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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast a special bonus episode. Drew

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Speaker 2: warshow is candidate for New York State Controller. The Democratic

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Speaker 2: primary is June. That really is the whole shooting match.

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Speaker 2: Fascinating person. Helped rebuild the World Trade Center, background in

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Speaker 2: solar and alternative energy, affordable housing, worked for the Port Authority.

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Speaker 2: I thought this conversation about the New York State pension

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Speaker 2: and the role of the Controller was fascinating, and I

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Speaker 2: think you will also with no further ado, my conversation

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Speaker 2: with New York State Controller candidate Drew Warshaw. I'm really

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Speaker 2: excited to talk to you because of not just your background,

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Speaker 2: but some of your ideas about the New York State

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Speaker 2: pension plan. Nearly three hundred billion dollars. It's one of

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Speaker 2: the biggest in the countries. We'll get to that in

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Speaker 2: a bit. I have to start out asking you a

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Speaker 2: little bit about your background. You get a bachelor's in

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Speaker 2: history and government from Cornell, your MBA from Columbia Business School.

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Speaker 2: What was the original career plan?

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Speaker 3: The original path was public service, so that's I started

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Speaker 3: my career in government. I worked for a governor many

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Speaker 3: governors ago, and then moved up to Albany and worked

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Speaker 3: for that governor. And then when that governor resigned, his

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Speaker 3: name was Elliott Spitzer, which you may have remembered. This

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Speaker 3: was two thousand and eight. This was the same week

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Speaker 3: Bear Stearns went down, which I'm sure you remember. And

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Speaker 3: I had to get back to New York City where

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Speaker 3: I'm from, and the Port Authority was rebuilding the World

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Speaker 3: Trade Center at the time, and the World Trade Center

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Speaker 3: was still sixteen acre hole in the ground.

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Speaker 2: I remember. There was a whole lot of dysfunction and

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Speaker 2: arguing with the person who had originally owned the property.

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Speaker 2: I'm forgetting the name of Larry Silverstein. That's right, Silverstein.

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Speaker 2: I mean this went nowhere. It felt like, Oh, they're

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Speaker 2: never going to rebuild this. This is going to be

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Speaker 2: a horrific thing for New York City. Tell us a

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Speaker 2: little bit about your involvement in going from a dysfunctional

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Speaker 2: government entity to something a little more resilient.

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Speaker 3: Sure. So, I was blessed to become the chief of

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Speaker 3: staff to the head of the Port Authority in New

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Speaker 3: York and New Jersey, And this was seven years after

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Speaker 3: the attacks, and it was still a sixteen acre hole

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Speaker 3: in the ground. And to your point, it was peak

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Speaker 3: government dysfunction. Everyone was worrying with everyone. There was a

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Speaker 3: private developer, there were insurance companies, there was unfortunately, the

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Speaker 3: families of nearly three thousand victims, and there was one

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Speaker 3: of the most complicated engineering and construction projects in the

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Speaker 3: most congested area of New York City, while two mass

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Speaker 3: transit systems had to continue operating, the one train that

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Speaker 3: bisects the site and the path system that comes in

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Speaker 3: from the Hudson River. And we got there in two

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Speaker 3: thousand and eight, and it was basically a hole in

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Speaker 3: the ground at that point, and they called it the

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Speaker 3: pit if you remember, down at ground zero. And over

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Speaker 3: the next four years we got it built and we

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Speaker 3: opened the memorial. By the ten year anniversary, we secured

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Speaker 3: Conde Nast as an anchor tenant for one World Trade Center.

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Speaker 3: We ended up renegotiating the original real estate deal with

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Speaker 3: Silverstein Properties and rationalized the commercial development and the financing

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Speaker 3: of that project to phase it in over time, given

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Speaker 3: where we were in the market at the time. So

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Speaker 3: just the experience of a lifetime, especially for a lifelong

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Speaker 3: New Yorker, to have an opportunity to rebuild my hometown.

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Speaker 3: There's really nothing like it.

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Speaker 2: And what's fascinating and really relevant for today's circumstance is

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Speaker 2: how Lower Manhattan, which was never much of a residential area,

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Speaker 2: very much transformed into not quite Brooklyn Heights, but a

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Speaker 2: very residential friendly a whole lot more apartments and condos

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Speaker 2: and co ops. I wonder if that's a little bit

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Speaker 2: of a template for moving forward now that we seem

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Speaker 2: to have sixty seventy percent rates of return to office.

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Speaker 3: Yeah, and much much more mixed use. To your point,

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Speaker 3: I mean, no one would recognize Lower Manhattan today where

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Speaker 3: it was, you know, in two thousand or in the nineties.

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Speaker 3: And I live in Lower Manhattan with my two boys

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Speaker 3: and my wife, not far from the World Trade Center.

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Speaker 3: Just given the importance that it has in my life,

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Speaker 3: and it's an incredible area. I think it's you know,

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Speaker 3: the connectivity, the mass transit. You know, you're close to Brooklyn,

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Speaker 3: you can get uptown anytime you want or out of

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Speaker 3: the city. It's extraordinary.

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Speaker 2: So not only have you worked in government at the

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Speaker 2: Port Authority, but you've worked for a fortune two fifty

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Speaker 2: energy company. You've worked on affordable housing in the US.

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Speaker 2: Tell us a little bit about your business experience.

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Speaker 3: Yeah, so I was blessed to one get to help

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Speaker 3: rebuild the World Trade Center and work in one of

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Speaker 3: the most extraord ordinary government agencies that exist, and got

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Speaker 3: to do it at a very young age. And so

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Speaker 3: I had this extraordinary experience where I had the opportunity

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Speaker 3: to either keep going vertical and keep going up within

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Speaker 3: government or build out. And you know, I bet that

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Speaker 3: life is long. If it's not, we're sort of in

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Speaker 3: trouble anyway. And so you know, for my part, when

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Speaker 3: I do things, I want them to be meaningful and transformational.

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Speaker 3: To do that, I think you need experience and you

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Speaker 3: need to broaden your foundation and not just build on

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Speaker 3: high So I pivoted out of government. I went to

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Speaker 3: business school, as you mentioned, and then joined a fortune

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Speaker 3: two fifty power company that was trying to build a

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Speaker 3: renewable energy investment platform and development platform, and fortunately was

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Speaker 3: led by a very visionary CEO at the time who

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Speaker 3: saw the green revolution coming wanted to make sure that

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Speaker 3: the power company was positioned for that, and brought in

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Speaker 3: a bunch of different people, some with power and finance experience,

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Speaker 3: some with engine experience, and then you know others like

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Speaker 3: me who just were good at solving complicated problems. And

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Speaker 3: together we built a really strong renewable energy business.

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Speaker 2: And let's look a little bit about housing. We in

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Speaker 2: the United States have a shortage of single family homes,

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Speaker 2: of starter homes, and then just generally affordable homes. How

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Speaker 2: bad is the housing problem in New York City and

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Speaker 2: in the entire country.

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Speaker 3: It's as bad as it gets. But I think importantly

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Speaker 3: in your last point is spot on. This is not

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Speaker 3: just a New York City problem. It is not just

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Speaker 3: a city problem. It is an everywhere problem. And when

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Speaker 3: I left the renewable energy industry, and just to give

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Speaker 3: you a sense, this is late twenty nineteen, I was

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Speaker 3: at my unpteen ribbon cutting for however many solar farms

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Speaker 3: that we had built. And it's an extraordinary thing to

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Speaker 3: be at a solar farm to see the sun shining

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Speaker 3: on basically three pieces of equipment, clean electrons going into

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Speaker 3: the grid, and you're sort of like, this is a miracle.

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Speaker 3: We figured this out. We just need a battery, we

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Speaker 3: need an extension court, and we've got this but what

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Speaker 3: you don't have in that farm and a field somewhere

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Speaker 3: is people. And I'm a New Yorker and I'm a

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Speaker 3: state and local guy at heart, and the affordability crisis

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Speaker 3: was mushrooming around me, and I just felt like I

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Speaker 3: needed to do something that impacted a person's day to

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Speaker 3: day life as opposed to trying to save the species,

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Speaker 3: which we need to do. And climate change is real.

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Speaker 3: But for my part, the home is the centerpiece of

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Speaker 3: a good life. And if you have a good one

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Speaker 3: that provides safety and security and value, everything else opens up.

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Speaker 3: And if you have a home that is the opposite

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Speaker 3: of those things, or if you don't have a home,

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Speaker 3: then things close down on you. And so we have

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Speaker 3: I think the most serious domestic policy crisis in this

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Speaker 3: country is the fact that people cannot afford their own home.

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Speaker 3: My kids. My kids go to public school downtown in

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Speaker 3: Lower Manhattan. One out of every single, one out of

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Speaker 3: every seven public school students in New York City, they

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Speaker 3: don't go home at night because they don't have one.

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Speaker 2: That's unbelievable.

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Speaker 3: They are homeless. And when I'm sitting there, co CEO

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Speaker 3: of the most extraordinary Affordable Housing nonprofit in the country,

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Speaker 3: eleven hundred dedicated professionals who were there to address the

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Speaker 3: affordable housing crisis. And it occurs to me, Barry, that

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Speaker 3: we were losing. We were getting smoked. It wasn't even close.

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Speaker 3: And I look over to a government that we are

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Speaker 3: trying to make faster, better, cheaper, and more efficient, and

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Speaker 3: they have all this power and they have all this money,

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Speaker 3: and we could use those things to address this raging

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Speaker 3: affordability crisis. And that's sort of what turned me on

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Speaker 3: to doing you know what we'll talk about. I'm sure

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Speaker 3: because I was not someone who grew up, you know,

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Speaker 3: wanting to run for office. I was sort of the operator,

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Speaker 3: the heads down person behind the person. But I got

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Speaker 3: to the point where I realized that the cavalry is

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Speaker 3: not coming. The cavalry is us.

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Speaker 2: So let's stay with housing for a bit. We're going

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Speaker 2: to talk a lot about the controller position and really

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Speaker 2: what the main focus of that is. But I'm just

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Speaker 2: fascinated by the housing circumstance, starting with really, since the

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Speaker 2: financial crisis, we've underbuilt single family homes, to say nothing

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Speaker 2: of affordable homes. So just in terms of demographics, depending

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Speaker 2: on whether you believe the realtors, the economists, or the builders.

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Speaker 2: We're two three four million homes short. That's right, relative

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Speaker 2: to three hundred and thirty something million Americans. That is

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Speaker 2: very likely over the next twenty five years to be

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Speaker 2: three point fifty three sixty three seventy. So given that,

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Speaker 2: and given you have federal rules, you have state rules,

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Speaker 2: you have private sector rules, you have local city and

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Speaker 2: and county and town rules. What can we do to

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Speaker 2: improve the housing situation? What should we be doing at

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Speaker 2: each of those levels.

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Speaker 3: Yeah, so we have a massive undersupply problem, a supply

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Speaker 3: demand imbalance. And you know, whether it's two million, whether

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Speaker 3: it's seven million, it's too many million home short and

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Speaker 3: people feel that every day, whether it's in their rent

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Speaker 3: or in home prices. And what we saw at Enterprise

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Speaker 3: Community Partners, which is the affordable housing nonprofit that I

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Speaker 3: worked for, as to your point, at every single level,

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Speaker 3: it is virtually impossible to build a home that people

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Speaker 3: can afford. And I thought citing a solar farm was difficult.

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Speaker 3: Then you get pushed back, try citing an affordable property.

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Speaker 3: And there's so many layers of bureaucracy, and whether it's

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Speaker 3: from the financing side, the capital structures of these affordable properties,

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Speaker 3: you needed to code a ring to figure them out.

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Speaker 3: They're so complex the building code, and you know that,

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Speaker 3: I think is the silent killer of affordable housing in

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Speaker 3: this country. We talk a lot about zoning, and that

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Speaker 3: is also an issue, but what gets talked about much

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Speaker 3: less is even if a piece of land is perfectly zoned,

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Speaker 3: it is still hard to get the mathwork because the

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Speaker 3: minute you hit dirt, particularly in New York, with the

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Speaker 3: complexities of the building code and the gold plated nature

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Speaker 3: and the outdated and so on and so forth, it

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Speaker 3: is a fortune to build. So, whether it's the cost

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Speaker 3: of construction or the cost of capital and the cost

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Speaker 3: of land, you have so many different things working against you.

