The Statistical Projections Game - The Cards Go Out on the Table
Actuary Jonathan Schwartz has received no funds from City Ethics. But
it may seem like that from how perfectly today's <a href="http://www.nytimes.com/2008/05/16/nyregion/16actuary.html" target="”_blank”">front-page
New York Times article</a> follows up on the blog entry I posted
yesterday.<br>
<br>
In yesterday's blog entry, I argued that governments and public sector
unions do not have the same right as businesses and ordinary unions to
put information in a light that helps their cause. They have a
responsibility to be truthful, so that the public can understand what
is happening.<br>
<br>
So out comes Schwartz, who does actuarial work for New York State
unions, and sets the cards out on the table. According to the article, he said that
"he routinely steered his projections to favor the unions --- he called
his job 'a step above voodoo' --- and admitted that he had knowingly
overreached on the pension bill by claiming that it cost nothing."<br>
<br>
<a href="http://www.cityethics.org/node/440">Click here to read the rest of this blog entry.</a>
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<br>
Schwartz said, "Back in my days as [New York City] actuary, I would go
to that part of the range that would make things look as expensive as
possible. As consultant for the unions, I go to the part of the
range that makes things as cheap as possible, but I never knowingly go
out of the range."<br>
<br>
New York City's projections were also "off the wall," according to
Schwartz, "at the very least ... high by a factor of four."<br>
<br>
This states the issue as clearly as possible. Every projection is
based on assumptions. Every projection has a range of
possibilities. And every public servant should provide the assumptions
behind the projections and the full range of possibilities. That
is always in the public interest. Anything else is an
attempt to put private interests before the public interest.<br>
<br>
But the misrepresentation of projections themselves is only the tip of
the iceberg, as this article shows so well.<br>
<br>
There's also the issue of transparency. Neither the unions nor
the state legislature, in this case, disclosed the fact that the
actuarial projections came from a union consultant. That is
inexcusable.<br>
<br>
Equally inexcusable is everyone's denials and false
outrage. Everyone in government knows that this sort of thing
goes on all the time. But listen to the government officials
trying to distance themselves from reality.<br>
<br>
The Senate sponsor of the early retirement bill said he had no idea
that Mr. Schwartz was a consultant for the unions, even though Schwartz has
been doing this for 20 years. As Mr. Schwartz is quoted as saying, "The
Legislature knows full well I'm being paid by the unions."<br>
<br>
The Assembly sponsor was only a bit more honest. He acknowledged that
the bill was written by the union, and that the union provided the
actuarial analysis. But then he went on to say, "We assume he
comes up with the real number." There is no real number.<br>
<br>
The actuarial analysis is presented in the legislation as if it were a
governmental analysis, and it is the only analysis provided. This
is fraud.<br>
<br>
The legislative director of the New York Public Interest Research Group
is quoted as saying, "I'm shocked the Legislature would use someone who
works for the union." He acknowledges that there is a clear
appearance of conflict of interest, but how could he be shocked? The
only thing shocking here is that this is being spoken about openly.<br>
<br>
But the prize for the best quote goes to Mayor Bloomberg's spokesman:
"It is an outrage that union-paid actuaries freely admit that they
create artificially low fiscal impact statements in order to help push
pension sweeteners through Albany, costing taxpayers millions upon
millions of dollars." As I said, the only thing shocking is that
what has been going on has now been freely admitted by someone in
public. But this admission is hardly an outrage. It would be nice if
Mayor Bloomberg were to freely admit that New York City also plays with
numbers.<br>
<br>
There is a range of things that could be done, but the best solution is
for everyone to be a responsible adult and be frank about the
projections game, so that our society can move on to a serious
discussion of how to deal with this problem, hopefully in the form of
providing ranges of numbers and openly discussing the assumptions on
which they are based.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>