PUBLIC FINANCE
Michel Rochette, MBA, FSA Society of Actuaries Annual Meeting New York, NY October 18, 2010
What is Public Finance?
« Field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities. » (wikipedia) Essentially, what governments do and how to pay for it. Public finance is concerned with: −
Government expenditures: policy goals
−
Ressource mobilizations: intergenerational equity Enterprise Risk Advisory, LLC
What is Public Finance?
Types of government expenditures: −
Government consumption: yearly
−
Governement investment: long-term
−
Transfer payments
−
Government operations
Sources of funding: −
Taxes: income and sales: fiscal policy
−
Non-tax revenues: government entities
−
Borrowing: impact on future generation
−
Other: seigniorage
Enterprise Risk Advisory, LLC
Size of Governments
Source: Dye Understanding Public Policy
Enterprise Risk Advisory, LLC
Number of US Governments
Enterprise Risk Advisory, LLC
Federal vs Local Governments.
Enterprise Risk Advisory, LLC
US Federal Budget
Actuarial Principles
Statistical Framework: –
Law of large numbers & credibility of models
Economic and Behavioral Framework: –
Explain behavior in terms of quantifiable incentives and dis incentives
–
Preference varies by stakeholders
–
Time value of money: now vs later
–
Money exists: Express economic preferences in terms of money: ok what about values?
Source: SOA/CAS Actuarial Principles
Enterprise Risk Advisory, LLC
Actuarial Principles
Facts-based profession: −
« Substitute facts for appearances » SOA Motto
−
Fit with the New Public Management: efficiency, effectiveness
Model construction of outcomes & effects −
Economic and behavioral framework
Actuarial Risk: Random variables with desirable or non desirable economic consequences
Source: SOA/CAS Actuarial Principles
Enterprise Risk Advisory, LLC
Actuarial Principles
Financial Security Systems: –
Risk system where participants transfer one or more undesirable actuarial risks to a second party
–
Risk experience: data and facts
–
Antiselection & moral hazard
–
Actuarial soundness and degree
–
Intergenerational equity: MR Addition
Source: SOA/CAS Actuarial Principles
Enterprise Risk Advisory, LLC
Actuarial Roles
Trowbridge, FSA: Fundamental Concepts of Actuarial Science, 1989 Enterprise Risk Advisory, LLC
Actuarial Roles
Policy Evaluations: −
Measuring and modeling impacts – shortterm and long-term – of different public policies, not outputs as usually done in governements
−
Evaluation ex-ante and ex-post
Participate in long-term financing decisions: −
Especially relevant for local governments
−
Long-term liabilities. Ex. water systems Enterprise Risk Advisory, LLC
Actuarial Roles
Advise on long-term financial and non financial costs/benefits of: −
Different funding policies: PPP vs debt issue
−
Assessment of different public policies:
−
Ex: More police vs more social benefits Regulation vs direct government involvement
Advise on societal emerging risk issues (Societal Governance). Ex. longevity Bring independence, credibility and non biaised views and recommendations: Work for the public interest! Enterprise Risk Advisory, LLC
Ex. Scottish Policy Evaluation Checklist
Similar to an actuarial appraisal! Identify, quantify and value costs, benefits, risks and uncertainties of options & objectives Present results: –
Compare immediate and ultimate relationships between outputs and objectives
–
Present costs and benefits not valued
–
Present timing of outputs, timing & discount rate
–
Choose alternative states of the world & compare expected with realityEnterprise Risk Advisory, LLC
CONTACT
MICHEL ROCHETTE, MBA, FSA
ENTERPRISE RISK ADVISORY, LLC
954-607-6969
michel.rochette@enterprise-risk-advisory.com
Enterprise Risk Advisory, LLC
SOCIETY OF ACTUARIES
2010 Annual Meeting (October 2010) Session Topic:
Public Finance—How Actuaries Should Consider Helping
Competency:
Strategic Insight & Integration
Session:
All Sessions 13,630
28 OF 33
This Session
10,728
34
Number of responses
5,190
26
All Sessions
Return rate (# of resp./actual att.)