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Speaker 3: And those are some of the roadblocks that we need

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Speaker 3: to start clearing.

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Speaker 2: How significant is the nimby not in my backyard issue

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Speaker 2: that once people are established and they have a home, Hey,

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Speaker 2: we don't want affordable housing, we don't want Section eight

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Speaker 2: housing in our area going to send property values down.

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Speaker 2: How legitimate are those concerns and how can they be addressed?

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Speaker 3: Yeah, you have this credible dynamic in this country where

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Speaker 3: the incumbents of home ownership are actually economically incentive in

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Speaker 3: theory to not allow greater supply, because just if we're

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Speaker 3: in a supply demand world, if the supply goes up

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Speaker 3: and demand stays constant, the value of their underlying property

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Speaker 3: either will sort of rest in a neutral position or

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Speaker 3: potentially go down. And so there is just this literal

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Speaker 3: economic self interest to not want to allow more homes

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Speaker 3: into your neighborhood. And then there's cultural things, and there's

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Speaker 3: all sorts of other cross currents. It is a big problem.

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Speaker 3: And unfortunately, what we've seen is if you actually study

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Speaker 3: this and you look at what happens when you introduce

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Speaker 3: new supply of homes, what you don't see is home

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Speaker 3: values plunging. You don't see wild traffic jams or the

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Speaker 3: schools getting filled up. You see a balance. Because things

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Speaker 3: can't come online all once anyway, they are phased in

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Speaker 3: over over time, and a place will naturally adjust to

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Speaker 3: the inflow of new homes and new people. And I

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Speaker 3: think much too much is made from a very small

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Speaker 3: but very loud group of people who, to your point, say,

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Speaker 3: not in my backyard.

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Speaker 2: So let's talk a little bit about the controller position.

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Speaker 2: Most people don't really know what this role is We're

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Speaker 2: going to go into a lot of details, but essentially,

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Speaker 2: this is one of the most significant financial roles in

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Speaker 2: the state. Their regular audits and oversight of all sorts

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Speaker 2: of tax and spending revenue, as well as overseeing the

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Speaker 2: New York State Pension Fund, which is almost three hundred

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Speaker 2: billion dollars. I think it's the third largest in the country.

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Speaker 2: Is that right? That's right, So tell us a little

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Speaker 2: bit about this role.

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Speaker 3: Yeah. You know, everyone's heard of the governor, everyone's heard

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Speaker 3: of the General. There's a third statewide position in New

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Speaker 3: York and it's the New York State Controller. And you know,

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Speaker 3: put simply, the State Controller is the state's chief financial officer,

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Speaker 3: chief auditor, and chief investment officer of the third largest

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Speaker 3: fund in the United States of America, all rolled up

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Speaker 3: into one job. One person has all three of those responsibilities.

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Speaker 3: So it's an extraordinarily powerful position. Unfortunately, too few New

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Speaker 3: Yorkers have ever heard of it, and the ones who

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Speaker 3: have can barely pronounce the titles. So we need to

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Speaker 3: do a lot more to educate the public on the

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Speaker 3: awesome responsibility and authority of this one office. And part

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Speaker 3: of the challenge has been it's been occupied by the

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Speaker 3: same person in the same seat for eighteen years, who

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Speaker 3: has stayed well below the radar, and unfortunately, I think

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Speaker 3: is sort of treating the position like a lifetime appointment.

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Speaker 3: And we have, as I mentioned, you know, being you know,

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Speaker 3: focusing on the affordable housing crisis. We have a position

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Speaker 3: that is sitting on all this power and all this

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Speaker 3: money and is not being flexed for the people without it.

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Speaker 3: And I think if we could get in there with

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Speaker 3: energy and surround ourselves with talent, we have all the

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Speaker 3: levers we need to address so many of the crises

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Speaker 3: that we face.

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Speaker 2: So I'm fascinated, and I bet a lot of our

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Speaker 2: audience is fascinated by We don't really think about New

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Speaker 2: York State pension. My wife is a teacher. I have

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Speaker 2: friends who are police and fire people, state hospital doctors

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Speaker 2: and emergency room nurses. There are just a whole run

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Speaker 2: of people that benefit from the New York State pension.

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Speaker 2: Tell us a little bit about what's going on on

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Speaker 2: that pension. Three hundred billion dollars. Is that's real money?

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Speaker 3: Yeah, So let's be clear, every New Yorker is impacted

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Speaker 3: by this pension fund. So one, to your point, they're

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Speaker 3: nearly one point twenty five million beneficiaries. These are public

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Speaker 3: school teachers, these are firefighters, these are cops, he's are

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Speaker 3: frontline government workers. So they are directly impacted. But who

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Speaker 3: funds the public pension fund?

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Speaker 2: Don't say kick in taxpayers.

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Speaker 3: They do kick in a portion, but taxpayers pay the

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Speaker 3: overwhelming amount of the contributions into the pension fund. So

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Speaker 3: your property taxes and your state income taxes, they are taxed,

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Speaker 3: and all eleven million New York tax filers pay into

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Speaker 3: our public pension fund. So everyone is impacted. And what's

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Speaker 3: so extraordinary is this is not only the third largest

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Speaker 3: public pension fund in the United States, but it's run

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Speaker 3: by one person. He is the sole trustee of this fund.

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Speaker 2: Meaning he's not an investment committee and a lot of

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Speaker 2: he does not report to a board of trustees.

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Speaker 3: The New York City Controller reports to five different fiduciary boards.

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Speaker 2: Right, He.

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Speaker 3: Those five boards, and it's currently there's the teachers, there's

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Speaker 3: the firefighters and cops, there's the public employees, and so

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Speaker 3: on and so forth. The state Controller reports to himself.

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Speaker 3: He is the board. He is literally the chief investment officer.

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Speaker 3: He is the fiduciary. He runs this money.

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Speaker 2: So should there be a board of trustees the controller,

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Speaker 2: as head of the pension fund reports to How do

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Speaker 2: you propose changing that structure?

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Speaker 3: Yeah, I think so. Just to be clear, only one

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Speaker 3: other controller nationally has that level of sole trusteeship that authority.

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Speaker 3: That's Connecticut, which is a much smaller fund. And I

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Speaker 3: think corporate governance is so critical here. I think a

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Speaker 3: board structure makes so much sense. But we have to

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Speaker 3: get that board structure right. And one of the challenges,

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Speaker 3: and this is, you know, I've looked at sort of

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Speaker 3: best practices across the country. One of the challenges of

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Speaker 3: these public pension funds is their boards are political appointees,

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Speaker 3: and so you get into a situation where you know,

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Speaker 3: the governor gets an appointment, and the state Senate majority leader,

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Speaker 3: and the Assembly and so on and so forth, and

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Speaker 3: so now you have this board that you hope is accountable,

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Speaker 3: but in many ways you've actually diffused accountability away from

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Speaker 3: a person who's publicly elected at least they have a

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Speaker 3: job interview every four years and have to come up

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Speaker 3: to a sort of anonymous, unknown board that sort of

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Speaker 3: operates wherever they operate, and are politically appointed. So I

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Speaker 3: think you know. Moving to a board structure, to me,

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Speaker 3: on its face, makes perfect sense. There is way too

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Speaker 3: much concentrated power in one human. But if it becomes

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Speaker 3: a politicized board, I think we have a problem. So

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Speaker 3: I think we have to move in that direction, but

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Speaker 3: we have to do that thoughtfully and carefully.

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Speaker 2: Really interesting coming up, we continue our conversation with Drew Warshaw,

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Speaker 2: candidate for New York State Controller, talking about what most

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Speaker 2: New Yorkers don't understand about the position. I'm Barry Richlse.

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Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm

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Speaker 2: Barry Redlts. You're listening to Masters and Business on Bloomberg Radio.

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Speaker 2: My extra special guest today is Drew Warshaw. He is

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Speaker 2: a candidate for New York State Controller.

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Speaker 3: In New York.

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Speaker 2: Really the primary is the whole whole thing, and that

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Speaker 2: will be held in June of twenty twenty six. Let's

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Speaker 2: talk a little bit about this role that so many

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Speaker 2: New Yorkers either don't understand or don't even think about.

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Speaker 2: You mentioned Attorney General and governor. Everybody knows those titles.

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Speaker 2: Tell us a little bit about the important powers of

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Speaker 2: the New York State Controller.

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Speaker 3: Yeah, I think what is extraordinary and unfortunate is we

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Speaker 3: have a position in government that is sitting on all

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Speaker 3: this power and all this money, and it is not

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Speaker 3: being used for people without it. And what do I mean?

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Speaker 3: New Yorkers cannot afford to live in New York right now.

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Speaker 3: We have a massive affordability problem, not just housing anything,

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Speaker 3: electricity bills, insurance, and so on and so forth. And

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Speaker 3: there is a person up in Albany whose job it

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Speaker 3: is is to address things like that, although unfortunately I

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Speaker 3: don't think he understands that or knows that. And so

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Speaker 3: I want to take this position, and I want to

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Speaker 3: use the massive levers of power and massive levers of

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Speaker 3: money and help address the raging cost crisis and affordability

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Speaker 3: crisis of New Yorkers. And I think we can do that,

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Speaker 3: whether it is managing the public pension fund in a

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Speaker 3: very different way, and I'm sure we'll talk about that.

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Speaker 2: Absolutely.

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Speaker 3: The incredible audit powers, the fact that this person could

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Speaker 3: audit anything that touches a state tax dollar. A quarter

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Speaker 3: of a trillion dollars gets spent every single year in

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Speaker 3: New York and he has an all access pass to

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Speaker 3: being able to audit any of that spending, which is

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Speaker 3: basically the ability to audit anything. And then what is

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Speaker 3: not well known is that the New York State Controller

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Speaker 3: also oversees this thing called the New York State Unclaimed Fund,

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Speaker 3: which is all which is where all of our money

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Speaker 3: or uncast checks are, you know, health insurance benefits that

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Speaker 3: don't somehow find their way to our mailbox, get gets

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Speaker 3: you know, goes out.

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Speaker 2: That's a pretty decent chunk of money, isn't it.

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Speaker 3: It turns out it is. It should be zero because

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Speaker 3: it's New Yorker's money and it is the State Controller's

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Speaker 3: job to give it back to New Yorkers. But it

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Speaker 3: is twenty billion dollars. There's twenty billion dollars in the

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Speaker 3: New York State Done Claim Fund. When the Controller was

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Speaker 3: appointed eighteen years ago, that number was only seven billion.

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Speaker 3: And by the way, that's still too high. And so

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Speaker 3: that is a rare thing to be able to quantify

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Speaker 3: the performance of an elected official sort of how do

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Speaker 3: you do that, especially with like a senator or an assemblymen?

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Speaker 3: Or is it how many bills that they sponsor? But

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Speaker 3: what if the bills are bad bills, or what if

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Speaker 3: they're in the minority and they don't get passed. This

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Speaker 3: is something in the job remit in the description that

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Speaker 3: a fund that is supposed to go down has nearly

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Speaker 3: tripled in size, and it's New Yorker's money in the

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Speaker 3: middle of an affordability crisis. This guy is sitting on

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Speaker 3: twenty billion dollars of our money.

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Speaker 2: So let me let me defend the sitting New York

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Speaker 2: gentleman named Tom DiNapoli. He's been in the job for

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Speaker 2: almost two decades. His reputation is he's a steady technocrat.

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Speaker 2: He's done some audits, he's found some waste and savings.

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Speaker 2: It's not like he's, you know, doing nothing. What do

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Speaker 2: you credit him doing right? And where do you think

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Speaker 2: the biggest area is he's fallen short?

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Speaker 3: Sure, well, look I think and this is not nothing.

