It’s been coming for years, the only question being how long would it take before the foolish investments of Louisiana’s Municipal Police Employees Retirement System would implode. The answer is now, and it can join other retirement-related issues that put Louisiana taxpayers on the hook for billions of dollars.
The vast majority of municipal police officers statewide participate in MPERS. Until the beginning of the decade, the system was overfunded but stock market difficulties began to erode the value of its holdings. The 2007-08 audit showed the trend has accelerated as almost $200 million alone, or over 9 percent of value, was lost in that time span, with more surely to be revealed in the 2008-09 audit.
While in the overfunded condition in 2002, the Board of Trustees that oversees MPERS made a fateful decision (The Board is comprised of police officials representing chiefs, police retirees, and rank-and-file members, elected by the membership and serving voluntarily, plus ex-oficio members, one from each, of the House and Senate that rarely attend meetings). To diversify the billion-dollar portfolio, they sought to invest in real estate.
Its first purchase turned out to be Olde Oaks Golf Club in Haughton. Almost $11 million has been spent on buying and renovating it after a management company promised an annual 10 percent return on it. Three months after the deal went through, the company defaulted and the Board itself was left with managing the property.
It hasn’t done well. Not only did the 10 percent return never materialize, but the course has lost money almost every month since MPERS bought it, even with the contracting of its management to area professional golfer Hal Sutton’s company. Its value now is estimated at less than $5 million, and it lost almost a half million dollars for the year ending in the middle of 2008.
MPERS also bought Bossier Parish’s other troubled golf property, The Club at Stonebridge, with eventual costs going to around $4.4 million. It’s now valued at about $3.2 million, and lost over $100,000 for the year ending in the middle of 2008. (Earlier this year it lost out on a bonus, when a deal to lease mineral rights for $2.4 million fell through.)
As if these weren’t enough, then MPERS had to go very big time. Associated with Sutton again, in 2004 it put up money for development of land in Fredericksburg, TX, securing a line of credit of $30 million. In 2007, it paid this off to its lender accepting a four percent discounted note from the developers for the sum of $24,337,177 and during the next year collected $346,000 in lot sales.
However, the primary lender for the operation which has seen a total from all sources of $73 million, Lehman Brothers which itself went into bankruptcy, has indicated it will foreclose to pay off its creditors. This means MPERS is unlikely to see anything of the remaining balance of just under $24 million. And it gets worse for MPERS. Louisiana’s Inspector general’s office has opened an investigation concerning the courses so if the worst is confirmed perhaps more money has been squandered through illegal activities.
But it’s worst of all for Louisiana taxpayers as they will have to make up for these losses. By the end of its fiscal year 2008, MPERS was only 87 percent funded and the unfunded accrued liability is predicted to have increased significantly since. This breach, unless some miraculous investment returns manifest, can be repaired only by jacking up municipal contributions (currently at 13.75 percent of salary) which gets passed on to local taxpayers, or by direct appropriation by the Legislature so it gets passed on to all state taxpayers.
It’s clear that in the past the MPERS board (once largely composed of Caddo and Bossier Parish active and retired chiefs and officers) made some particularly stupid decisions about golfing real estate (although almost no one from those past boards continues to serve.) Even if the golf holdings represent only about 3 percent of assets in terms of money sunk into them, sensible people should know that kind of investing is tricky and there are plenty of other vehicles for diversification into real estate. Whichever investment adviser that did not strenuously object to these transactions certainly performed a poor fiduciary duty.
MPERS cannot now cut its losses at the Texas development; the least it can do is sell the other courses and invest the proceeds in better things and to stop the hemorrhaging of money. Police retirees and state taxpayers deserve decisions based on competent management, not vanity.
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