Damon -- is he or isn't he? Comments from Molly & perspectives from Steve Buser

From Molly Janczyk:
Subject: RE: Again more spending abuses.

Date: Sat, 26 Aug 2006

I have been told Damon is NOT stepping down.

Plus, salaries for $315,000 is one thing to consider but not $315,000 just to find them. In the minds of retirees that is another complete slap in the face in a long list. Many are calling for Damon to step down as a result.

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From Steve Buser to Molly

Subject: RE: Again more spending abuses.

Date: Tue, 22 Aug 2006

I do not know if I am still on your mailing list by accident or by design. However, even though I share the concern of Dr. Leone with respect to the process, or lack thereof, in approving the expense for a head hunter firm to help find real estate staff, if I had still been on the Board I would have voted in favor of the expense itself.

The reason is simple, STRS member benefits cost a lot of money. STRS relies on investment income for most of these expenses, and real estate has been the top performing asset class for STRS for at least the last 10 years. In the past year alone the STRS return from real estate was a whopping 27%. That represents more than $1 billion of income for STRS members. I know that real estate in general did very well by virtue of a bubble. But STRS did even better. We out bubbled the bubble by over 7%. That amounts to nearly $100 million more than STRS would have had with average real estate investment staff.

As a point of reference, the total real estate return of more than $1 billion on STRS exceeded the total contributions that all active members paid into STRS last year. The excess return of $100 million is roughly equal to the total amount that STRS has been able to allocate to health care in each of the last few years.

Unfortunately much of the actual real estate that has accounted for the exceptional return was acquired by staff who have since left STRS for greener pastures. Despite what are admittedly obscene levels for salaries and perks when compared to teacher salaries, people who are able to generate 7% more than the market are in extremely high demand. Without the help of an outside recruiting firm, I doubt STRS will be able to replace the lost staff at anything close to a comparable level. And if STRS is not going to employ a top recruiting firm, I would want to know either how STRS plans to find an alternative source for $1 billion per year, or how STRS plans to cut benefits in the event STRS is unable to replace the return.

In sum, while I hope STRS will continue to seek ways to eliminate unnecessary expenses, I never want STRS to be penny wise but pound foolish when it comes to generating the life blood for retiree benefits.

As for Damon, he is already planning on stepping down, and I for one do no even want to think about the expense STRS will have to incur both searching and replacing him. For starters, I presume than any replacement will insist that STRS also fill the position of assistant director which has been vacant since Damon took over. It would be interesting to know the total search cost OPERS has incurred trying to fill their top spot and the final pay package they will have to offer to whomever they get. In terms of search costs, pay levels, and investment returns, I suspect that in time we will all think of the Damon years as a bargain.

Steve Buser