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Speaker 3: And he he leads with this. Now, my problem is

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Speaker 3: this is a problem if this is your reason for running.

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Speaker 3: And what he says is he has never been indicted

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Speaker 3: and he's never been in a sex scandal.

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Speaker 2: Now, in New York, that's a pretty big thing. Elliott

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Speaker 2: Spitzer stepped down. Lots of other public officials in New

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Speaker 2: York have had a step down. And this predates me

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Speaker 2: too by a long time.

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Speaker 3: Yeah. For my part, though the bar has to be

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Speaker 3: a bit higher than that.

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Speaker 2: So no sex scandals is not just the miniment.

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Speaker 3: I don't think that could be the definition of success

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Speaker 3: in a position of this consequence, and unfortunately that is

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Speaker 3: what we have heard. So look, I think he is

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Speaker 3: not corrupt. I don't know of any sex scandal, but

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Speaker 3: we have to be doing more, and you ask some

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Speaker 3: of the things that he could be doing more of.

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Speaker 3: I think the way he has managed the three hundred

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Speaker 3: billion dollar public pension fund has amounted to malpractice. I

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Speaker 3: think it has cost New Yorkers, and you know, we'll

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Speaker 3: talk about this, nearly sixty billion dollars of extra taxes

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Speaker 3: that have come out of our pocket and literally just

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Speaker 3: been vaporized. So I think whether it's the public pension fund,

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Speaker 3: the fact that he hasn't been able to get twenty

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Speaker 3: billion dollars of New Yorkers back into their pockets in

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Speaker 3: the middle of an affordability crisis, or the way he

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Speaker 3: focuses the audit authority, not going after the things that

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Speaker 3: matter most to New Yorkers and instead spreading his staff

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Speaker 3: and diluting his staff over thousands and thousands of audits.

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Speaker 3: And if you audited two thousand things every single year,

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Speaker 3: is very difficult to get to the root cause of

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Speaker 3: any one of them. And so I think just even

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Speaker 3: the level of focus, and we could talk about some

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Speaker 3: of the ideas and some of the areas that I

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Speaker 3: would audit just need to be fundamentally more focused than

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Speaker 3: when you run large organizations or large businesses or even

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Speaker 3: large government agencies. Resources are finite at the end of

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Speaker 3: the day, and you need to understand that, and you

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Speaker 3: need to concentrate those finite resources on the things that

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Speaker 3: matter most.

436
00:24:25,080 --> 00:24:27,600
Speaker 2: So let's talk about the New York State Pension Fund

437
00:24:27,720 --> 00:24:33,240
Speaker 2: nearly three hundred billion dollars. You've taken to standing by

438
00:24:33,280 --> 00:24:36,600
Speaker 2: the Wall Street charging bull with a giant check for

439
00:24:36,760 --> 00:24:40,400
Speaker 2: twenty one million dollars. That you say is how much

440
00:24:40,480 --> 00:24:45,480
Speaker 2: the fund is wasting every week. So that's one point

441
00:24:45,480 --> 00:24:50,639
Speaker 2: one billion dollars a year in fees. We'll dive into that.

442
00:24:50,720 --> 00:24:52,840
Speaker 2: I'm just curious what sort of reaction do you get

443
00:24:52,840 --> 00:24:56,119
Speaker 2: from people down by the bull on Wall Street.

444
00:24:56,200 --> 00:24:59,119
Speaker 3: Yeah, so I think, true friend, why is what you're

445
00:24:59,160 --> 00:25:00,000
Speaker 3: talking about in terms of.

446
00:25:00,000 --> 00:25:02,720
Speaker 2: And by the ways lower Broadway near walls.

447
00:25:02,720 --> 00:25:05,720
Speaker 3: Right, So if you go to Drew fran Y on

448
00:25:05,800 --> 00:25:08,959
Speaker 3: Instagram or x or whatever social channel, you will see

449
00:25:09,240 --> 00:25:12,280
Speaker 3: what Barry is talking about. But every single Friday, which

450
00:25:12,320 --> 00:25:14,879
Speaker 3: is Payday, which is why New Yorkers get paid, I

451
00:25:14,960 --> 00:25:18,040
Speaker 3: go down to the Wall Street Bowl and I call

452
00:25:18,840 --> 00:25:20,520
Speaker 3: I don't know what we can say on this podcast,

453
00:25:20,560 --> 00:25:23,359
Speaker 3: Say whatever you want, okay. I called bull on the

454
00:25:23,400 --> 00:25:26,639
Speaker 3: fact that our New York State Controller for the last

455
00:25:26,680 --> 00:25:30,240
Speaker 3: eighteen years has given eleven point three billion dollars in

456
00:25:30,280 --> 00:25:34,440
Speaker 3: fees to hundreds of Wall Street bankers who fundamentally didn't

457
00:25:34,480 --> 00:25:36,920
Speaker 3: do their job, who did not beat the market net

458
00:25:36,960 --> 00:25:39,480
Speaker 3: of their fees, They did not even come close. In fact,

459
00:25:39,520 --> 00:25:43,600
Speaker 3: they underperformed his own market benchmarks by thirty nine percent

460
00:25:43,680 --> 00:25:46,679
Speaker 3: and got eleven point three billion dollars in fees. And

461
00:25:46,720 --> 00:25:48,359
Speaker 3: we got this all off of the controllers.

462
00:25:48,400 --> 00:25:51,199
Speaker 2: And is that how you got to fifty plus billion dollars?

463
00:25:51,320 --> 00:25:52,280
Speaker 2: Was the underperformance?

464
00:25:52,359 --> 00:25:56,320
Speaker 3: The underperformance would have had to be made up by

465
00:25:56,400 --> 00:25:59,359
Speaker 3: tax payers. Now the state controller walks around and he goes,

466
00:25:59,640 --> 00:26:02,640
Speaker 3: you know, I've done a really good job. Why because

467
00:26:02,680 --> 00:26:04,399
Speaker 3: the public pension Fund of New York is one of

468
00:26:04,400 --> 00:26:07,080
Speaker 3: the best funded in the nation. And he's right, it is.

469
00:26:07,320 --> 00:26:08,280
Speaker 3: But he doesn't tell.

470
00:26:08,119 --> 00:26:10,879
Speaker 2: You why it's funded through tax It's.

471
00:26:10,760 --> 00:26:14,200
Speaker 3: Funded because eleven million New York taxpayers over the last

472
00:26:14,200 --> 00:26:17,320
Speaker 3: eighteen years paid fifty nine point one billion dollars and

473
00:26:17,440 --> 00:26:21,120
Speaker 3: extra property taxes and extra state income taxes to make

474
00:26:21,200 --> 00:26:24,040
Speaker 3: certain it was fully funded. It was the taxpayers that

475
00:26:24,160 --> 00:26:27,280
Speaker 3: ensured that, not the stewardship and the investment fund, because

476
00:26:27,280 --> 00:26:29,800
Speaker 3: it is New York state law for the public pension

477
00:26:29,840 --> 00:26:32,480
Speaker 3: fund to be fully funded. Mickey Mouse could be the

478
00:26:32,480 --> 00:26:35,160
Speaker 3: state controller and it must be. The question is how

479
00:26:35,560 --> 00:26:38,080
Speaker 3: how is it funded? Is it through the investment income

480
00:26:38,160 --> 00:26:40,560
Speaker 3: and the returns if you're doing your job, or is

481
00:26:40,600 --> 00:26:44,720
Speaker 3: it through taxpayers subsidizing the underperformance? And that's what we found, Barry.

482
00:26:44,920 --> 00:26:47,159
Speaker 3: We found that fifty nine point one billion dollars of

483
00:26:47,200 --> 00:26:50,760
Speaker 3: additional taxes, what we call the dnapoly tax, has had

484
00:26:50,800 --> 00:26:54,560
Speaker 3: to subsidize that thirty nine percent underperformance over the last

485
00:26:54,560 --> 00:26:55,200
Speaker 3: eighteen years.

486
00:26:55,440 --> 00:26:57,719
Speaker 2: So I live in Nasall County, which I think is

487
00:26:57,760 --> 00:27:01,480
Speaker 2: like the third or fourth highest property tax in the country.

488
00:27:02,240 --> 00:27:06,760
Speaker 2: Are you telling me that my taxes are higher because

489
00:27:07,000 --> 00:27:10,359
Speaker 2: the New York State Pension Fund is not even getting

490
00:27:10,440 --> 00:27:12,920
Speaker 2: market beta? Is that when I'm to understand.

491
00:27:12,520 --> 00:27:15,919
Speaker 3: That is exactly the case. You understand this perfectly. And

492
00:27:15,960 --> 00:27:19,560
Speaker 3: that is the direct connection between this job and people.

493
00:27:19,600 --> 00:27:21,760
Speaker 3: And that's just one of the direct connection between this

494
00:27:21,920 --> 00:27:25,920
Speaker 3: job and everyday New Yorker's lives on Long Island. Last year,

495
00:27:26,040 --> 00:27:28,480
Speaker 3: ten of the thirteen towns on Long Island blew through

496
00:27:28,520 --> 00:27:31,800
Speaker 3: their property tax cap. The reason they blew through it

497
00:27:31,840 --> 00:27:34,440
Speaker 3: is because Toms and Appley did not do his job.

498
00:27:34,720 --> 00:27:37,399
Speaker 3: It's because he underperformed the market. And we are sending

499
00:27:37,440 --> 00:27:40,440
Speaker 3: billions of dollars of property taxes one point one billion

500
00:27:40,480 --> 00:27:43,680
Speaker 3: dollars last year alone, or twenty million dollars every single week,

501
00:27:43,760 --> 00:27:47,119
Speaker 3: every single payday alone in fees to a bunch of

502
00:27:47,119 --> 00:27:49,480
Speaker 3: bankers who fundamentally did not do their job. And if

503
00:27:49,480 --> 00:27:51,919
Speaker 3: you and I didn't do our job for eighteen street years,

504
00:27:52,200 --> 00:27:55,359
Speaker 3: what would happen to us? We'd be fired. And these

505
00:27:55,359 --> 00:27:58,280
Speaker 3: guys continue to get paid and paid and paid.

506
00:27:58,520 --> 00:28:01,240
Speaker 2: So let's talk a little bit about what that pension

507
00:28:01,320 --> 00:28:06,760
Speaker 2: fund should look like. And full disclosure, I've testified at

508
00:28:06,920 --> 00:28:12,320
Speaker 2: various state pension funds. I've made the argument, actually it

509
00:28:12,400 --> 00:28:15,719
Speaker 2: was about a dozen years ago to the Connecticut pension

510
00:28:15,760 --> 00:28:19,480
Speaker 2: funds that they should move away from high priced alts

511
00:28:19,520 --> 00:28:23,199
Speaker 2: and just simplify, what do you think we should do

512
00:28:23,240 --> 00:28:26,680
Speaker 2: with this three hundred billion dollar pension fund? How should

513
00:28:26,680 --> 00:28:27,560
Speaker 2: it be positioned?

514
00:28:27,760 --> 00:28:30,320
Speaker 3: So the state controller right now pays six hundred and

515
00:28:30,400 --> 00:28:34,680
Speaker 3: sixty four different investment managers to actively invest the fund,

516
00:28:34,720 --> 00:28:37,280
Speaker 3: and their promise is we will beat the market out

517
00:28:37,280 --> 00:28:39,160
Speaker 3: of our fees, and as we've established, they have not

518
00:28:39,240 --> 00:28:41,360
Speaker 3: even come close. And what I would do is I

519
00:28:41,360 --> 00:28:45,480
Speaker 3: would replace those six hundred and sixty four investment managers

520
00:28:45,600 --> 00:28:48,959
Speaker 3: with a diversified set of low cost index funds. To

521
00:28:49,000 --> 00:28:52,080
Speaker 3: your point, let's not pay all these fees for something

522
00:28:52,120 --> 00:28:54,760
Speaker 3: that they have been unable to do over the last

523
00:28:54,760 --> 00:28:57,800
Speaker 3: eighteen years, and let's take the market return. Let's focus

524
00:28:57,880 --> 00:29:01,680
Speaker 3: on asset allocation. To be very clear, that matters. You know,

525
00:29:01,720 --> 00:29:04,320
Speaker 3: whether it's between eighty nine or ninety three point four

526
00:29:04,400 --> 00:29:07,840
Speaker 3: percent of a portfolio's return will be driven by your

527
00:29:07,880 --> 00:29:11,239
Speaker 3: asset allocation. So let's spend our time and resources on

528
00:29:11,320 --> 00:29:14,320
Speaker 3: getting that right and making sure that asset allocation matches

529
00:29:14,360 --> 00:29:16,320
Speaker 3: the job description of the fund.

