her attorney present, with a grant of immunity, and after twice lying under oath in previous interviews. Based on subsequent evidence presented by DOI, it is quite clear that DOI does not find Subordinate 2's testimony credible.

This turnaround in testimony was caused by the lucky discovery of a June 4, 2008 email. The contents of the email contained a copy of an instant message chat between Stark and Subordinate 2. DOI, generally, was not able to access the Finance Department Blackberry instant messages. But because of technical issues Stark had copied the instant message to an email. It appears that Stark and her associates were even more open with their text messaging than their emails.

As per DOI:

"The email was a revealing glimpse into the sexual relationship Stark had engaged in with subordinates, including Subordinate 2 and Ottley Brown. ... The June 4, 2008 email was a vivid demonstration of the lack of boundaries between Stark's City agency and personal life."

DOI chose to include a direct quote by Stark from the June 4, 2008 email:

"There we are all together. My ex-lover with my current lover, with a good friend from work who was happy to sleep with me, my lover or maybe my ex. All hanging out together at my neices's party ..."
Subordinate 2 was the good friend.

2007

Property Tax Issues Again

In January, 2007 Stark arranges for her long time domestic partner, who she was breaking up with, to get an apartment at a reduced rent at an upper east side complex managed by a firm that had received favorable tax traetment from Finance two weeks before. The following year the firm again received favorable treatment. DOI could find no supporting documentation for these downard assessments. This is a clear indication of the continuing chaos in the property tax system at Finance, five years after the bribery arrests, this time at the highest level.

On a smaller scale this episode is comparable to the Met-Life building allegation in 2005.

As of January 9, 2007 in response to negative publicity about the Patricofs, Stark instructs her PR staff to not admit to the press that there was a conflict with the Patricofs' employment at Finance. Stark was adamant in defending Allan Patricof against charges of falsifying his billings for time worked. Stark and the Patricofs are very close friends. Stark used Allan Patricof for personal and business legal matters, a COIB violation. Patricof advised Stark not to use emails for communicating with him.

On February 13, 2007 DOI sends Stark eight policy recommendations as per Patricof's billing irregularities. Finance rejects them. There were also established problems with Rochelle Patricof's influence over those overseeing her husband.

In May, 2007, DOI presents its findings to Stark that Patricof had falsified his billings. A year later Stark responds with vigorous defense of Patricof. Stark's internal emails show that she had worries over this issue. In response to the DOI public report Stark began to consider withdrawing support that she was providing to DOI. This support was both personnel and materiale, i.e. cars. Of course giving this support in the first place was bad policy and is also a violation of the city charter.

In January, 2007 Galia Galansky began working at Finance as director of employee services. Galansky admitted to being socially active with Stark.

DOI chose to quote the following June 8, 2008 email from Stark to Rochelle Patricof:

"I don't care what you say {referencing an email exchange with Galansky], she's as dumb as [Subordinate 2]. I love you but we both are crazy about two dummies. Let's face it."
DOI is pointing out a relationship between Patricof and Galansky that is the same as the relationship between Stark and Subordinate 2. DOI also is raising the possibility of a similiar relationship between Stark and Patricof given Stark's appetite.

As per February 6, 2007 and March 8, 2007 emails, Subordinate 2 was pushing Stark and Patricof for a move to a more "challenging" position.

By March 13, 2007 Subordinate 2 has been assigned to work for Galansky. Subordinate 2's salary increases from $63,240 to $72,602 during the first 6 months of 2007. Her salary increases to $81,840 during the last 6 months of 2007. There is no backup in Subordinate 2's personnel file to support these salary increases. This is also the case for Ottley-Brown's salary increases.

In June, 2007 Stark arranges for her niece to get a job at Finance.

In August, 2007 Stark hires Ottley-Brown's ex-husband at Finance, having failed to find him employment at other places. His salary was $78,000

This hiring resulted in an EEO complaint based on the non-posting of this position. Without all the facts being established the complaint was dismissed on July 18, 2008. This complaint should now be reopened.

As of November 25, 2007 Subordinate 2 is making $81,840/yr and Subordinate 2's sister starts working at Finance.

2008

May, 2008 Stark is instrumental in her half-brother getting a job at Finance. She continued to be closely involved with his work activities and performance at Finance.

In July 2008 Ottley-Brown's is divorced from her husband.

2009

In April, 2009 Stark and senior Finance staff, including Patricof, publicly lie about Stark's relationship with Ottley-Brown. Stark and her crowd also lie to City Hall. What were they thinking? DOI determined that Patricof knew, at least as far back as 2005, that Stark and Ottley-Brown were involved. Did you have any doubt?

On April 28, 2009 Stark resigns.

In October, 2009 Stark shows up teaching at Baruch for $99,200/yr. for two lectures a week. This is as close to a no show job as it gets. I wonder what the average salary is for an associate professor with a PhD and publications? It appears she is now also teaching at Columbia.

The truly interesting question is how far back did City Hall know about Ottley-Brown. Based on public appearances in 2005, reports by Finance employees to DOI in 2004, and my reporting to the Law Department in September, 2005, this could hardly have been a surprise to anyone in New York City.

In December 2009 Subordinate 2 is divorced from her husband.

2011

In April, 2011 Subordinate 2 resigns from Finance. All the rest of the crowd who lied under oath and Stark herself are still working for the city.

