Sneaking Suspicions

Archives-- July 21-27, 2002 (Week 29)

Commentary from a practical perspective

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This page includes posts from July 21-27, 2002 in the usual reverse order. Each week's postings on the home page are perma-linked to these pages.

July 27, 2002

The gift that keeps on giving

Many years ago, state and local government pension "systems" hardly deserved the term. They typically weren’t fully funded on an actuarially sound basis, and the benefits weren’t much to live on, either.

As the non-federal governments grew to handle an ever-increasing demand for services, their personnel budgets tended to keep pace. The unfunded pension liabilities began to grow at an even faster rate.

(This discussion should sound familiar to those following the Social Security debate. The difference, of course, is that only the U.S. Treasury can print money. The non-federal governments don’t have that luxury.)

Eventually, rating agencies such as S&P and Moody’s conducted what Foreign Service diplomats call "full and frank discussions" with many such governments. They explained the consequences to government bond ratings and interest payments of failing to provide today for the pension fund needs of tomorrow.

Most governments took the hint, and made significant reforms in their pension systems.

One major legal change was to inhibit the natural tendency of the legislatures to increase benefits or create exceptions to the pension rules, without earmarking the money to pay for the changes.

The Delaware General Assembly learned that lesson a long time ago. After they passed a bill to provide a pension to someone who didn’t meet the usual standards, the Supreme Court ruled against them. The court ruled that while the legislature could change the rules or create exceptions to them for particular persons, they were required at the same time to appropriate the necessary funds to pay for the change. The state pension fund couldn’t be made to handle the extra costs of such changes from its existing sources.

By definition, any such amendments would turn the pension fund away from the path toward being fully funded, leading to the predictable nasty financial effects.

Since that decision, the General Assembly tended to follow its dictates, at least for the occasional deserving constituent. When these bills are filed now, they include an appropriation to handle the cost of the change.

The legislators had a little more difficulty, however, in following the law when it came to their own pensions.

During the administration of Governor (now-Congressman) Mike Castle, about a dozen years ago, the General Assembly slipped a pension increase for legislators into the epilogue language of one of the major appropriation bills. These bills are typically passed without any floor amendments in the last days of the session.

Unfortunately for the legislators, two little problems affected this special provision:

a. they didn’t appropriate the funds for the increase; and

b. the executive branch noticed the epilogue language in time to do something about it.

After a tense few hours after midnight on the last day of the session, and facing a veto threat from the Governor, the General Assembly voted to remove the offending section from the bill.

The legislators were not happy.

Apparently the urge to give yourself the gift that keeps on giving continues to be hard to resist, as reported in an AP story from Kentucky.

A late-night action by the General Assembly that has nearly doubled pensions for legislators in the last two years was improper and must be overturned, the Court of Appeals ruled.

The court ruled 2-1 Friday that changes in pension laws for public employees must be accompanied by an actuarial analysis of the cost before the bill is considered by either the House or Senate.

Kentucky’s Attorney General Ben Chandler brought the suit, and was less than magnanimous in his remarks about the victory:

"This was a secret, greedy pension grab by the legislature," Chandler said. "We don't need another example of people in power lining their pockets at the expense of the public."

Based on those comments, I’m sure Chandler’s next budget request will be given careful consideration by the legislature in the next session.

Very careful consideration.

July 26, 2002

Doing violence to the meaning of words

My professional career requires the careful use of language. The words utilized in the legislation or agreements that I draft, for example, can produce serious long-term unintended consequences if misconstrued.

I’m a little sensitive, therefore, when someone butchers the commonly accepted meaning of a word or phrase for his or her own purposes.

On some occasions, admittedly, there is ample room for varying interpretations.

For example, during my law school course in insurance many years ago, we studied a case construing the word "accident" under fairly unusual circumstances.

Dictionaries typically define the term as follows:

an unfortunate event resulting especially from carelessness or ignorance


an unexpected and medically important bodily event especially when injurious

In the case we studied, a man died due to autoerotic asphyxiation involving a noose and a doorknob. The insurance law question centered on the policy definition of "accident", especially since the policy also contained an exclusion from coverage for "intentional acts". Determining the proper interpretation was critical, because the policy also included a double indemnity provision that required meeting the "accident" definition in order to increase the benefits to be paid to his survivors.

As I recall, the eventual decision was that the asphyxiation was an accident, although the acts that led to the man’s demise were obviously intentional. No suicide note or other evidence existed that gave any indication of a death wish.

In other words, there was no proof that the deceased ever intended to come and go at the same time.

On other occasions, however, there really isn’t any doubt as to the right word to be used for the situation, no matter what someone tries to say otherwise.

This issue can frequently arise in the criminal law context, as reported by the AP today from Houston, Texas:

A woman who apparently suspected her husband of having an affair was charged with murder for allegedly running him over three times and leaving her silver Mercedes-Benz parked on top of him....

