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 front-page New York Times article follows up on the blog entry I posted yesterday.

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.

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."

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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."

New York City's projections were also "off the wall," according to Schwartz, "at the very least ... high by a factor of four."

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.

But the misrepresentation of projections themselves is only the tip of the iceberg, as this article shows so well.

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.

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.

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."

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.

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.

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.

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.

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.

Robert Wechsler
Director of Research-Retired, City Ethics