Wednesday, December 15, 2010

Brown and Brister trade licks at yesterday's MPACT hearing. Reeves says program will recover as it did from earlier recession.

State Treasurer Tate Reeves told a House Committee hearing yesterday the Mississippi Prepaid College Tuition program is solvent and has recovered from similar turmoil in the financial markets. The hearing was attended by several reporters, officials of the MPACT program, nearly a dozen committe members, and even Senator and Treasurer candidate Lee Yancey. The House Appropriations Committee called a hearing after an annual actuarial report on the program submitted to the board overseeing MPACT stating the unfunded liability is $84.7 million and it is 75% funded. The program (see chart below) was nearly 100% funded in 2007 but the financial meltdown of 2008 devastated the markets thus having a negative impact on the value of the program's assets. The legislature created MPACT in 1997. It is operated by a Board of Directors chaired by the State Treasurer. The program currently has 21,000 participants, $218 million in assets, and current claims of $18 million. See earlier post.

The hearing opened with some fireworks as Representative Cecil Brown and actuary Mike Brister repeatedly clashed and pulled no punches when speaking to each other. Mr. Stringer opened the hearing and immediately gave the microphone to Mr. Brown. The Jackson Democrat said "alot of kids have benefited from these plans" and made it clear throughout the hearing he supported MPACT. Mr. Brown pointed out Tennessee shut down its plan this year and Alabama was forced to suspend new enrollments for one year as well. The old warhorse showed up ready to do battle with Mr. Brister as he immediately told Mr. Brister he did not appreciate his "incompetent quote" in the newspaper.

Mr. Brister told the Clarion-Ledger last week "I have never seen something handled so incompetently," Brister said. "I've been an actuary for 30 years, and I've never encountered someone so incompetent that they couldn't schedule a business meeting and they had to resort to subpoenas to do it."

Mr. Brown repeatedly attacked Mr. Brister for his public comments and then addressed State Treasurer Tate Reeves: "I don't care about your politics. I care about this plan. I take great offense to that quote about being a spender" (Mr. Reeves told the CL "I'm just a little more cautious spending other people's money than Johnny Stringer or Cecil Brown."). Mr. Brown then moved on to asking Mr. Brister about his qualifications and his work on the report. Mr. Brister stated he has conducted an independent annual report on the program for the last five years. Mr. Brown then asked who is client is. The actuary replied the treasurer is. Mr. Brown sharply retorted the state of Mississippi and the board is. The two argued over this point for a several more minutes.

Mr. Brown next addressed the assumptions used by the Board. The MPACT Board bases the program on an annual rate of return of 7.8% and an annual tuition increase of 6.5%. Mr. Brown, a CPA and partner in Meadley Brown, said he spoke to board members and found no mention of the assumptions in the minutes. Mr. Brister hotly denied the allegation the assumptions were not discussed at board meetings and said they had in fact been discussed at the most recent one.

After the sparring subsided, Mr. Brister said the goal each year was to ensure the rate of return outperformed the annual tuition increase by 20% and said he would argue "the estimates made by the plan are rather conservative." Mr. Brister said "we have been here before (see chart and 2002 report below). In 2000 the program was 100% funded, The S&P 500 lost thirty percent (tech bubble crash and 9/11) and in 2002 the program was 75% funded."

Mr. Brister continued and said "It only took five years to restore the plan. The S&P 500 dropped 39% in 2008 and 2009." Mr. Brown asked what the S&P 500 performance was for the last ten years (See charts above). Mr. Brister didn't answer the question and instead stated the program looked at the performance of the S&P 500 over twenty and eighty years when setting the assumptions. Mr. Brister admitted he participates in determining the assumptions. Mr. Brister was very abrupt in his answers and repeatedly raised his voice when answering Mr. Brown. Mr. Brown finally said "Please let me finish the questions before you go off again." Mr. Brown asked how the assumptions were first determined. Mr. Brister sharply replied they were already in place when he was retained by the state.

