John Damschroder: Ohio teachers pension mauled by Panda
John Damschroder, Columnist
Fremont News Messenger
March 3, 2021
Meanwhile, the New York State Common Retirement Fund showed the enormous power pensions wield, in a further embarrassment to Ohio. The New York pension forced FirstEnergy to disclose direct and indirect political spending along with lobbying expenses, twice a year, to keep the pension from putting the proposal to a shareholders vote. Thus, the company on the receiving end of a billion dollar Ohio Statehouse bailout the U.S. Department of Justice alleges passed with the help of $60 million in political bribes has reform imposed from New York rather than Ohio.
The star at ORSC’s first meeting in seven months was Jim Voytko, President of RVK, Ohio’s investment performance adviser covering all five public pension funds. Voytko told the ORSC that the State Teachers Retirement System (STRS) had better investment returns with lower risk than most of their peer group pension funds. Risk, as defined by RVK, is volatility or price fluctuation. This transforms investments in alternative investments, without a transparent market setting valuations, from the highest risk to the safest part of the portfolio. When fund managers instead of markets establish values they do not fluctuate. On paper.
In reality, STRS has recent evidence that alternative investments come with the risk of massive losses. The Ohio teachers’ pension was one of the first investors in Dallas-based Panda Power. Panda is a merchant generator building plants run by cheap shale gas to produce more profitable electricity. The business model collapsed when utility regulators did not approve anticipated rates. Panda’s bankruptcy filing showed debt of $400 million against cash on hand of $2,000.
The STRS investment loss comes as a complete surprise because the pension’s Comprehensive Annual Financial Report (CAFR) shows no impaired alternative investments, despite Government Accounting Board Standards (GASB) requiring disclosure of fair market value. STRS has not responded to my Friday morning questions on the size of the Panda investment and the apparent GASB violation that conceals the loss.
STRS beneficiaries lose but STRS staff win as Panda’s non-performance made the internal metrics for bonuses easier to reach. Fremont native Wade Steen, the only Certified Public Accountant on the STRS Board, has consistently asked STRS to explain how bonuses are calculated. “We don’t have enough information to provide oversight,” Steen said. Steen’s push for 60 days to consider bonus payments rather than the current yes or no vote for immediate payment failed to win board approval.
Six-figure bonuses totaling between $8 million and $9 million a year go to STRS investment staff using a system Steen says he cannot verify or even understand.
As for STRS Comprehensive Annual Financial Reports, Steen said, "It’s very significant if we are not following GASB rules.” But Steen says in an $80 billion fund such as STRS it is possible to get a legal opinion that even a $300 million loss is immaterial, too small to require disclosure.
Newly appointed ORSC member Rep. Brigid Kelly, D-Cincinnati, told me, “We will be meeting with STRS to see what is going on.” Kelly is co-sponsor of legislation forcing full disclosure of fees and expenses paid by the Ohio pensions. “We need a clear picture,” said Kelly, who tells me she “fought to get appointed to ORSC.”
Ohio pensions have $66 billion invested in assets such as Panda. According to the CAFR’s there are no losers. Representative Kelly intends to make the pensions prove that’s true.
John Damschroder, a Fremont native who worked in Gov. George Voinovich’s administration, writes about business and economic development in Ohio.
posted by Kathie Bracy at 11:35 AM
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