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GovInvest helps cities visualize pension and benefit costs

The actuarial and financial modeling software helps cities predict the impacts of pension plans, labor negotiations, and other post-employment benefits.

In about two years, cities and counties are going to run into a financial problem.

In recent years, funding for pension plans around the world was at the lowest point we’ve seen in quite some time. Then the events of 2020 hit, and governments of all sizes started facing major budget issues. Many have responded — or will have to respond — by downsizing staff, furloughing workers, or pushing early retirement.

The problem is, while these decisions may save costs now, they will have massive budget implications over time. In some cases, the local governments won’t be able to keep up with what they owe in pensions or retirement benefits. These municipalities could face bankruptcy.

It’s critical for city and county officials to be able to understand their pension liabilities, or unfunded pensions, when making decisions now. Yet many local governments don’t — the information isn’t easy to understand, staff is too busy, or the models being used are outdated. So now, faced with urgent decisions to address today’s economic challenges, some governments are making moves without realizing the disastrous domino effect they’re setting in motion.

This is complicated stuff (we’ll leave the details to the financial experts). But it’s a major problem — one that GovInvest, a Torrance, California-based pension, OPEB, and labor software, has set out to address.

The platform provides visualizations and the ability to test different pension and funding scenarios to see the financial impact on a city or county in years to come. Using it allows local governments of all sizes to make more informed decisions — decisions that ultimately could make a difference of millions of dollars.

As Govlaunch works to build the global wiki for local government innovation, we’re highlighting a series of Disruptive technologies — innovative companies who aspire to bring local governments cutting-edge products, which have the potential to fundamentally change the way local governments operate and innovate. We chatted with the GovInvest team about how their product gives local government insights into how staffing and the economy today will impact pensions and financials in years to come.

Understanding unfunded pensions

To face the issue of pension funding and government financial planning, GovInvest has assembled a team of finance, economics, local government, and actuarial experts.

It all started in 2012, when Jasmine Nachtigall-Fournier was working at California Common Sense, a nonprofit that built visualizations of government data.

Nachtigall-Fournier kept seeing issues come up with unfunded pension liability: a situation where the money owed by a government’s pension plan to a city’s employees doesn’t match up with the amount of funding the plan has. This is a multi-trillion dollar problem, says Nachtigall-Fournier:

“It’s about $5 to $6 trillion in the United States, and $400 trillion across the world. So it was a big question: why is there such a big problem, and why wasn’t there a clear solution?”

Nachtigall-Fournier joined forces with Ted Price, an investment banker with an interest in government technology. The two started digging deeper into the problem. Nachtigall-Fournier says:

“We looked at the way the information was communicated through actuarial valuation reports. These are really long, complicated reports that contain all kinds of mathematical terms and are based on old data. And we wondered … these reports are 100 pages long; how does anyone have time to understand what’s going on?”

If Nachtigall-Fournier and Price, who both have financial and economic backgrounds, had to do multiple reads of these reports to really understand them, how could a government official, for whom this was only a fraction of the responsibilities on their plate, be able to comprehend and make decisions based on this information?

The short answer is, they aren’t. And it’s a major problem for cities.

Risks of pension funding

Understanding pension and other benefits funding impacts a local government’s decisions on how much to spend on pensions. It affects hiring decisions. It impacts the agency’s ability to get loans.

But without clear insight and transparency into the effects these decisions have on the numbers, many cities are making decisions based on the needs of today — without fully realizing what ripple effects this will cause in a year or two.

Now, as local economies take a hit, the downstream results could be disastrous, Christian Dickson, Director of Marketing at Govinvest explains:

“What we’re seeing right now in the economy will not affect the pension system or pension plans until two years from now, but it will begin to affect in such a significant way that if small and medium sized agencies don’t plan today, they could find themselves in some form of bankruptcy.”

Take a small city that relies on tax revenue from summer tourism. With summer travel off the table for many people, that’s an immediate shortfall for the city. What does the city do? First, they’ll cut any easily eliminated budget expenditures, reduce purchasing, and so on. But what if they need to make more drastic cost reductions? Do they lay off or furlough workers? Cut benefits?