530
00:29:16,520 --> 00:29:16,680
Speaker 2: Right.

531
00:29:16,800 --> 00:29:19,760
Speaker 3: Assd allocation can look very different depending on what that

532
00:29:19,800 --> 00:29:21,960
Speaker 3: fund needs to do, the liquidity needs and so on

533
00:29:22,040 --> 00:29:24,880
Speaker 3: and so forth, So let's focus on that. Once we

534
00:29:25,000 --> 00:29:28,960
Speaker 3: do that, the picking and choosing of the underlying securities

535
00:29:29,040 --> 00:29:31,280
Speaker 3: and so on and so forth. To me, I think

536
00:29:31,280 --> 00:29:33,880
Speaker 3: that's a loser's game, as one person famously said it,

537
00:29:34,760 --> 00:29:37,320
Speaker 3: And I think we should save taxpayers their money in

538
00:29:37,360 --> 00:29:39,560
Speaker 3: the form of these fees, and we'd earn a better

539
00:29:39,640 --> 00:29:42,080
Speaker 3: rate of return for the pension and we'd be able

540
00:29:42,080 --> 00:29:44,280
Speaker 3: to lower property taxes in the process.

541
00:29:44,880 --> 00:29:47,760
Speaker 2: The data on active managers beating their benchmark, and to

542
00:29:47,800 --> 00:29:51,800
Speaker 2: be fair, a big chunk do every year, but it's

543
00:29:52,200 --> 00:29:56,040
Speaker 2: just about half, usually a little less each year. Over time,

544
00:29:56,200 --> 00:29:58,800
Speaker 2: that drops to about twenty percent over five years, ten

545
00:29:58,840 --> 00:30:03,000
Speaker 2: percent over ten years, and over twenty years, it's virtually nobody.

546
00:30:03,160 --> 00:30:06,600
Speaker 2: You know, the handful of names, Warren Buffett, Peter Lynch, etc.

547
00:30:07,080 --> 00:30:12,800
Speaker 2: But the vast majority, vast, vast majority don't. What sort

548
00:30:12,800 --> 00:30:15,520
Speaker 2: of response do you think you would get from Wall

549
00:30:15,560 --> 00:30:20,240
Speaker 2: Street who is very happy to collect big fees on

550
00:30:20,640 --> 00:30:25,120
Speaker 2: underperforming funds. And again, to be fair, there is a

551
00:30:25,160 --> 00:30:28,320
Speaker 2: substantial chunk of fund managers that do greade each year.

552
00:30:28,880 --> 00:30:31,880
Speaker 2: It's just really hard to pick them consistently over time.

553
00:30:31,960 --> 00:30:35,240
Speaker 3: And that's the thing. So one the response that I've

554
00:30:35,280 --> 00:30:38,680
Speaker 3: gotten from people who understand finance and investments. No one

555
00:30:38,680 --> 00:30:42,320
Speaker 3: could possibly understand how someone could hire six hundred and

556
00:30:42,360 --> 00:30:45,560
Speaker 3: sixty four different investment managers. Effectively, he's bought the most

557
00:30:45,600 --> 00:30:48,720
Speaker 3: expensive index fund in the world with the worst tracking error,

558
00:30:48,720 --> 00:30:51,440
Speaker 3: and that's basically what he has done, right, and with

559
00:30:51,520 --> 00:30:55,080
Speaker 3: a lower sharp ratio than the market, So you're getting

560
00:30:55,120 --> 00:30:58,040
Speaker 3: a worse risk adjusted rate of return and you were

561
00:30:58,120 --> 00:31:00,560
Speaker 3: underperforming the market by thirty nine percent. So it's like,

562
00:31:00,760 --> 00:31:04,360
Speaker 3: on every possible level, this thing is not performing. And

563
00:31:04,440 --> 00:31:07,600
Speaker 3: I'm not here to say, you know, we can debate

564
00:31:07,680 --> 00:31:10,680
Speaker 3: active management versus passive management. What I am here to

565
00:31:10,720 --> 00:31:13,240
Speaker 3: say is, for purposes of a two hundred and ninety

566
00:31:13,320 --> 00:31:16,560
Speaker 3: one billion dollar fund that is managed by a bunch

567
00:31:16,600 --> 00:31:19,600
Speaker 3: of folks in Albany, I do not believe that fund

568
00:31:20,040 --> 00:31:23,960
Speaker 3: should or needs to try to pick the pickers and

569
00:31:24,040 --> 00:31:28,480
Speaker 3: to somehow be the ones who, frankly, I think would

570
00:31:28,520 --> 00:31:31,360
Speaker 3: be arrogant enough to think that they know how to

571
00:31:31,440 --> 00:31:33,720
Speaker 3: choose these folks, and they have six hundred and sixty

572
00:31:33,720 --> 00:31:35,600
Speaker 3: four of them. So I don't know how selective you

573
00:31:35,600 --> 00:31:37,560
Speaker 3: could be by basically hiring everyone.

574
00:31:37,600 --> 00:31:40,160
Speaker 2: Anyway, Hey, someone has to be pretty good in that group.

575
00:31:40,000 --> 00:31:43,080
Speaker 3: Right exactly, But how do I know which one. And

576
00:31:43,160 --> 00:31:44,840
Speaker 3: I'm not arrogant enough to think I do.

577
00:31:45,280 --> 00:31:50,120
Speaker 2: So here's the pushback, and I have this discussion on

578
00:31:50,200 --> 00:31:53,880
Speaker 2: the regular. But the pushback is, well, we could be

579
00:31:53,960 --> 00:31:58,360
Speaker 2: concentrated in anyone index or any group of indexes, but

580
00:31:58,880 --> 00:32:02,440
Speaker 2: we want none correlated returns and we want the potential

581
00:32:02,480 --> 00:32:06,000
Speaker 2: to outperform the market. So when we go to venture

582
00:32:06,080 --> 00:32:14,160
Speaker 2: capital or private equity, or private credit or real estate investments,

583
00:32:14,640 --> 00:32:18,320
Speaker 2: it allows us to withstand whatever the market or the

584
00:32:18,360 --> 00:32:21,960
Speaker 2: economy throws at us because these are so non correlated

585
00:32:22,360 --> 00:32:25,640
Speaker 2: and they give us the chance to outperform the market.

586
00:32:25,920 --> 00:32:28,040
Speaker 2: When you buy an index, all you're going to get

587
00:32:28,120 --> 00:32:28,880
Speaker 2: is the market.

588
00:32:29,120 --> 00:32:31,840
Speaker 3: Yeah. Sure, So I guess a couple of things on

589
00:32:31,880 --> 00:32:36,360
Speaker 3: that one. I think, I think, you know, diversification matters,

590
00:32:36,520 --> 00:32:40,160
Speaker 3: So you know, that's back to asset allocation. Absolutely, we

591
00:32:40,240 --> 00:32:42,840
Speaker 3: need to be thoughtful about diversifying. We need to be

592
00:32:42,880 --> 00:32:47,200
Speaker 3: thoughtful about you know, idiosyncrasies and trying to find those

593
00:32:47,560 --> 00:32:53,520
Speaker 3: non correlative asset classes. But to me, the idea that

594
00:32:53,560 --> 00:32:55,320
Speaker 3: we should put our money in a bunch of private

595
00:32:55,360 --> 00:32:59,160
Speaker 3: asset classes to basically, you know, perform an exercise in

596
00:32:59,240 --> 00:33:02,280
Speaker 3: volatility just because they may not have to mark to

597
00:33:02,360 --> 00:33:06,120
Speaker 3: market their valuations the way you know, every split second

598
00:33:06,160 --> 00:33:09,160
Speaker 3: in the public markets, we know exactly what an asset

599
00:33:09,280 --> 00:33:12,200
Speaker 3: is worth in terms of that value discovery and price discovery.

600
00:33:12,480 --> 00:33:15,000
Speaker 3: To me, that is not that. That can't be the

601
00:33:15,000 --> 00:33:18,320
Speaker 3: reason we are putting our money in private asset classes.

602
00:33:18,480 --> 00:33:22,800
Speaker 3: We can deal with volatility in the mechanics of the

603
00:33:22,840 --> 00:33:26,640
Speaker 3: contribution rates and you know, look back periods and smoothing

604
00:33:26,680 --> 00:33:29,720
Speaker 3: mechanisms and things like that, but let's not that. Let's

605
00:33:29,800 --> 00:33:32,560
Speaker 3: not have that be the reason we put our money

606
00:33:32,560 --> 00:33:37,560
Speaker 3: in private asset classes. If there are idiosyncratic opportunities, if

607
00:33:37,600 --> 00:33:40,520
Speaker 3: there are ways to diversify within the context of a

608
00:33:40,520 --> 00:33:42,920
Speaker 3: private market, I am open to that. But what I

609
00:33:42,920 --> 00:33:45,920
Speaker 3: am not open to is the idea that just because

610
00:33:46,440 --> 00:33:49,800
Speaker 3: it's somehow in private equity, the laws of physics and

611
00:33:49,880 --> 00:33:54,520
Speaker 3: gravity of the economy are not impacting the underlying assets

612
00:33:54,680 --> 00:33:57,680
Speaker 3: simply because the ownership model looks different, right, I mean,

613
00:33:57,680 --> 00:34:00,560
Speaker 3: to me, that doesn't mean that we've diversified. It just

614
00:34:00,600 --> 00:34:04,800
Speaker 3: means we've changed the ownership structure, not And if we

615
00:34:04,880 --> 00:34:08,200
Speaker 3: can diversify, I would love to have that conversation and

616
00:34:08,239 --> 00:34:12,600
Speaker 3: we could get the benefits of those idiosyncrasies. Then great like,

617
00:34:13,080 --> 00:34:15,279
Speaker 3: I truly am open to that conversation. But to me,

618
00:34:15,800 --> 00:34:18,520
Speaker 3: it can't simply be because we're going to wash away

619
00:34:18,520 --> 00:34:22,760
Speaker 3: the volatility, because that is a terrible reason to make investments.

620
00:34:23,000 --> 00:34:28,680
Speaker 2: The volatility washing. You're channeling Cliff Asnesz of AQR. He's

621
00:34:28,719 --> 00:34:31,320
Speaker 2: the one who's champion that phrased more than anybody else,

622
00:34:31,920 --> 00:34:36,120
Speaker 2: and he's a quant and an active manager, and he says,

623
00:34:37,520 --> 00:34:41,359
Speaker 2: if you're putting things into privates just so you don't

624
00:34:41,400 --> 00:34:45,560
Speaker 2: have to do quarterly reporting, you're probably paying too much

625
00:34:45,600 --> 00:34:48,560
Speaker 2: in fees and you're probably giving up too much in

626
00:34:48,640 --> 00:34:50,680
Speaker 2: terms of future returns.

627
00:34:50,760 --> 00:34:53,640
Speaker 3: Yeah, that's a bad reason. And again, in the context

628
00:34:53,640 --> 00:34:57,160
Speaker 3: of a pension fund, we could deal with volatility. I

629
00:34:57,200 --> 00:35:00,360
Speaker 3: appreciate and am sensitive to the liquidity needs to sure

630
00:35:00,640 --> 00:35:03,920
Speaker 3: benefit payouts. But we can do those things outside the

631
00:35:03,920 --> 00:35:07,040
Speaker 3: context of our investment choices. We could do that in

632
00:35:07,160 --> 00:35:09,879
Speaker 3: the context of the mechanics of how the pension fund

633
00:35:09,960 --> 00:35:13,040
Speaker 3: is funded and smoothing mechanisms and averaging and so on

634
00:35:13,080 --> 00:35:15,360
Speaker 3: and so forth. We don't have to do it in

635
00:35:15,480 --> 00:35:18,759
Speaker 3: the in the actual job of investments.