48%
76%
Overall rating of this session
3.87
3.83
3.83 3.87
Provided you with practical technical information
4.01
3.53
3.53 4.01
Will enable you to make better business decisions
3.90
3.71
3.71 3.90
Prepared you to impact industry-wide changes
3.72
3.70
3.70 3.72
Knowledge of Subject
4.22
4.33
Effectiveness of Delivery
3.84
4.05
Expected Attendance Actual Attendance
1
Overall Rating Learning Experience
2
Indicate your level of agreement with the following. This session:
Jeremy Gold, FSA, CERA, MAAA
Number of participants indicating presenter included commercial promotion in presentation
Presenter Effectiveness1
Emily K. Kessler, FSA, EA, FCA
1
Knowledge of Subject
4.22
4.42
4.42 4.22
Effectiveness of Delivery
3.84
4.43
4.43 3.84
Robert C. North Knowledge of Subject Jr., FSA, EA, FCA, FSPA, MAAA Effectiveness of Delivery
4.22
4.21
3.84
3.96 0
Knowledge of Subject
4.22
4.25
Effectiveness of Delivery
3.84
3.87
Number of participants indicating presenter included commercial promotion in presentation
Rate the level of audience interaction for this session 1
1
1
Number of participants indicating presenter included commercial promotion in presentation
Competency
4.05 3.84
1
Number of participants indicating presenter included commercial promotion in presentation
Michel Rochette, FSA
4.33 4.22
0
4.21 4.22 3.96 3.84 0 4.25 4.22 3.87 3.84 0 3.38 3.44
3.44
3.38
Did you chose this session based on the Competency addressed during this session? % Yes
52%
35%
35% 52%
Did this session meet your expectations in terms of how it addressed this Competency? % Yes
59%
36%
36% 59%
1
The rating scale used: Excellent (5), Very Good (4), Good (3), Fair (2), Poor (1), and N/A (no value).
2
The rating scale used: Strongly Agree (5), Agree (4), Neither Agree nor Disagree (3), Disagree (2), Strongly Disagree (1), and N/A (no value).
Speakers are compared to an overall speaker average regardless of the order of presentation.
Evaluation Tips to keep in mind when reviewing the responses: Numerical evaluations tend to give you a pretty good feeling for how well the attendees responded to the session as a whole. Scores in the range of 3 to 5 are considered successful programs. Written comments come from people who may have a strong opinion, therefore they tend to be very good or very bad. Repetitive comments that point to the same theme could be an indication of an area you may want to capitalize on in the future or work on for future presentations.
Perception Solutions, Inc.
www.perceptionsolutions.com 12/19/2010
SOCIETY OF ACTUARIES
2010 Annual Meeting (October 2010) Session Evaluation (Participants' Comments) Session
Competency
28 OF
Strategic Insight & Integration Strategic Insight & Integration
28 OF 28 OF 28 OF 28 OF 28 OF 28 OF 28 OF 28 OF
Overall Comments Regarding This Session Attended based on personal interest rather than job-related interest. This was fascinating.
Pie chart slide color-coded only result in problems with tracking on black/white handout - good to use different shaped icons too so the category in the black/white handout can be tracked. Strategic Insight & Focus on public pension fund was noted in session description. Outside the pension discussion, there was a Integration shortage of specific usable information. Strategic Insight & Moderator shouldn't challenge presenters during session. Integration Strategic Insight & Integration
I found the set-up interesting - good way to approach a topic like this - have multiple speakers sharing 1 single set of slides. Strategic Insight & I would have liked to see more specific ideas of how actuaries could play a role. Some of the questions at the end Integration of the session were way too wordy and should have been cut off. Strategic Insight & Appreciate the conversational nature of the session. Integration Strategic Insight & Integration
Good practical discussion w/out getting into complexities that only those intimately familiar w/ topic understand.
Strategic Insight & Integration
Too much focus was on valuing state and local pensions, which is a less typical public finance topic that some other areas actuaries would like to influence.
Perception Solutions, Inc.
www.perceptionsolutions.com 12/19/2010
Comments- 1