Sept. 4, 2007 — The Source story on the Government Employees' Retirement System's fiscal report was headlined: "Rate of Return Good on GERS Investments.
It showed that the fund had increased in value by 13 percent for the fiscal year ended June 30.
My question is: good compared to what?
A couple of keystrokes on Google and you find the comparable data for the big California state pension system, long regarded as the model of government-run investment funds. What did it do in the same time period? Well, CalPERS gained 19.1 percent.
The same kind of fund, operating under similar conditions in the same set of markets, did just about 50 percent better than the V.I. fund. California may have a slight advantage because of its size, but no financial manager will walk away from GERS' billion-plus balance.
What would it mean if the CalPERS rate of return had been experienced by GERS? What would that do for V.I. taxpayers, retirees and potential retirees?
As I reconstruct the numbers from the Source story, it looks as if the GERS fund rose from about $1,135.5 million on June 30, 2006, to $1,285.2 million on June 30 of this year. This shows an increase of $147.7 million. That's the 13 percent, and that's nice, but had GERS been doing as well as CalPERS, that figure would have been an increase of $216.9 million.
In other words, V.I. taxpayers, retirees and potential retirees did not gain $69.2 million that they would have gained had the Virgin Islands followed the CalPERS investment pattern.
That $69.2 million — plus, presumably, other tens of millions lost in earlier years — would go a long way toward meeting the shortfalls now predicted because of GERS' steady pattern of not collecting enough contributions to meet anticipated pension payouts.
The Source story shows that GERS has, appropriately, used a number of different investment managers to invest in different parts of the economy. It has stock in large and small firms, both in the U.S. and abroad, and bonds — again, here and abroad. The story did not show, however, the rates of return for the 16 different money managers — information which must be known to GERS. Who is doing well, within the categories noted, and who is not? Why keep the laggards when the group as a whole is doing so much less well than CalPERS?
Unfortunately, the GERS investment-income shortfall is not alone. The V.I. government routinely losses many millions of dollars a year through a continuing inability to tap into mainland financial resources.
For example, as the Source routinely reports, year after year, the territorial government sends about $2 million a year back to the U.S. Treasury because it does not apply for readily available federal subsidies for the school system. No other U.S. flag government sends as much back to Washington, per capita, as the Virgin Islands.
For example, the Public Service Commission has blown the opportunity to bring millions in Federal Communications Commission funds to the islands to improve wireless phone operations. (See "Cell-Phone Service Problems, PSC Delays Discussed in Senate.")
For several years, but not recently, the V.I. Lottery was the only one in the United States that actually lost money.
Over the years, the territorial government has refused to take advantage of an opportunity to collect inheritance taxes for itself. In this case, the money the islands get would not be collected from the estates of dead rich people; the territory would collect the money from the U.S. Treasury at no cost to the heirs. The Commonwealth of the Northern Mariana Islands in the Pacific, a really low-skilled unit of government, figured this out years ago — but not the Virgin Islands.
It is really hard to fund the islands' needs if you don't take the millions that are available from the feds — when all you have to do is to ask. (Or, in the case of GERS, handle your investments as well as the pros do.)
Editor's note: David S. North, a former official of the U.S. Department of Interior, lives in Arlington, Va., and writes occasionally about government finances.
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