636
00:35:18,840 --> 00:35:21,640
Speaker 2: So let's stay with that, because it's really a fascinating

637
00:35:23,239 --> 00:35:27,480
Speaker 2: way to think about whenever I talk about perpetual funds

638
00:35:27,600 --> 00:35:32,560
Speaker 2: like a pension or a foundation, they have certain obligations.

639
00:35:32,600 --> 00:35:37,440
Speaker 2: There's a substantial payout every year. If you're a tax

640
00:35:37,480 --> 00:35:41,200
Speaker 2: exam foundation, it's five percent at a minimum. I think

641
00:35:41,320 --> 00:35:43,360
Speaker 2: the pension fund pays out a whole lot more than that.

642
00:35:43,640 --> 00:35:46,240
Speaker 3: That's right, right, that's right, Well, fifteen or sixteen billion

643
00:35:46,280 --> 00:35:46,920
Speaker 3: dollars a year.

644
00:35:47,040 --> 00:35:51,680
Speaker 2: So that's not an insubstantial chunk of money. How do

645
00:35:51,760 --> 00:35:55,600
Speaker 2: you think about and how should whoever's running the New

646
00:35:55,680 --> 00:35:59,880
Speaker 2: York State Pension Fund think about the future liabilities that

647
00:36:00,120 --> 00:36:04,840
Speaker 2: fund has for forever and what it means for asset allocation?

648
00:36:05,239 --> 00:36:10,000
Speaker 2: Does this mean we steer away from a liquid assets?

649
00:36:10,040 --> 00:36:13,920
Speaker 2: Does this mean we steer towards fixed income? How do

650
00:36:14,000 --> 00:36:15,320
Speaker 2: you think about that asset allocation?

651
00:36:15,760 --> 00:36:17,960
Speaker 3: I think it's it just needs to be balanced and

652
00:36:18,000 --> 00:36:20,920
Speaker 3: it needs to align and reflect to the job description

653
00:36:21,000 --> 00:36:23,400
Speaker 3: of the fund. And you know, I was talking to

654
00:36:23,600 --> 00:36:26,520
Speaker 3: a chief investment of a former chief investment officer one

655
00:36:26,520 --> 00:36:29,000
Speaker 3: of the largest public pension funds the United States, and

656
00:36:29,120 --> 00:36:31,759
Speaker 3: he was the one, you know, who reminded me, you know, Drew,

657
00:36:31,800 --> 00:36:33,880
Speaker 3: what what is the job description of the New York

658
00:36:33,920 --> 00:36:35,919
Speaker 3: State Public pension fund. What does it need to do,

659
00:36:36,239 --> 00:36:38,799
Speaker 3: what are what is the benefit stream that it needs

660
00:36:38,840 --> 00:36:41,480
Speaker 3: to pay out, What is the income stream that is

661
00:36:41,520 --> 00:36:46,120
Speaker 3: coming in, whether it's from the investment income or you know,

662
00:36:46,160 --> 00:36:49,600
Speaker 3: public taxpayers and you know employers, the three thousand municipalities

663
00:36:49,600 --> 00:36:51,920
Speaker 3: that are paying into the public pension fund that are

664
00:36:51,920 --> 00:36:54,960
Speaker 3: funded by those property taxes. So to me, that is

665
00:36:55,160 --> 00:36:58,680
Speaker 3: first principles. And for my part, you know, I think

666
00:36:58,719 --> 00:37:02,600
Speaker 3: we absolutely can be in areas that are less liquid.

667
00:37:03,120 --> 00:37:06,080
Speaker 3: We just need to have balance liquidity. We just need

668
00:37:06,120 --> 00:37:09,320
Speaker 3: to ensure that. On the other hand, we have pockets

669
00:37:09,360 --> 00:37:12,200
Speaker 3: of the portfolio that we know can perform or we

670
00:37:12,280 --> 00:37:14,760
Speaker 3: know can pay out, and we know are highly liquid.

671
00:37:14,840 --> 00:37:18,840
Speaker 3: And fortunately in the capital markets there are plenty of

672
00:37:18,880 --> 00:37:23,120
Speaker 3: asset classes that can provide that liquidity. While some of

673
00:37:23,160 --> 00:37:26,799
Speaker 3: our assets may be tied up and you can either

674
00:37:26,880 --> 00:37:30,760
Speaker 3: get whether it's some illiquidity premium or some other cashflow

675
00:37:30,840 --> 00:37:34,520
Speaker 3: characteristic that is useful again for that broader job description

676
00:37:34,640 --> 00:37:37,160
Speaker 3: of the fund that has to pay out now, but

677
00:37:37,280 --> 00:37:40,960
Speaker 3: also to your point is the ultimate long term investor.

678
00:37:41,120 --> 00:37:44,200
Speaker 3: The State of New York is not going away anytime soon.

679
00:37:44,280 --> 00:37:48,080
Speaker 3: They are a forever open fund, and we need to

680
00:37:48,160 --> 00:37:52,040
Speaker 3: have that focus of and that balance of what are

681
00:37:52,080 --> 00:37:55,560
Speaker 3: our liquidity needs today and over the foreseeable future. But

682
00:37:55,719 --> 00:37:59,360
Speaker 3: how are we investing to ensure that the public employees

683
00:37:59,360 --> 00:38:01,920
Speaker 3: and the public school teachers who just centered the workforce,

684
00:38:01,960 --> 00:38:05,200
Speaker 3: who are teaching my two sons are are going to

685
00:38:05,200 --> 00:38:08,239
Speaker 3: have the benefits paid out, you know, thirty thirty, five,

686
00:38:08,360 --> 00:38:09,360
Speaker 3: forty years from now.

687
00:38:09,440 --> 00:38:13,319
Speaker 2: And for sure, ninety percent of the assets don't need

688
00:38:13,360 --> 00:38:16,680
Speaker 2: to be liquid each year, even if most of them

689
00:38:16,760 --> 00:38:19,640
Speaker 2: will be, it's less than ten percent annually that has

690
00:38:19,719 --> 00:38:26,000
Speaker 2: to be paid out. What you're proposing sounds radical, but

691
00:38:26,480 --> 00:38:30,400
Speaker 2: I could look at elsewhere around the country. I know

692
00:38:30,560 --> 00:38:33,479
Speaker 2: Kalpers made a shift a few years ago, ten years

693
00:38:33,520 --> 00:38:36,759
Speaker 2: ago where they took a lot of money away from

694
00:38:37,200 --> 00:38:41,880
Speaker 2: not just underperforming hedge funds but even fairly well performing

695
00:38:41,920 --> 00:38:44,799
Speaker 2: hedge funds that were kind of pricey and rolled them

696
00:38:45,360 --> 00:38:48,680
Speaker 2: into index funds. And then, very famously, the Wall Street

697
00:38:48,760 --> 00:38:53,719
Speaker 2: Journal did this somewhat hilarious article about the head of

698
00:38:54,320 --> 00:38:57,960
Speaker 2: a Nevada pension fund, and it's one person who is

699
00:38:58,000 --> 00:39:02,800
Speaker 2: fully indexed, and really he goes in, answers some email,

700
00:39:02,840 --> 00:39:07,480
Speaker 2: answers his own phone, has lunch, and goes home This

701
00:39:07,560 --> 00:39:11,399
Speaker 2: isn't really radical what you're proposing. This is Black Rock.

702
00:39:11,640 --> 00:39:15,400
Speaker 2: Half of their twelve trillion dollars is passive, or i

703
00:39:15,400 --> 00:39:21,719
Speaker 2: should say indexed. Even more of Vanguard's eleven trillion is indexed.

704
00:39:22,320 --> 00:39:24,480
Speaker 2: This is fairly state of the art.

705
00:39:24,480 --> 00:39:27,440
Speaker 3: Think if you want to use radical, it is radical

706
00:39:27,480 --> 00:39:30,520
Speaker 3: common sense. It is the first day of business school,

707
00:39:30,800 --> 00:39:33,359
Speaker 3: you know, they gather you around and they say, come close,

708
00:39:33,440 --> 00:39:35,919
Speaker 3: We're we're gonna tell you a secret. It turns out

709
00:39:36,280 --> 00:39:39,120
Speaker 3: it's really really hard to beat the market net of fees.

710
00:39:39,360 --> 00:39:41,320
Speaker 3: It's really hard to do that over a long period

711
00:39:41,360 --> 00:39:43,799
Speaker 3: of time. It's especially hard to do that with a

712
00:39:43,880 --> 00:39:46,440
Speaker 3: fun size as big as three hundred billion dollars. That

713
00:39:46,600 --> 00:39:49,600
Speaker 3: just wants to regress to the mean, and so focus

714
00:39:49,640 --> 00:39:53,480
Speaker 3: on assd allocation, think about diversification, think about that job description.

715
00:39:53,640 --> 00:39:58,000
Speaker 3: But once you do, don't worry about the last six

716
00:39:58,040 --> 00:40:00,759
Speaker 3: percent or whatever it is with which a lot of

717
00:40:00,760 --> 00:40:03,520
Speaker 3: people argue, you know, may not be skilled, could be luck,

718
00:40:03,520 --> 00:40:05,680
Speaker 3: could be a lot of other factors. I don't need

719
00:40:05,719 --> 00:40:07,920
Speaker 3: to have that debate right now. For purposes of the

720
00:40:07,920 --> 00:40:10,440
Speaker 3: third largest public pension fund in the United States of America,

721
00:40:10,719 --> 00:40:13,200
Speaker 3: we should not be trying to beat the market and

722
00:40:13,239 --> 00:40:15,839
Speaker 3: doing something that we can't possibly do, because it turns out,

723
00:40:15,840 --> 00:40:18,840
Speaker 3: over the last eighteen years, it is crush taxpayers in

724
00:40:18,880 --> 00:40:21,319
Speaker 3: the process in the middle of an affordability crisis. And

725
00:40:21,360 --> 00:40:23,960
Speaker 3: what we've seen, Barry, and what this basically amounts to,

726
00:40:24,400 --> 00:40:26,920
Speaker 3: is our state control over the last eighteen years has

727
00:40:27,000 --> 00:40:29,799
Speaker 3: overseen one of the largest wealth transfers that no one

728
00:40:29,840 --> 00:40:33,480
Speaker 3: knows anything about from ordinary taxpayers fifty nine point one

729
00:40:33,520 --> 00:40:38,000
Speaker 3: billion dollars to hundreds of Wall Street bankers who didn't

730
00:40:38,040 --> 00:40:40,160
Speaker 3: do their job. And if they were to do their job,

731
00:40:40,320 --> 00:40:42,800
Speaker 3: if they were to beat the market net of fees, great,

732
00:40:43,239 --> 00:40:45,400
Speaker 3: then it's a win win. Then everyone wins. Then we

733
00:40:45,440 --> 00:40:48,279
Speaker 3: are living in a world in which we can have

734
00:40:48,360 --> 00:40:51,480
Speaker 3: our cake and we can eat it too. But I

735
00:40:51,560 --> 00:40:54,000
Speaker 3: live in the real world. Nineteen million New Yorkers live

736
00:40:54,040 --> 00:40:56,200
Speaker 3: in the real world. It hasn't happened over the last

737
00:40:56,280 --> 00:40:58,400
Speaker 3: eighteen years, and that's why I think we need a

738
00:40:58,400 --> 00:40:59,400
Speaker 3: fundamental change.

