N001300

Wednesday, January 02, 2002 4:08 PM
Victim Fund Comment

Mr. Kenneth R. Feinberg, Special Master

I am writing regarding the methodology used in creating the Loss Calculation Tables. (My qualifications for writing this note include 29 years as a practicing forensic economist, author of Determining Economic Damages (now in its 14th edition), current Vice President-at-Large of the National Association of Forensic Economics, former member of the Board of Directors of the American Rehabilitation Economics Association, and approximately 5,000 cases in which I have been retained nearly equally by plaintiff and defendant attorneys.)

1. The explanatory material notes you are relying on the Worklife Expectancy Tables published by the Bureau of Labor Statistics. These tables were published in 1986 using data from 1979 and 1980. As such, they are very much out of date, particularly with regard to female worklife. In a cost saving era, BLS ceased publishing these tables some years ago and began providing the underlying material to economists so that updates could be made by them. Such updates have, in fact, been made using much more recent data and the same methodology as used by BLS. The three studies already released were done by (senior authors only listed here) Dr. Tamara Hunt, Dr. Jim Ciecka, and Mr. Hugh Richards. In all three, the worklife for men has not changed greatly from the BLS study, but the worklife for women has steadily increased. To use the outdated tables seriously damages females in the group of victims. I will be pleased to provide full citations for these tables at your request. In addition to these already published tables, another set is available as a working paper and will be published in the Journal of Econometrics in the Spring of 2002. The senior author is Dr. Millimet of Southern Methodist University.

2. The second point has to do with the discount rate. You have explained that the earnings figures used for calculating the loss are after the deduction of income tax. This is a legitimate method, however there is substantial case law instructing that when earnings are calculated after tax, then the discount rate must be a "below market" rate to compensate for the tax that must be paid on the interest generated by the investment of an award. Below market means, for practical purposes, a discount rate that represents a tax free yield. In other words, high grade municipal bond yields. These yields are usually 75 to 125 basis points lower than the rate on Treasury bonds. Failure to use a below market rate to convert after tax income to present value double taxes the award. I am sure your are familiar with the published opinions on the use of these below market rates, but if you wish I can send you the citations.

Thank you for the opportunity to express my concern over these items.

Individual Comment
San Diego, CA

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