Pennsylvania’s school teacher pension fund made $1 billion off of the coronavirus-induced market shifts last week, as the state’s fiscal watchdog stressed budgetary uncertainty as the virus spreads.
There are 105,000 cases of coronavirus worldwide, linked to roughly 3,500 deaths, according to the World Health Organization. With whole countries on lock down and global trade slowing, business is taking a hit.
That meant havoc on Wall Street, which weathered the largest drop in stock prices since the 2008 recession on Monday.
The fluctuations have increased the demand for stable federal Treasury bonds. And it led Pennsylvania’s Public School Employees Retirement System to sell $1 billion of those bonds last week, spokesman Steve Esack said.
Esack said that the system did not sell because of financial concerns from coronavirus, but instead made the move because of a favorable market caused by investor’s fears of the virus.
“We would have taken advantage of such market conditions no matter what the underlying cause was,” he said in an email.
As for reacting more directly to the virus, Esack said that the system is in “constant communication” with financial managers, but further action will wait for more market changes.
In light of the toll the 2008 recession took on the pension fund, PSERS decreased its dependence on stocks and bonds and increased investments in other sectors, such as commodities, real estate and private equity.
“With that history as a guide, PSERS’ portfolio should better withstand the coronavirus fears that have whipsawed markets, curtailed travel, tramped down economic growth projections and caused the Federal Reserve to lower interest rates,” the system’s chief investment officer Jim Grossman, said in a statement last week.
Of course, those same investments have led to criticism from some, such as state Treasurer Joe Torsella, who instead favor investments focused on public equity — such as stocks and bonds.
PSERS, one of two state public pension systems, manages $60 billion in assets and the pensions of 600,000 current and retired school teachers and other personnel.
The State Employees’ Retirement System, which manages nearly $30 billion for 239,000 current and retired state bureaucrats, lawmakers and staffers, did not reply to a request for comment.
A world of uncertainty
Gov. Tom Wolf recently proposed a $36 billion state budget that rests on revenue projections to fund $1.4 billion in new spending, on everything from new park rangers to gun violence reduction.
Republicans were quick to critique the rosy projections.
“If we see another downturn, we’re back at,” a budget stalemate, Senate Appropriations Committee Chairman. Pat Browne, R-Lehigh, told the PA Post last month. “If we’ve learned anything in the last ten years” of budget fights, “it might be a good idea to shore things up.”
Browne isn’t alone in stressing caution.
Matt Knittel, head of the Independent Fiscal Office, which researches and analyzes policy for the Legislature, told the Capital-Star in an email that there aren’t signs of a tighter budget yet, but could show up in down revenue collections this month.
“March will be the first month that we might begin to see some effects, such as slower growth in sales tax revenues if consumers begin to pull back on purchases,” Knittel said.
The economy’s fundamentals remain good, Knittel added, but “that could change quickly if the virus continues to spread. Right now, it’s difficult to get a handle on the longer-term implications.”
Coronavirus is just starting to affect Pennsylvania. The state Department of Health has confirmed 11 confirmed cases as of Tuesday, eight of which are in suburban Philadelphia’s Montgomery County.
But there are more implications than revenue, said Megan Augustine, spokesperson for Rep. Matthew Bradford, of Montgomery County and the ranking Democrat on the House Appropriations Committee.
Initially, she said, the General Assembly must “ensure that our public health officials have every resource necessary to combat this crisis.”
She added that the spread of coronavirus could impact revenues ahead of budget negotiations, but so could the GOP-controlled General Assembly not agreeing to Wolf’s revenue proposals, such as an increase in the minimum wage or changing the state’s corporate income tax.
“Chairman Bradford is closely monitoring the evolving status of the coronavirus and its impact on Pennsylvania’s fiscal situation, but also remains focused on passing a budget that fairly and adequately funds education, health care and public safety so that state government can properly prepare for, and react to, these exact types of public health concerns,” Augustine said.
To be sure, the state has already taken preventive action to address the public health risks of coronavirus.
On Monday, the Wolf administration reached an agreement with “all major health insurers” — including Highmark, UPMC, Geisinger and Independence BlueCross — in Pennsylvania to cover coronavirus testing and associated treatment in their plans. There will be no out of pocket costs for individuals with insurance, either.
But despite some rumbles, the administration isn’t taking a look at the financials just yet.
“It’s too soon to tell,” Lyndsay Kensinger, Wolf’s spokesperson, said in an email.