The fireworks continued as Mr. Brown asked Mr. Brister "Do you intend to send a bill". "I intend to bill them," replied Mr. Brister and further stated "I can not work on this plan if every time a legislator calls me, I have to work for free. I intend to get paid and send them a bill." Mr. Brown retorted "You expect me to pay you $300 an hour for forty-five minutes?" Mr. Brister said his time was valuable and that "you could sling a dead cat in Jackson and hit an attorney but would not hit an actuary." Mr. Brown said he and other representatives were going to request that Mr. Brister not be paid for his testimony. He then told Mr. Brister "You are one of the most arrogant people I have ever met." Mr. Brister, not backing down one bit, replied even more forcefully, "That is what my wife tells me." The MPACT program paid Mr. Brister $27,000 for his work this year and $34,000 last year. Mr. Brister also stated he was subpoenaed by the committee.

Mr. Reeves then sat in the hot seat. While Mr. Brown and Mr. Reeves disagreed at times, the temperature in the hearing lowered by several degrees as their disagreements were more cordial. Mr. Brown did not waste any time and asked the Treasurer "are you comfortable with this plan?"

Mr. Reeves said the Board determined all the assumptions used in the plan and took all actions. "My view is much like in the 2001, 2002, and 2003 time frame, no action was taken, the plan recovered, and that is the prudent course right now." Mr. Brown asked "Do you have any concerns about the $84 million unfunded liability?" and similar questions. Mr. Reeves told the Representative from Jackson it would decrease and while concerned, he thought the markets would continue to recover. Mr. Reeves then jibed back at Mr. Brown and said

"History does not always repeat itself. I assume it was a major concern in 2002 and 2003 when the program was in similar straits. We were 97% funded to the downturn. We have been here before. My view is that is likely (similar recovery) over the next four to five years."

Mr. Brown brought up Mr. Reeves' comments about Mr. Brown and spending then mentioned MPACT's advertising expenses. He and Representative Stringer said the expenses had increased by from $299,000 in 2007 to $399,000 in 2010 and it was their intent for the expenses to instead decrease. Mr. Reeves said "It would behoove you to look at the total expenses of the plan." The Treasurer's office told this correspondent the expenses declined from $1.501 million (17,000 participants) in 2002 to $1.291 million (21,000 participants) in 2011. Mr. Reeves then returned fire: "One thing we have not talked about is the 25,000 Mississippians who can go to college because of this plan. Let's talk about what was not in the Clarion-Ledger. " The two then sparred over why the two sides had not been able to meet privately. The Treasurer told Mr. Brown "The meeting was scheduled for November 18, which you canceled. The vast majority of the questions you asked today we could have addressed in a private meeting instead of a public hearing and that your questions are valid." The veteran legislator, lined and gray but still full of fire and vinegar, replied the meeting was canceled because Mr. Brister was first out of town, then because he refused to come unless he was paid. The meeting concluded with no questions by other legislators, even Steve Holland.

Right-click on document to rotate clockwise.


Kingfish said...

Now for my editorial comments. Mr. Brister was pretty abrasive and rude. There is a certain mindset one sees among underwriters, accountants, and engineers. It was on full display yesterday.

KaptKangaroo said...

Heard it got pretty heated. Nice work.

Anonymous said...

Mr. Brister sounds like an ass. Good counterpoint to old Sourpuss Cecil.

Anonymous said...

Mr. Brister was pretty abrasive and rude. There is a certain mindset one sees among underwriters, accountants, and engineers. It was on full display yesterday.

So the only difference between Brister and Cecil Brown is Brister has remained solely in the private sector while Brown has indulged his 'glory hound'.

Kingfish said...

Heated was not the word. Thought about ringing a bell at the end of every round.

Ironghost said...

Sounds like they deserve each other.

Ticked_off_in_MS said...

Cecil "don't cut ed u ma ca tion" Brown is abrasive and rude, a total horses ass. I'm glad Brister stomped all over Cecil's toes, couldn't have happened to a nicer son of a bitch.

As far as Cecil not liking Tate Reeves' comment about Cecil and Johnny Stringer, truth hurts, all these 2 son of a bitches think about is " finding additional revenue streams", "raising the income tax",or " get us some more that FREEEEE Federal gov ment cha ching". Wish Tate had jumped in Cecil's face HALF as hard as Brister did. Tired of political correctness, democrapers want to throw down, lets throw down, being polite doesn't get you anywhere with Wormfarmer McCoy, Porkchop Holland, Ed u ma cation Brown, et al..... LETS RUMBLE.