739
00:40:59,520 --> 00:41:03,920
Speaker 2: Coming up, we continue our conversation with Drew Warshaw, candidate

740
00:41:03,960 --> 00:41:07,640
Speaker 2: for New York State Controller, talking about what most New

741
00:41:07,719 --> 00:41:13,000
Speaker 2: Yorkers don't understand about the position. I'm Barry, results you're

742
00:41:13,040 --> 00:41:29,200
Speaker 2: listening to masters in Business on Bloomberg Radio. I'm Burry Redults.

743
00:41:29,280 --> 00:41:32,799
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My

744
00:41:32,920 --> 00:41:36,319
Speaker 2: extra special guest today is Drew Warshaw. He is a

745
00:41:36,600 --> 00:41:40,720
Speaker 2: candidate for New York State Controller in New York. Really

746
00:41:40,760 --> 00:41:45,120
Speaker 2: the primary is the whole whole thing, and that will

747
00:41:45,120 --> 00:41:49,880
Speaker 2: be held in June of twenty twenty six. So we've

748
00:41:49,920 --> 00:41:52,759
Speaker 2: talked a bit about the pension. Let's talk about some

749
00:41:52,880 --> 00:41:56,920
Speaker 2: of the other roles within the New York State Controller's Office.

750
00:41:57,280 --> 00:42:00,919
Speaker 2: You mentioned the office does two thousand audits a year.

751
00:42:02,120 --> 00:42:05,719
Speaker 2: What areas are they orderling, What's the purpose of it,

752
00:42:06,280 --> 00:42:09,440
Speaker 2: and how do you want to change that? What areas

753
00:42:09,440 --> 00:42:12,240
Speaker 2: do you think they should be ordering but are not sure?

754
00:42:12,280 --> 00:42:15,640
Speaker 3: So their remit. Their job jar is they are allowed

755
00:42:15,680 --> 00:42:18,880
Speaker 3: to audit anything that touches a state tax dollar, which,

756
00:42:19,040 --> 00:42:22,359
Speaker 3: if anyone understands public finance is basically everything because our

757
00:42:22,400 --> 00:42:25,440
Speaker 3: taxes go up to Albany and then they get redistributed

758
00:42:25,520 --> 00:42:28,919
Speaker 3: all across the state. So he, in theory, is able

759
00:42:28,960 --> 00:42:32,080
Speaker 3: to audit anything he wants. These are audits, I think

760
00:42:32,120 --> 00:42:36,640
Speaker 3: importantly to understand these are not only financial statement audits,

761
00:42:36,960 --> 00:42:40,520
Speaker 3: which they are. They do do those, but these are

762
00:42:40,560 --> 00:42:44,200
Speaker 3: auditing the efficacy of how our tax dollars are spent.

763
00:42:44,440 --> 00:42:46,799
Speaker 3: Are they spent well? Are they getting the results that

764
00:42:46,880 --> 00:42:50,840
Speaker 3: the legislature and these laws intended. If not, how should

765
00:42:50,920 --> 00:42:54,720
Speaker 3: we improve them? So this is also not just chief auditor,

766
00:42:54,800 --> 00:42:57,600
Speaker 3: but sort of chief efficiency officer of the State of

767
00:42:57,640 --> 00:43:00,239
Speaker 3: New York. And one of the things that you know,

768
00:43:00,280 --> 00:43:03,000
Speaker 3: and they're nearly three thousand employees who work for the

769
00:43:03,040 --> 00:43:06,200
Speaker 3: State Controller, which you know I hear, and that's that

770
00:43:06,239 --> 00:43:09,280
Speaker 3: seems like a lot. That seems like an extraordinary resource

771
00:43:09,520 --> 00:43:11,279
Speaker 3: to be able to deploy over a quarter of a

772
00:43:11,320 --> 00:43:14,719
Speaker 3: trillion dollars of spending. But when you dilute those resources

773
00:43:15,040 --> 00:43:18,480
Speaker 3: over thousands of different audits, and you don't focus your

774
00:43:18,520 --> 00:43:21,960
Speaker 3: finite resources I think on the things that matter most,

775
00:43:22,280 --> 00:43:24,480
Speaker 3: then you don't get to the root cause, such as

776
00:43:24,520 --> 00:43:26,480
Speaker 3: so many the challenges. Give us a few examples, So

777
00:43:26,520 --> 00:43:28,239
Speaker 3: let me give you three. Let me just give you

778
00:43:28,280 --> 00:43:31,800
Speaker 3: three examples, and everyone you know would start with the MTA,

779
00:43:31,880 --> 00:43:33,280
Speaker 3: And of course we're going to audit the MTA.

780
00:43:33,400 --> 00:43:34,960
Speaker 2: But was the first thing I was thinking of, is

781
00:43:35,000 --> 00:43:39,360
Speaker 2: why is it so expensive to build subway or roads

782
00:43:39,360 --> 00:43:40,480
Speaker 2: and tolls and books?

783
00:43:40,520 --> 00:43:41,839
Speaker 3: But one of the things that I want to get

784
00:43:41,840 --> 00:43:44,240
Speaker 3: to some of the other things, because the State Controller

785
00:43:44,239 --> 00:43:46,839
Speaker 3: actually does audit the MTA, And one of the things

786
00:43:46,840 --> 00:43:48,319
Speaker 3: that I would want to do is, because there have

787
00:43:48,400 --> 00:43:50,919
Speaker 3: been so many audits of the MTA, I would first

788
00:43:50,960 --> 00:43:53,360
Speaker 3: initially just do an audit of the audits. I would

789
00:43:53,360 --> 00:43:57,480
Speaker 3: want to truly understand what have been the findings, make

790
00:43:57,480 --> 00:43:59,880
Speaker 3: sure that those findings make sense, and then just simply

791
00:44:00,040 --> 00:44:03,759
Speaker 3: ross reference to what have they implemented and what are

792
00:44:03,800 --> 00:44:06,839
Speaker 3: still outstanding, and like literally just simplify it from that point,

793
00:44:06,880 --> 00:44:08,399
Speaker 3: and then we can get into the weeds once you've

794
00:44:08,400 --> 00:44:11,440
Speaker 3: gotten smarter on that. But for my part, before we

795
00:44:11,680 --> 00:44:14,560
Speaker 3: launch into some new MTA audit, there have been so

796
00:44:14,680 --> 00:44:18,719
Speaker 3: many MTA audits, let's just understand what of the findings

797
00:44:18,920 --> 00:44:21,880
Speaker 3: have actually been addressed and what remain outstanding. But I

798
00:44:21,920 --> 00:44:24,319
Speaker 3: want to talk about three audits, three things that I

799
00:44:24,360 --> 00:44:28,680
Speaker 3: think we should concentrate this authority on. One is I

800
00:44:28,719 --> 00:44:31,600
Speaker 3: think we should audit the Department of Financial Services. What

801
00:44:31,760 --> 00:44:34,440
Speaker 3: is the Department of Financial Services? It turns out the

802
00:44:34,480 --> 00:44:37,880
Speaker 3: State Department of Financial Services is the largest regulator of

803
00:44:37,920 --> 00:44:42,359
Speaker 3: insurance companies in the country. Insurance companies are not regulated

804
00:44:42,680 --> 00:44:44,879
Speaker 3: by the federal government. They are regulated on a state

805
00:44:44,920 --> 00:44:47,600
Speaker 3: by state basis, and the Department of Financial Services in

806
00:44:47,640 --> 00:44:50,080
Speaker 3: the State of New York happens to be the largest

807
00:44:50,120 --> 00:44:52,840
Speaker 3: among them. How are they doing We have no idea

808
00:44:53,360 --> 00:44:55,720
Speaker 3: because we have never done a top to bottom audit

809
00:44:56,080 --> 00:44:59,760
Speaker 3: on the way in which they regulate this massive sector

810
00:44:59,800 --> 00:45:03,360
Speaker 3: of of our economy, whose business model these days seems

811
00:45:03,400 --> 00:45:05,800
Speaker 3: to be to take our money and make it really

812
00:45:05,880 --> 00:45:07,840
Speaker 3: really hard to get it back, whether it's on the

813
00:45:07,880 --> 00:45:11,880
Speaker 3: health side and the health insurance you know gauntlet that

814
00:45:11,920 --> 00:45:15,000
Speaker 3: you have to run, or in my old world, in

815
00:45:15,040 --> 00:45:19,319
Speaker 3: the housing world, with property insurance premium skyrocketing, with deductibles

816
00:45:19,360 --> 00:45:22,319
Speaker 3: going up to the point where you basically are self

817
00:45:22,360 --> 00:45:24,799
Speaker 3: insuring anyway, So you need to start asking, you know,

818
00:45:24,920 --> 00:45:28,200
Speaker 3: questions like that, we are going to get to the

819
00:45:28,200 --> 00:45:32,200
Speaker 3: bottom of this insurance industry, and we can from this

820
00:45:32,280 --> 00:45:35,600
Speaker 3: position of state controller. A second area, the New York

821
00:45:35,600 --> 00:45:38,280
Speaker 3: State Public Service Commission and the Department of Public Service

822
00:45:38,520 --> 00:45:43,960
Speaker 3: another sort of mouthful of bureaucratics sounding things. Well, it

823
00:45:43,960 --> 00:45:47,360
Speaker 3: turns out this bureaucratic sounding thing is the largest regulator

824
00:45:47,400 --> 00:45:50,840
Speaker 3: of our electric and gas utility monopolies. This is the

825
00:45:50,880 --> 00:45:55,160
Speaker 3: one thing that ensures that these monopolies actually serve the

826
00:45:55,160 --> 00:45:58,160
Speaker 3: public interest. And I was in the electricity business for

827
00:45:58,200 --> 00:46:01,640
Speaker 3: eight years, building renewable enters G power infrastructure all across

828
00:46:01,680 --> 00:46:04,799
Speaker 3: the country, and I had to deal with these utility monopolies.

829
00:46:05,160 --> 00:46:09,880
Speaker 3: And these utility monopolies are broken and their regulator is

830
00:46:09,920 --> 00:46:13,400
Speaker 3: not doing anything about it. And what I would do

831
00:46:13,560 --> 00:46:16,000
Speaker 3: is go in and we would audit the regulator. The

832
00:46:16,000 --> 00:46:18,880
Speaker 3: one thing that's standing in between the public interest and

833
00:46:18,920 --> 00:46:22,440
Speaker 3: these monopolies. Why aren't we laser focused on that? When

834
00:46:22,480 --> 00:46:25,480
Speaker 3: electricity rates are going up by double digits. I was

835
00:46:25,560 --> 00:46:28,920
Speaker 3: up in Rochester, New York, and Rochester Gas and Electric,

836
00:46:29,200 --> 00:46:32,440
Speaker 3: one of those utility monopolies, proposed a one year thirty

837
00:46:32,480 --> 00:46:36,359
Speaker 3: six percent increase to your electricity rates. That is an

838
00:46:36,360 --> 00:46:39,200
Speaker 3: admission of failure. That is literally an admission that the

839
00:46:39,239 --> 00:46:42,000
Speaker 3: company in charge does not know what it is doing

840
00:46:42,000 --> 00:46:44,279
Speaker 3: and is not up to the task. We need to

841
00:46:44,360 --> 00:46:48,240
Speaker 3: fundamentally change the utility business model. I think we can.