Saturday, April 28, 2012

COIB and Martha Stark

On April 24, 2012, COIB issued a press release stating that as part of a settlement it was fining Martha Stark $22,000 for multiple Chapter 68 violations. These violations involved her work for Tarragon Realty starting in 2005 while she was still Finance Commissioner.

Legal Problems Beyond COIB

There are several legal problems with this settlement. While COIB has oversight over Chapter 68 of the NYC Charter, it has no jurisdiction over Chapter 49 of the city charter, in particular, Sections 1100 and 1118. See text below.

§ 1100. Head of department; whole time. Every head of an administration or department or elected officer except council members who receives a salary from the city shall give whole time to the duties of the office and shall not engage in any other occupation, profession or employment.

§ 1118. Officers and employees not be ordered to work outside public employment. No officer or employee of the city or of any of the counties within its limits shall detail or cause any officer or employee of the city or of any of such counties to do or perform any service or work outside of the public office, work or employment of such officer or employee; and any violation of this section shall constitute a misdemeanor.

COIB asserts in its press release that

The Board advised, in writing, that she could serve as a Tarragon Board Member, provided that, among other things, she not use her City position to obtain any advantage for Tarragon or its officers or directors and she not use any City equipment, letterhead, personnel, or resources in connection with her Board service.

COIB, however, does not have the power to suspend the above Section 1100 of Chapter 49.

In the past there has been some mention that the Law Department gave Stark a verbal approval to take a second job. Whether the Law Department has the authority to suspend Section 1100 of Chapter 49, is open to debate. COIB, however, makes no mention of this alleged verbal approval in its press release.

It is clear that in 2005 Stark was in violation of long standing statutory requirement that city commissioners "give whole time to the duties of the office" and not have a second job.

In addition, Stark dangerously admits to the following in the settlement of this issue:

j. Despite the written instructions from the Board, I asked the First Deputy Commissioner at Finance and my Executive Assistant at Finance to perform administrative tasks for me on Tarragon-related matters, which tasks they performed.
It appears that by this admission Stark puts herself at risk of a misdemeanor charge under the above Section 1118 of Chapter 49.

Thursday, April 26, 2012

Paul Marks and Martha Stark

Paul Marks is a lawyer at the Law Department. He represents the city in disputes with city employees. Marks represented the city in a defamation case that I brought against the NYCERS Board of Trustees and Department of Investigation in 2005.

In September 2005, my attorney notified Marks of the following allegations against Martha Stark, the Finance Commissioner and chair of the NYCERS Board of Trustees (The charge was made by an alleged Dept. of Finance employee):

  1. That Stark had been involved with Roberta Hand, an assessor at the Finance Department. Hand was subsequently indicted for bribery by the US government.
  2. That Stark was involved with Dara Ottley-Brown, another Finance Department employee. In January 2004, Stark had promoted Ottley-Brown to the position of Assistant Commissioner of Real Property, a crucial post at Finance.
  3. That in the spring of 2005, Stark and Ottley-Brown had improperly interfered with the tax assessment of the Met-Life Building. In May of 2005, Tishman Speyer, NYCERS, and TRS purchase the Met-Life Building for $1.74B. Stark was chair of both pension boards at the time.

The allegation about the Met-Life Building is a serious charge and has the potential for a major political scandal. The allegation gave specific name s of Finance Department assessors who were being allegedly pressured to alter the tax value of the property.

There was never any indication that Marks took any action on these allegations except to protect Stark from answering questions about her relationship with Ottley-Brown. In April 2009, the NY Post finally confirmed that relationship and the Mayor publicly asked the Dept. of Investigation (DOI) to investigate Stark. DOI has not yet reported the results of that public request.

In May 2006, my attorney notified Dan Castleman, the then chief of investigations at the Manhattan DA’s office, about these allegations.

On September 13, 2006, the City Council confirmed the mayor’s appointment of Ottley-Brown as one of the two non-technical commissioners at the NYC Board of Standards and Appeals. This ended Ottley-Brown's "career" at Finance. In spite of the publicity concerning her relationship with Stark, Ottley-Brown is still at the Board of Standards and Appeals.

Marks sat through Stark’s memory meltdown at her deposition in November 2006.

Marks sat through Bratcher’s false testimony at her deposition.

In addition, Marks handled Karen Mazza's deposition and was aware of evidence that Mazza, a lawyer at NYCERS, tried to destroy incriminating emails concerning Mazza’s communication with Baksh/Ramsami during Baksh’s hiring process at NYCERS.

Marks was also aware of evidence that Carol DeFreitas, a DOI investigator, cooperated with Mazza in trying to hide that evidence and that DeFreitas actually got her paycheck from the Finance Dept. (Stark) and not DOI.

In addition, Marks submitted Kin Mak’s false affidavit about his mythical email search. Mak is an IT worker at NYCERS. Mazza and DeFreitas had pulled him into their attempt to hide the incriminating email evidence.

My attorney notified Marks that the affidavit was false based on the physical impossibility of the statements in the affidavit.

It appears reasonable to conclude that Marks chose to participate in criminal activity in order to shield the city from civil liability in a pending defamation case.

City employees should find it intriguing that their taxes help pay the salary of this “company” lawyer.