Ticked_off_in_MS said...

Left off my other point...

These are supposed to be LONGGGG term investments, you tweak, make minor adjustments, not throw them out everytime you loose money. Cecil et al need to shut up and let the Treasurer and board do their job, and Cecil et al... well it would be a first if they did their job in a professional manner.

Anonymous said...

The "investments" are not what they were presented to be, and clearly fall out of those appropriate for the money. No one was informed enough at the time to see that the money managers who actually invest this money, had no clue what a portion of the investments actually were - alternative crap.

Anonymous said...

Curious why Brown and Stringer didn't make this stink last year when the plan's unfunded liability was larger?

Anonymous said...

Brown does the dirty work for McCoy. Reeves stood up to McCoy from the beginning. Young "whippersnapper" needs to be put in his place. Disgusting that Brown uses this hearing to behave like a child on the playground.
He has every right to ask his questions but leave the comments and barbs of a personal nature out. You said this, Reeves said that in the CL. It hurt my feelings. GROW UP!!!!

Anonymous said...

I thought I read the mpact fund was up 13% last year.

If so, why are they having this argument now?

I wish my 401k was up that much.

Anonymous said...

Great reporting, KF. Thanks

Anonymous said...

Brown's decision to transition from a representative using wisdom and good judgment to now little more than a yap dog for the MS Democratic Party is costing him politically.

Kingfish said...

If I was Reeves, I would've told Brister: "You want your contract renewed? You are accompanying me to a private meeting with them in their offices at no extra charge."

If I was Brown I would have said "Mr.Brister, I'm a CPA and understand your profession quite well, in fact, my hourly rate is _____ and I wouldn't consider billing my employer, which is the state of mississippi, for a meeting explaining my work. I would consider that part of the services provided."

Anonymous said...

Mrs. Brister must not have met Cecil Brown.

Anonymous said...

You need to do a bit more research KF. There was a private meeting as you suggest scheduled. Stringer-Brown bagged the meeting at the last minute. Second source with Reeves. That is a fact.

Kingfish said...

I did, Jackwagon. I said there was one scheduled and that was widely reported. The two sides bickered over WHY it was canceled or didn't take place. THAT is a fact.

Anonymous said...

Me, I'm wondering at $300 an hour why it took Mr. Brister over 110 hours to do this analysis and took over 11 more hours this year than last.
It should take fewer hours to do it each time you do. I guess his hourly rate increased.
Nor do I understand Mr. Brister involving himself to start in the politics. He should ,as a professional, stick to explaining his work.
This just seems like a big fee for the amount of work involved if one considers how few hours it should have actually taken and the the work product should be presented in such a way as to be easily understood.
Those who are good at what they do can explain it to others. Those who aren't hide behind jargon.

Anonymous said...

Okay Dickwad. Thanks for your response.

Anonymous said...

Brister is not the issue, only the sideshow.

Why didn't Brown and Stringer bring this up last year?

Or how about 2008 when the percentage of unfunded liability jumped 327%, vs 2007, from 4.8% to 15.7%? How did Brown 'the CPA' and Stringer miss that massive red flag?

What we need to investigate is how our House legislative oversight function completely failed Mississippians in 2008.

Anonymous said...

9:58 It's not just in 2009...this is a pattern that has everything to do with political egos,with not demanding competence from those in positions of responsibility, and with paying for someone to " study and report" the obvious.
9:42 That was a witty remark for a 9 year old.

Anonymous said...

With similar plans in surrounding states failing, it would be irresponsible of legislators NOT to ask these questions at this time. I can only imagine the outcry had our plan failed and no questions raised. I am in agreement with the post regarding: Mr. Brister certainly should have considered this a part of his services and Mr. Reeves should have made certain Mr. Brister understood that point. Good reporting.

Anonymous said...

With similar plans in surrounding states failing, it would be irresponsible of legislators NOT to ask these questions at this time.

What a derelict expectation of legislative performance you are advocating. Legislative oversight should wait to conduct due diligence after there is evidence of failure in other states.

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