842
00:46:49,000 --> 00:46:52,360
Speaker 3: I think they're a financial incentive structure that was built

843
00:46:52,360 --> 00:46:54,840
Speaker 3: for one hundred years ago, not for today and for

844
00:46:54,880 --> 00:46:57,799
Speaker 3: the next hundred years. And I think that that would

845
00:46:57,880 --> 00:47:02,040
Speaker 3: ultimately be good for ratepayers, good for consumers, and fundamentally

846
00:47:02,080 --> 00:47:05,160
Speaker 3: good for the investors and the developers of these power

847
00:47:05,160 --> 00:47:08,200
Speaker 3: infrastructures in the first place. And the third thing that

848
00:47:08,200 --> 00:47:10,839
Speaker 3: I would audit is I would audit the New York

849
00:47:10,880 --> 00:47:13,799
Speaker 3: City and New York State building Code. And people say, well,

850
00:47:13,840 --> 00:47:16,720
Speaker 3: wait a minute. You can audit agencies, you can't audit

851
00:47:16,760 --> 00:47:20,120
Speaker 3: something like the building code. But my authority extends to

852
00:47:20,200 --> 00:47:22,680
Speaker 3: anything that touches a state tax sellar. And if you

853
00:47:22,800 --> 00:47:27,600
Speaker 3: had energy imagination and urgency, you would recognize that the

854
00:47:27,680 --> 00:47:30,960
Speaker 3: silent killer of not just housing, but of anything in

855
00:47:31,000 --> 00:47:34,360
Speaker 3: this town or all across New York State is the

856
00:47:34,360 --> 00:47:38,200
Speaker 3: building code. This thing kills projects before they start, and

857
00:47:38,239 --> 00:47:41,680
Speaker 3: it is gold plated, and it is outdated. And what

858
00:47:41,719 --> 00:47:44,160
Speaker 3: I would do is propose a model building code that

859
00:47:44,239 --> 00:47:47,239
Speaker 3: we estimate will strip fifteen percent of the cost to

860
00:47:47,280 --> 00:47:50,200
Speaker 3: construct anything, not just housing, which obviously I care a

861
00:47:50,239 --> 00:47:52,960
Speaker 3: lot about and New Yorkers need more of, but anything.

862
00:47:53,200 --> 00:47:55,040
Speaker 3: And I would literally do the Audit would be a

863
00:47:55,120 --> 00:47:58,799
Speaker 3: track change version from the model building code to the

864
00:47:58,840 --> 00:48:01,560
Speaker 3: existing two codes that government construction New York, and we

865
00:48:01,600 --> 00:48:04,520
Speaker 3: would show precisely what would need to be changed to

866
00:48:04,600 --> 00:48:09,240
Speaker 3: get to that lighter, simpler, easier, and more cost effective,

867
00:48:09,440 --> 00:48:12,440
Speaker 3: effectively to build building code. We would do the work

868
00:48:12,480 --> 00:48:14,359
Speaker 3: for them, and then we would go to the mayor

869
00:48:14,640 --> 00:48:16,399
Speaker 3: and we would go to the city council, and they

870
00:48:16,800 --> 00:48:19,080
Speaker 3: have talked a lot about affordability, and we would say,

871
00:48:19,080 --> 00:48:21,640
Speaker 3: if you were serious about this, go adopt this code.

872
00:48:21,719 --> 00:48:23,680
Speaker 3: And we would go to the governor and the legislature,

873
00:48:23,680 --> 00:48:26,480
Speaker 3: and they talk a lot about affordability, as they should,

874
00:48:26,680 --> 00:48:28,600
Speaker 3: and we would give them a concrete way to be

875
00:48:28,640 --> 00:48:31,120
Speaker 3: able to deliver that. And that is how I think

876
00:48:31,160 --> 00:48:34,279
Speaker 3: we need to be thinking of leveraging the power of

877
00:48:34,280 --> 00:48:34,760
Speaker 3: this audit.

878
00:48:34,960 --> 00:48:37,719
Speaker 2: So is the code passed by a city or state

879
00:48:37,840 --> 00:48:41,239
Speaker 2: legislature or is it administratively that's rest.

880
00:48:41,080 --> 00:48:44,360
Speaker 3: No, it's adopted by the City of New York and

881
00:48:44,400 --> 00:48:48,480
Speaker 3: then the basically rest of state the state adopts a

882
00:48:48,480 --> 00:48:51,920
Speaker 3: building code. Different municipalities can add on. But that's one

883
00:48:51,960 --> 00:48:54,480
Speaker 3: of the challenges, Barry, is we always add we never

884
00:48:54,520 --> 00:48:58,439
Speaker 3: subtract to these things, right, And no one has done

885
00:48:58,480 --> 00:49:02,040
Speaker 3: a top to bottom audit of the thousands of pages

886
00:49:02,120 --> 00:49:06,480
Speaker 3: of code that drives up the costs to build anything.

887
00:49:06,600 --> 00:49:11,200
Speaker 3: And that's the type of creativity and energy and experience

888
00:49:11,280 --> 00:49:13,320
Speaker 3: driven audits that I think we need to bring.

889
00:49:13,480 --> 00:49:18,799
Speaker 2: So you're talking to a large degree about making this

890
00:49:19,000 --> 00:49:25,000
Speaker 2: position much more public, much more visible, much louder than

891
00:49:25,040 --> 00:49:31,799
Speaker 2: it's been what's been going on with the incumbent. I

892
00:49:31,800 --> 00:49:34,560
Speaker 2: don't think most people and in fact, the data point

893
00:49:34,960 --> 00:49:39,160
Speaker 2: that you've shared before, sixty two percent of Democrats don't

894
00:49:39,200 --> 00:49:43,040
Speaker 2: know who he is. Twenty percent of them view him favorably.

895
00:49:43,840 --> 00:49:47,640
Speaker 2: This has kind of been a stealth position. You're really proposing,

896
00:49:49,440 --> 00:49:53,040
Speaker 2: if not elevating this well, certainly making it much more

897
00:49:53,120 --> 00:49:57,560
Speaker 2: visible and public. To tell us about that and your

898
00:49:57,600 --> 00:49:58,200
Speaker 2: thoughts in that.

899
00:49:58,200 --> 00:50:00,520
Speaker 3: Space, Yeah, I mean, look, the job can be keeping

900
00:50:00,600 --> 00:50:03,680
Speaker 3: the job. That's not what this job is. And we

901
00:50:03,719 --> 00:50:07,279
Speaker 3: are in a moment where if you were sitting on

902
00:50:07,400 --> 00:50:10,359
Speaker 3: money and you were sitting on power and you were

903
00:50:10,400 --> 00:50:13,319
Speaker 3: not using that really really well, you have got to

904
00:50:13,360 --> 00:50:16,839
Speaker 3: step aside. When one out of every seven New York

905
00:50:16,880 --> 00:50:19,480
Speaker 3: City public school students do not go home at night

906
00:50:19,560 --> 00:50:22,399
Speaker 3: because they don't have one, and you were sitting on

907
00:50:22,719 --> 00:50:25,240
Speaker 3: the third largest pool of public capital in the United

908
00:50:25,280 --> 00:50:27,840
Speaker 3: States of America, and none of that money is invested

909
00:50:27,880 --> 00:50:30,279
Speaker 3: in homes that people can afford, by the way, while

910
00:50:30,320 --> 00:50:32,799
Speaker 3: earning a reasonable risk adjusted rate of return, which is

911
00:50:32,800 --> 00:50:35,399
Speaker 3: what we did for a living. Then that is a

912
00:50:35,440 --> 00:50:39,479
Speaker 3: massive problem. And so for my part, the fact that

913
00:50:39,840 --> 00:50:43,120
Speaker 3: no one has ever heard of this office is a

914
00:50:43,160 --> 00:50:46,520
Speaker 3: problem that is not an asset of the last eighteen years.

915
00:50:46,520 --> 00:50:49,520
Speaker 3: That is a massive liability. That is red blinking lights

916
00:50:49,840 --> 00:50:52,640
Speaker 3: that the fiscal watchdog of the State of New York

917
00:50:53,000 --> 00:50:54,759
Speaker 3: no one has ever heard of them. And if you

918
00:50:54,760 --> 00:50:56,480
Speaker 3: were to ask, if you were to make up a

919
00:50:56,560 --> 00:50:58,640
Speaker 3: name and you were to pull it, you know, it

920
00:50:58,719 --> 00:51:01,200
Speaker 3: is human behavior for least one out of every three

921
00:51:01,280 --> 00:51:03,480
Speaker 3: people to say, yeah, yeah, sure, I've heard of that person.

922
00:51:03,640 --> 00:51:06,200
Speaker 3: And so the fact that sixty two percent of New

923
00:51:06,280 --> 00:51:09,680
Speaker 3: Yorkers and New York Democrats have never heard of this guy,

924
00:51:09,760 --> 00:51:14,080
Speaker 3: to me is an indictment of the performance of this job,

925
00:51:14,200 --> 00:51:17,319
Speaker 3: and in terms of definitions of success, we need to

926
00:51:17,360 --> 00:51:21,480
Speaker 3: address this cost crisis. But after four years, you better

927
00:51:21,520 --> 00:51:24,880
Speaker 3: have heard of the New York State Controller, right, because

928
00:51:24,920 --> 00:51:27,600
Speaker 3: that means we are actually using this power and this

929
00:51:27,719 --> 00:51:29,600
Speaker 3: money for the people who don't have it.

930
00:51:29,800 --> 00:51:32,840
Speaker 2: So let's talk about some things that I think have

931
00:51:32,960 --> 00:51:36,759
Speaker 2: worked out pretty well, and they tend not to just

932
00:51:36,840 --> 00:51:39,719
Speaker 2: to be New York City or New York State programs,

933
00:51:39,760 --> 00:51:44,480
Speaker 2: but poort authority and bigger programs. Also, as a lifelong

934
00:51:44,600 --> 00:51:48,520
Speaker 2: New Yorker and a long time I've lived in the

935
00:51:48,560 --> 00:51:52,799
Speaker 2: city for a long time, I've been really impressed with

936
00:51:53,440 --> 00:51:57,120
Speaker 2: I think LaGuardia could be the best airport in the country. Now,

937
00:51:57,239 --> 00:52:00,319
Speaker 2: I don't know is that six or eight billion dollars later.

938
00:52:00,680 --> 00:52:05,680
Speaker 2: They should have done it twenty years ago. Adding moving

939
00:52:05,719 --> 00:52:08,960
Speaker 2: part of Penn Station to Grand Central as well as

940
00:52:09,040 --> 00:52:13,640
Speaker 2: the new facility, a huge when the extension of the

941
00:52:13,680 --> 00:52:17,480
Speaker 2: Second Avenue subway, and then as I drive around New

942
00:52:17,560 --> 00:52:21,799
Speaker 2: York State, we seem to be repaving everything. I know,

943
00:52:21,840 --> 00:52:24,880
Speaker 2: a big infrastructure bill passed a couple of years ago,

944
00:52:25,160 --> 00:52:32,080
Speaker 2: and the Long Island Expressway and the Interstate ninety five,

945
00:52:32,160 --> 00:52:35,319
Speaker 2: the New York State Thruway, and it seems everywhere I look,

946
00:52:35,680 --> 00:52:40,919
Speaker 2: new roads, new bridges, new tunnels are being laid. Are

947
00:52:40,960 --> 00:52:43,239
Speaker 2: these Are we getting the best bang for our buck

948
00:52:43,280 --> 00:52:48,520
Speaker 2: with these projects? And what other projects? There's talk about

949
00:52:48,520 --> 00:52:54,480
Speaker 2: a very expensive project to protect southern Manhattan from climate

950
00:52:54,560 --> 00:52:59,200
Speaker 2: change and rising sea levels. And I recall after Sandy

951
00:52:59,280 --> 00:53:02,279
Speaker 2: that was just every red superstorm standy. There was a

952
00:53:02,480 --> 00:53:06,200
Speaker 2: brief discussion about, gee, look at the towns that had

953
00:53:06,239 --> 00:53:10,880
Speaker 2: buried power lines. They didn't lose electricity as opposed to

954
00:53:11,040 --> 00:53:14,200
Speaker 2: half the state lost electricity for two weeks or longer.

955
00:53:14,960 --> 00:53:16,759
Speaker 2: How do we look at all these projects, how do

956
00:53:16,800 --> 00:53:19,640
Speaker 2: we manage the expenses of them? Are we getting a

957
00:53:19,680 --> 00:53:22,359
Speaker 2: bang for our buck on any of these tell us

958
00:53:22,360 --> 00:53:25,479
Speaker 2: about these big public works projects. What do you see

959
00:53:25,520 --> 00:53:27,319
Speaker 2: the next five or ten years looking like?

960
00:53:27,520 --> 00:53:30,280
Speaker 3: Sure? So the short answers, no, we are not getting

961
00:53:30,640 --> 00:53:35,160
Speaker 3: the best bang for the taxpayer buck in these projects.