Clara Harris, 44, confronted her 44-year-old husband at a suburban hotel. Witnesses said she got into a fight in front of several hotel employees with a woman she accused of having an affair with her husband.

Then, "she jumped the median and ran over him three times,'' Nassau Bay police Lt. Joe M. Cashiola said.

Upon her release on $30,000 bail, Ms. Harris met the media and immediately abused the English language:

She told reporters it was an accident.

Pardon me, ma'am, but I don't think so.

I expect an eventual plea bargain.

July 25, 2002

The New Bruce Willis Movie

World-famous action movie star Bruce Willis took advantage of his political connections, and convinced President George W. Bush to join him at the recent press conference announcing Willis’ newest movie project based on Proctor & Gamble’s famous multi-purpose superhero, Mr. Clean.

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Fox Corporation’s "Buff Hard" features Willis as a mild-mannered janitor working at a new apartment complex in Newport Beach, California.

Complications ensue when a group of Middle Eastern terrorists move into Apartment 3-G. Mr. Clean is forced to not only clean the bathrooms, but also to wipe the floor with the bad guys before they can take over the nearby John Wayne Airport.

"I think in some ways I'll be able to portray Mr. Clean somewhat like my character in Unbreakable," Willis said. "He was a quiet working man, who became caught up in something larger than he thought he could handle."

Willis also believed that he could meet the difficult demands of portraying a character familiar to millions of people, but about whom not much is really known: "The fact is that nobody's ever really heard Mr. Clean before. Just the same, I don't think there'll be any problem convincing people I was right for this part."

Proctor & Gamble expects to recover its investment in dozens of product placements throughout the film within a few weeks of the movie’s Summer 2003 release. In an uncommon marketing move, the Mr. Clean action doll is already in production for shipping in time for this year’s Christmas crush, when the trailers for the new movie will be on screens nationwide and on the Web.

Note: At least, that’s what I thought when I saw the picture above. The real story is a bit different.

July 25, 2002

More than half a billion reasons supporting the US version of the Cayman Islands

A local angle on the Enron debacle is now making the news:

A legal trust in Delaware was used by Enron Corp. to hide debt and deceive investors, congressional investigators said this week, just months after federal officials criticized Delaware for making it too easy to charter corporations for potentially nefarious purposes.

It’s also been reported that Citigroup’s current chairman of its executive committee might not be asked to testify before Congress.

While Mr. Rubin may be safe from inquiring minds, that hasn’t stopped congressional staffers from taking a shot or two at Delaware’s laws relating to Enron entities:

Among Enron's partnerships and subsidiaries were about 600 entities in Delaware, some of which have been under scrutiny by investigators. One trust - Yosemite Securities Trust I formed by Citigroup in October 1999 - has now been linked directly to Enron's alleged financing deception, according to congressional investigators.

The usual comments about the benefits of incorporation (confidentiality and legal protection) and the inevitable potential for abuse (money laundering and other evils) then follow.

What’s left out of the story is the financial impact of Delaware’s popular incorporation statutes, whether those entities take the form of business trusts or some other structure that permits confidentiality of ownership interests.

In FY2001, just over $2.3 billion flowed into the state’s general fund coffers from all sources.

The personal income tax stream was the largest contributor, netting out at $718 million.

The next highest source of general funds was our good friend the corporate franchise tax, with a whopping $533 million added to the mix.

The companion bank franchise tax chipped in an additional $96.7 million, much of which comes from the now-famous Delaware-based credit card operations (Usery? Such an ugly word, don't you think?).

On a smaller but still significant scale, the equivalent fees from limited partnerships and LLC’s, which have their own confidentiality provisions, added up to a nice little $18.4 million.

These sums do not include corporate income tax revenues, by the way, which is how business trusts are taxed under 12 Del.C. Section 3809.

In essence, then, the First State depends on the attractiveness of its corporation and banking laws for well over 25% of its total general funds.

Accordingly, Delaware’s keen lack of interest in reforming these laws, such as by making the ownership records completely transparent, should not be too surprising. If the First State were to take the lead in adopting such changes, South Dakota or some other state would gladly welcome the thousands of departing enterprises (and their franchise taxes) seeking a more business-friendly environment.

Of course, there are also the offshore incorporation opportunities as well, provided by our Caribbean friends in the Cayman Islands, among other enticing locales.

With that kind of money at stake, it’s easy to see why there there’s no groundswell of local opinion in favor of killing these particular corporate geese. The golden eggs that Delaware receives from them are just fine, thank you.

July 24, 2002

Annals of botched crime

It’s often been said that bank robbers are among the dumbest criminals out there.

After all, with exploding dye in the bags, cameras all over the building, and hidden police signals the tellers can buzz, the chances of actually scoring big are between slim and none, with none in the lead.