What many government agencies don’t realize is that cutting people can shore up the budget right now, but it may have even worse negative impacts on the city’s finances. They just won’t be visible until later. Dickson explains:

“That’s what we’re trying to solve — we want to make sure these agencies are making decisions today for tomorrow’s challenge. And if you don’t know what you’re doing, you could be setting your future colleagues up for an insurmountable problem years down the line.”

Nachtigall-Fournier agrees:

“These are the biggest fiscal challenges that governments are facing. It’s important to not kick the can down the road. Every decision made now has an impact on different liabilities. So it’s important to bring people on as an extension of your team to help solve these problems.”

GovInvest, she says, is built to be that extension of the local government’s team.

How GovInvest works

Traditionally, an actuary or specially trained accounting consultant is hired by a local government to run and analyze pension and financial scenarios. (This consultant uses software to do so, but it’s incredibly complex software that requires special training.)

The actuary then provides his or her findings; this makes its way to the city manager and/or elected officials. The whole process takes time and produces those 100-page findings that Nachtigall-Fournier and Price struggled to digest easily.

By the time decision makers are actually acting on the findings, data is often outdated or not being interpreted correctly.

GovInvest launched in 2014 and is set up to run many of the same scenarios that the actuary does — the team behind the scenes is a mix of cross-trained actuaries and software developers. But unlike with traditional reports, the local government teams using the tool can run an unlimited number of scenarios, at any time.

Users can click through different tabs to see what the agency owes, and what it’s spending. They can modify assumptions to test out different scenarios. They can even create a comparison between two different scenarios. The software provides easy-to-read visualizations that adjust as the user changes the inputs. Says Dickson:

“Users can make changes simply by hitting a slide bar or punching in a different number to see the fiscal impact of variables like investment returns that may not be met by the pension investments. Or, maybe they bounce back and get a 0% return … or maybe they even get 2% — they’ll see what are the hundreds of thousands or millions of dollars in difference there is between those scenarios.”

The implementation happens over the course of a few months: the GovInvest team requests a data pull from the municipality; this data is added to the tool. Then, GovInvest configures and validates the data in its cloud-based platform, making sure the numbers match. From there, the platform is built, launched, and updated annually to keep the data fresh.

Having immediate access to data that’s easy to understand gives finance directors, city managers, and elected officials the power to make informed decisions based on factors they can control. Of course, some things are outside their control — for these situations, the agencies can run multiple scenarios in the tool to better prepare for potential outcomes that may come their way.

Planning beyond pensions

From the start, once Nachtigall-Fournier and Price started showing their early product to government agencies, the agencies were interested. Says Nachtigall-Fournier:

“The first government we met with, we intended it to be a beta meeting where we got some feedback. But they were so excited — they wanted to buy it right then and there.”

The more meetings the GovInvest team had, the more interest they received. Now, the team is working with more than 300 public agencies, spanning everything from small districts with five employees to the state of California. Along the way, Nachtigall-Fournier and team have been evolving their services based on what these 300 agencies want:

“The great thing is, governments are really open about the issues they have. When you do a good job for them, they’re willing to tell you other things they want your help with. And that’s how we continue to develop our products.”

Through government feedback, GovInvest added an OPEB module (other post-employment benefits like medical, dental, and vision) to help governments plan costs for those offerings. A labor cost module (powered by GovInvest sister company AdastraGov) was introduced to assist with budgeting and hiring or union negotiations. Nachtigall-Fournier says the company has at least 10 other offerings on the roadmap:

“It’s just about prioritizing which ones are most important and most urgent for our clients right now.”

Beyond product expansion, the GovInvest team also works to share best practices in their field through webinars, podcasts, and educational resources. Says Nachtigall-Fournier:

“We are really proud of the work we do because we think it’s really having a true impact on society. At the end of the day, we are really focused not just on pensions, but understanding broader problems and challenges that governments face, and the opportunities we have to help.”