962
00:53:35,320 --> 00:53:37,520
Speaker 3: And there are any number of reasons why I talked

963
00:53:37,560 --> 00:53:41,880
Speaker 3: about the building code as one of those reasons. Another reason,

964
00:53:42,200 --> 00:53:45,799
Speaker 3: and you know, I think listeners will appreciate this, is

965
00:53:45,880 --> 00:53:49,080
Speaker 3: you look at the Department of Buildings and where are

966
00:53:49,080 --> 00:53:53,040
Speaker 3: their service level standards? Right? Where are their turntimes? Where

967
00:53:53,080 --> 00:53:55,840
Speaker 3: are the things that they need to be doing to

968
00:53:56,040 --> 00:53:58,719
Speaker 3: ensure that the people out in the world who are

969
00:53:59,000 --> 00:54:02,040
Speaker 3: investing the capital and putting that capital to use, and

970
00:54:02,080 --> 00:54:04,680
Speaker 3: all the workers who are trying to build these projects

971
00:54:04,719 --> 00:54:10,160
Speaker 3: and build these infrastructures, these pieces of infrastructure, where are

972
00:54:10,160 --> 00:54:13,320
Speaker 3: those service level standards? You know, in the world that

973
00:54:13,360 --> 00:54:15,759
Speaker 3: I used to occupy, we would have service level agreements

974
00:54:15,840 --> 00:54:19,000
Speaker 3: right our counterparty would have to perform based on a

975
00:54:19,080 --> 00:54:21,399
Speaker 3: number of different metrics. And this is you know, goes

976
00:54:21,440 --> 00:54:24,120
Speaker 3: back to that audit authority. These are the things that

977
00:54:24,160 --> 00:54:28,120
Speaker 3: the state controller can do both by proposing those service

978
00:54:28,160 --> 00:54:31,400
Speaker 3: level standards and making sure that they are adopted. And

979
00:54:31,440 --> 00:54:34,200
Speaker 3: if they aren't adopted, that's okay. We can we can

980
00:54:34,239 --> 00:54:36,560
Speaker 3: still measure them anyway, and we can come back every

981
00:54:36,560 --> 00:54:39,640
Speaker 3: single year and see how they're doing. So the Department

982
00:54:39,680 --> 00:54:43,560
Speaker 3: of Buildings is one of those places where again sort

983
00:54:43,560 --> 00:54:47,360
Speaker 3: of projects go to die, and I think there there

984
00:54:47,400 --> 00:54:51,600
Speaker 3: just is a lack of discipline and focus around metrics

985
00:54:51,960 --> 00:54:55,000
Speaker 3: to just make sure that they are doing their legally

986
00:54:55,080 --> 00:54:58,040
Speaker 3: required job. You should not have to hire an expedi

987
00:54:58,160 --> 00:55:01,520
Speaker 3: or to have an expedite project. That seems to be

988
00:55:01,560 --> 00:55:04,680
Speaker 3: that's a layer of cost, right, that is a layer

989
00:55:04,760 --> 00:55:07,520
Speaker 3: of costs and a layer of friction that basically admits

990
00:55:08,040 --> 00:55:10,879
Speaker 3: that the status quo makes no sense. And so we're

991
00:55:10,880 --> 00:55:12,960
Speaker 3: going to have this off ramp for people who can

992
00:55:13,000 --> 00:55:15,279
Speaker 3: afford it, and only those people who can afford it,

993
00:55:15,400 --> 00:55:18,279
Speaker 3: and they will somehow get special treatment. And to me,

994
00:55:18,440 --> 00:55:22,560
Speaker 3: that is like the exact wrong thing and the wrong direction.

995
00:55:22,680 --> 00:55:26,400
Speaker 3: And we have to show that the regular thruway works,

996
00:55:26,440 --> 00:55:29,160
Speaker 3: that you don't need the Lexus lane that only certain

997
00:55:29,200 --> 00:55:32,359
Speaker 3: people can afford. And that's where we have to kind

998
00:55:32,360 --> 00:55:35,120
Speaker 3: of pull government back in that mindset that they should

999
00:55:35,120 --> 00:55:36,520
Speaker 3: just be able to do their core job.

1000
00:55:36,719 --> 00:55:40,600
Speaker 2: So let's zoom out and ask you to imagine four

1001
00:55:40,680 --> 00:55:43,840
Speaker 2: years or eight years into the job. What does success

1002
00:55:43,920 --> 00:55:47,359
Speaker 2: look like? How do you define being able to look

1003
00:55:47,400 --> 00:55:51,160
Speaker 2: back after a term or two when saying this is

1004
00:55:51,320 --> 00:55:54,319
Speaker 2: where we succeeded, this is how it should be run.

1005
00:55:54,440 --> 00:55:59,400
Speaker 3: Yeah, great questions. So a few very concrete examples. One,

1006
00:56:00,840 --> 00:56:05,120
Speaker 3: hopefully property tax payers and state income taxpayers aren't bleeding

1007
00:56:05,200 --> 00:56:08,120
Speaker 3: because they're paying a bunch of fees to a bunch

1008
00:56:08,160 --> 00:56:10,799
Speaker 3: of bankers who just are not doing their job. So one,

1009
00:56:10,880 --> 00:56:14,719
Speaker 3: we have pivoted the investment strategy away from that sort

1010
00:56:14,760 --> 00:56:19,399
Speaker 3: of beat the market idea that has failed utterly over

1011
00:56:19,440 --> 00:56:21,880
Speaker 3: the last eighteen years. And we are moving away from that,

1012
00:56:22,000 --> 00:56:25,520
Speaker 3: and we are taking pressure off of taxpayers. That is

1013
00:56:25,640 --> 00:56:27,960
Speaker 3: part of the cost crisis that we are facing in

1014
00:56:28,000 --> 00:56:31,319
Speaker 3: New York and why New Yorkers cannot afford to live here.

1015
00:56:31,360 --> 00:56:35,200
Speaker 3: So that's one thing, the cost of housing. I think

1016
00:56:35,200 --> 00:56:37,840
Speaker 3: the state Controller has an ability, both on the capital

1017
00:56:37,920 --> 00:56:40,279
Speaker 3: side and on the audit side to address it. We

1018
00:56:40,400 --> 00:56:44,520
Speaker 3: talked about the audit side in terms of addressing this

1019
00:56:44,600 --> 00:56:47,360
Speaker 3: building code issue, and I hope that that can lower

1020
00:56:48,000 --> 00:56:52,000
Speaker 3: or at least keep neutral the cost of construction. And

1021
00:56:52,040 --> 00:56:54,880
Speaker 3: on the financing side, I think we could bend the

1022
00:56:54,920 --> 00:56:58,880
Speaker 3: cost curve of the cost structure, the capital structure, and

1023
00:56:58,920 --> 00:57:03,279
Speaker 3: the cost of capital or affordable housing by making available

1024
00:57:03,480 --> 00:57:05,680
Speaker 3: and I've proposed the largest housing fund in the United

1025
00:57:05,719 --> 00:57:08,480
Speaker 3: States of America, a ten billion dollar housing fund to

1026
00:57:08,640 --> 00:57:11,560
Speaker 3: invest in homes that New Yorkers can afford. Definition of

1027
00:57:11,600 --> 00:57:14,600
Speaker 3: success that is deployed in what we estimate to be

1028
00:57:14,600 --> 00:57:18,080
Speaker 3: one hundred thousand homes that New Yorkers can actually afford,

1029
00:57:18,400 --> 00:57:22,040
Speaker 3: that is something that is absolutely concrete. And then this

1030
00:57:22,120 --> 00:57:25,400
Speaker 3: twenty billion dollar fund of a New Yorker's own money

1031
00:57:25,440 --> 00:57:28,800
Speaker 3: in the New York State Unclaim Fund, that we actually

1032
00:57:28,880 --> 00:57:31,240
Speaker 3: start getting that money back. And you have to go

1033
00:57:31,320 --> 00:57:34,560
Speaker 3: to some dopey website right now that is complicated and

1034
00:57:34,600 --> 00:57:36,840
Speaker 3: hard to use, and if you have money, they don't

1035
00:57:36,880 --> 00:57:38,919
Speaker 3: even tell you how much because they don't even really

1036
00:57:38,960 --> 00:57:40,840
Speaker 3: want you to get it back, right it sounds like

1037
00:57:40,840 --> 00:57:43,640
Speaker 3: you're trying to issue into a health insurance claim or

1038
00:57:43,680 --> 00:57:45,680
Speaker 3: something like that. We are going to get rid of

1039
00:57:45,720 --> 00:57:47,840
Speaker 3: this website. We're going to decommission it. We won't have

1040
00:57:47,880 --> 00:57:50,919
Speaker 3: a website because we won't need it, because we're automatically

1041
00:57:50,960 --> 00:57:53,000
Speaker 3: going to send New Yorkers their money back, because it's

1042
00:57:53,040 --> 00:57:56,040
Speaker 3: their money. It is not Tom Dinapolis, it is not

1043
00:57:56,160 --> 00:57:58,520
Speaker 3: the State of New York's. It is New Yorkers. We

1044
00:57:58,600 --> 00:58:00,880
Speaker 3: have your name, we have how much you're owed, we

1045
00:58:00,880 --> 00:58:02,840
Speaker 3: have your last sony trust, We have access to all

1046
00:58:02,880 --> 00:58:05,320
Speaker 3: the data in the world, and we are in twenty

1047
00:58:05,360 --> 00:58:09,280
Speaker 3: twenty six. My phone knows more about my personality than

1048
00:58:09,280 --> 00:58:11,840
Speaker 3: I do. My phone knows where I live. Why can't

1049
00:58:11,840 --> 00:58:15,240
Speaker 3: we figure out how to get you your money back automatically?

1050
00:58:15,280 --> 00:58:16,200
Speaker 3: We can, and we will.

1051
00:58:16,960 --> 00:58:20,280
Speaker 2: Drew, really interesting, Thank you so much for coming. And

1052
00:58:20,920 --> 00:58:23,920
Speaker 2: I'm going to extend an invitation to Tom DiNapoli if

1053
00:58:23,920 --> 00:58:25,880
Speaker 2: you want to come to Bloomberg and talk to us

1054
00:58:25,960 --> 00:58:29,240
Speaker 2: about what you've been doing as Controller and what your

1055
00:58:29,280 --> 00:58:31,480
Speaker 2: plans are for the future, We would love to have you.

1056
00:58:31,800 --> 00:58:35,400
Speaker 2: I'm going to have my producer reach out. Really really

1057
00:58:35,400 --> 00:58:40,400
Speaker 2: interesting stuff. Thank you for a thought provoking conversation. We

1058
00:58:40,600 --> 00:58:44,120
Speaker 2: have been speaking to Drew Warshaw. He is a candidate

1059
00:58:44,400 --> 00:58:47,560
Speaker 2: for New York State Controller and the Democratic primary in

1060
00:58:47,720 --> 00:58:52,040
Speaker 2: June twenty twenty six. If you enjoyed this conversation, well

1061
00:58:52,120 --> 00:58:54,520
Speaker 2: check out any of the six hundred we've done over

1062
00:58:54,560 --> 00:58:59,960
Speaker 2: the previous twelve years. You can find those at iTunes, Spotify, YouTube, Bloomberg,

1063
00:59:00,120 --> 00:59:04,000
Speaker 2: wherever you get your favorite podcasts. I would be remiss

1064
00:59:04,000 --> 00:59:06,880
Speaker 2: if I not thank our crack staff who helps me

1065
00:59:06,920 --> 00:59:11,880
Speaker 2: put these conversations together each week. Alexis Noriega is my

1066
00:59:12,040 --> 00:59:16,000
Speaker 2: video producer. Sean Russo is my researcher. Anna Luke is

1067
00:59:16,040 --> 00:59:20,040
Speaker 2: my podcast producer. I'm Barry Ritolts. You've been listening to

1068
00:59:20,160 --> 00:59:22,920
Speaker 2: Masters in Business on Bloomberg Radio