Here's the indisputable good news. Eric Russell is doing a good job after 15 months as the new state treasurer. His most important responsibility is managing the state's $55 billion pension fund. Recognizing Russell's quick start does not deny that he remains essential to understanding his annual performance.
Two practicing academics at the Yale School of Management have accomplished a task that has long eluded others. Jeffrey Sonnenfeld, professor and director of the Chief Executive Officer Institute, and Steven Tian, the institute's director of research, published a study on the past performance of pension funds in the state of Connecticut a year ago, and received positive feedback. showed that. The shocking conclusion made me want to look away at the missed opportunity.
Billions of dollars already deposited in pension funds are being invested to grow the fund for future obligations, while the state and employees make contributions. Sonnenfeld, Tian, and her nine research assistants found that Connecticut's pension funds are chronically among the worst-performing funds in the nation. Its investment performance often ranked second-worst in the nation over the decade ending in 2021.
After a decade of national budget crises, a bipartisan coalition of lawmakers gathered enough votes to pass a number of reforms that have become known as budget guardrails. These guardrails and Gov. Ned Lamont's stewardship of the state's finances have provided the Legislature with a long respite from its annual crisis. Mr. Lamont's most lasting accomplishment may be that he was able to add billions of dollars to the state's underfunded pension fund.
During this downturn, there was little interest in addressing the poor performance of national pension funds. It's an expensive tradition the state Legislature has continued for decades. Even if former Treasurer Paul Sylvester is convicted of corruption, Congress will not have to provide meaningful safeguards for the unfettered powers of the Treasurer, one of the two most powerful people in the nation. There wasn't.
Tens of billions of dollars in investments are required, yet failure to achieve even average returns adds dire costs to state governments. Mr. Sonnenfeld and Mr. Tian proposed a series of changes that states can take to reap greater benefits from America's dynamic and resilient economic growth. The pair submitted their conclusions and recommendations to the Legislature's finance committee earlier this month and outlined 10 recommendations in an article published in the Courant.
It all seems simple and reasonable. One is on the Senate's calendar and must be approved. The law authorizes the Legislature to hire a firm to “conduct an independent annual review of the performance of the State's pension funds.”
The pension fund has $55 billion. As the Yale University report points out, a 1% increase in performance would net him $550 million, a huge amount of money for the Connecticut state government. One of the challenges for the governor and the Legislature is to get a firm grip on what pension funds can realistically expect. Until the Sonnenfeld and Tian report, the pension fund's poor performance had been avoided.
Despite the improvements brought about by Russell, serious disagreements persist over the measurement of pension fund performance. Mr. Sonnenfeld and Mr. Tian have been careful to praise Mr. Russell, but they have criticized him for claiming that the pension fund's performance has improved compared to other government agencies. State pension funds are estimated to hold approximately 52% of the funds needed to meet the most serious long-term obligations. The debate over annual profits is a distraction.
Congress should want to have its own independent source that measures pension funds' annual investment returns. This is politics and has always played a role in the relationship between the Secretary of the Treasury and the Legislature. Congress has long been controlled by Democrats, and the Secretary of the Treasury has been a Democrat in all but four of the past 50 years. Public disagreements between officials of the same party are encouraged and often punished.
The State Auditor is an important position in the Legislature. They carry out audits of state institutions and institutions. These audits provide the basis for changes and improvements. Adding an annual audit of returns to a $55 billion fund controlled exclusively by one state official should have been done a long time ago.
Russell won't always be the treasurer. His rapid rise from party executive to statewide office is hard to remember. No one should be surprised if Russell becomes governor or U.S. senator when the politician bottlenecks planted in the state's top offices break.
The next treasurer may not be as successful as Mr. Russell, nor may he be much more advanced than his predecessor. Without its own measures, legislators may not know exactly how pension funds are being managed now or in the future.
Kevin Rennie can be reached at kfrennie@yahoo.com.