Sometimes just a little bit of initiative will do the trick all by itself, as reported in an AP story from Ocean Springs, Mississippi:

Police say an attempted robbery was foiled yesterday when a bank teller couldn't decipher the writing on a holdup note.

When the man handed the teller the note, she told him she couldn't read it. The man ran.

Personally, I blame the hapless robber's failure of nerve on the self-esteem movement. I doubt anyone had ever previously told him the bitter truth about his diminished penmanship skills.

Ms. Jacobs, what do you think?

July 24, 2002

Mr. Grumpy makes another appearance

If Anita Bryant were a lawyer and had my job, she might be tempted to remark in her brightest voice, "A day with 7 hours of depositions, with an ill-tempered lawyer on the other side, in a city 90 miles away from home, is just like a day without sunshine!"


July 22, 2002

Prayer for the Dead

My Uncle Tom would have enjoyed his own funeral.

It touched upon the major elements of his very active, very public life.

He was a Navy veteran of World War II and the Korean conflict, and so the service began with a playing of the Navy Hymn.

Tom worked as a union electrician, and rose through the ranks to the presidency of the Building and Construction Trades Council, and a related role in the AFL-CIO. He also served as a Secretary of Labor for Delaware under Governor Sherman Tribbitt, and later accepted federal appointments for the U.S. Department of Labor and OSHA.

One of the speakers at the service spoke movingly about Tom’s role in advancing the cause of working men and women and their families.

He was a founding member of the Delaware Veterans of World War II and Korea, and held a term or two as that organization’s president. Tom took on similar roles for the local chapters of the Disabled American Veterans and American Legion.

One of the two remaining Del Vets founders described his pride at working with Tom on the creation of the organization and in the years they spent together.

Tom would have been pleased at his fellow veterans’ military salute with rifles, and their presentation of the colors to his widow. His eyes would have moistened, as did those of dozens in the audience, during the playing of "Taps."

My uncle was close to his God and his family. His brother, my father, read a passage from Isaiah, and added a funny anecdote about their childhood. Dad made the audience laugh when he said, "Tom would have rather teased me than eat." His sister read the 23rd Psalm, and added a light flourish to my father’s story.

Tom’s older daughter gave a wonderful eulogy, in which she captured the essence of the man as a father, husband, labor leader, and public official. His younger daughter, his two granddaughters, a niece, and several nephews then led the congregation in a series of prayers for intercession, based on the Book of Common Prayer.

My uncle always enjoyed bringing a smile to the faces of those he met. Those who attended his funeral were able to bring that memory to the forefront, even as we were saddened by his death.

July 22, 2002

Four Claudes—as if you cared

Apparently there is a biological explanation for a phenomenon that I freely admit exists:

Women Recall Emotional Issues Better

My wife also has a far better memory for exactly what was said during our conversations. I can reconstruct the subject and the tone, but am much worse in recounting the words actually used in discussing a given topic.

This difference between the sexes is not news to anyone who's been married for more than a few months.

Hence, the 4-Claude rating for the banal headline, recounting firm proof of a commonplace notion.

July 21, 2002

The limits of self-help

Sometimes the urge to take matters into your own hands can become overwhelming.

Even so, there are usually several good reasons to try even harder to avoid the potentially ugly consequences of resorting to self-help.

A frustrated businesswoman in Alexandria, Virginia is currently proving the point.

Cat Crosby owns assigned parking spaces at an office park. Unsatisfied with the local police efforts against illegal parkers filling her spots, Crosby has been booting the cars herself, and forcing the drivers to pay $25 to release their vehicles.

"It's become quite a show," said one of the Department of Defense employees who works across the street and watches Crosby regularly on smoke breaks.

The show begins when people refuse to pay the $25 fee -- baffled that a private citizen can slap a boot on their car and demand money. That means the police are called to calm tempers and explain that Crosby is within her rights.

As one can imagine, these efforts are not well-received. Crosby’s employees are now unable to use the assigned spaces, and she’s forced to rent other parking for them,

[b]ecause their cars get scratched with keys if they park in their own spaces....

The strain is evident on all concerned:

Many of nearby business owners are wary of her, to say the least. Just about everyone at the Alexandria Police Department -- secretaries, cops, even top commanders -- is tired of her. Office workers across the street actually boo her.

Crosby reportedly says she doesn’t care.

When she loses employees and has trouble replacing them, however, perhaps she will reconsider.

Program Note: We’ve had a death in the family (my father’s brother), and I’ll be gone for a day or so for the viewing and funeral.

Contact Information:

Fritz Schranck
P.O. Box 88
Nassau, DE  19969


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Official small print disclaimer: This is, after all, a personal web site. Any opinions or comments I express here are my own, and don't necessarily reflect the official position of my work as a government attorney or any of my clients.

That fact may become obvious later on, but it needs to be said here anyway.

Frederick H. Schranck 2002