POWIP Piece of Work In Progress – Former Abode of Dan Collins

Three Day Hangover Public Pensions, Unions, and Finance Roundup 31May2011

Others had their weenie roasts. I'm eating pork barbecue.

That's the way we North Carolinians do it.

(If I can find where Stu hid it in the fridge)

PEOPLE ARE GETTING OLDER AND THAT MEANS STUFF

Such as some people get less productive as they get older, and (warning: NYT link) get demoted, and they don't like that. I agree that it's not just a matter of age... lots of people just don't keep up, period. I am appalled at people my age, which isn't even 40 yet, who act like they've got nothing new to learn, and then are shocked to find they're not exactly a hot property on the employment market. I think it's a lifelong temperament, not a generational or age thing.

The greying of Maryland and Hawaii.

GREECE

Just a matter of when and how, not if: what will happen when Greece defaults. Yes, a little short-term prognostication (I consider a two-year horizon to be short term, myself. Look, when I consider public finance, long term is at least 50 years.)

Breaking news: the Greeks are unhappy. Beware of any large wooden horses on the horizon.

The Greeks didn't appreciate being called lazy by the Germans. Though they are. Amusingly, the "lazy Americans" have the same retirement age as Germans, and far less paid vacation.

And yes, they threw another fit. Let me know when that makes money magically appear, guys. It didn't the prior dozen...twenty?... times.

OUR ILLUSTRIOUS PUBLIC SERVANTS

IRS employees committing tax fraud. Well, hey, you'd think they'd be the experts. So yay them, I guess.

News flash: public employees lack accountability. Well, knock me over with a feather. Well, let's check out a couple examples.

Corrupt Californian ex-official strikes a plea deal on a felony charge. Keeps his pension.

A shrink for Milwaukee County manages to retire with backDROP bennies under a cloud of suspicion. "You can't discipline me! I quit! And give me my retirement shtuff!"

And another person who retired before being charged with anything. Lesson: if you do something questionable, be sure you're close to a legit retirement age.

GENERAL PENSION ISSUES

Getting all actuarial-ish on you for a moment: does market value of liabilities make sense for public pensions? This is coming from Segal, an actuarial consulting firm that does public pension work. I agree that there's really no such thing as "MVL" for public pensions... if anything, public plans need far more conservative assumptions due to the number of parties with different interests who need to be protected from politicians (namely, the workers, bondholders, and taxpayers). I'm thinking Treasury rates minus a spread to use as the discount rates. This is for balance sheet valuation of the liabilities, mind you, not figuring out how to fund them. There is a distinction there.

More actuarying: a Capitol Hill briefing on Social Security by the American Academy of Actuaries. An excellent run-down of the principles of the trade-offs and the reform choices. Take a look.

This doesn't really fit anywhere else, so I'm throwing it here -- odd consequence of shutting down the NASA Shuttle program: having to pay off pension costs of private subcontractor.

CALIFORNIA

Great investment: Arizona land sells for 8% of its original sale price. Calpers was one of the investors.

San Marcos: pension consultant recommends town to boost pension contribution even higher than Calpers requirement.

The ongoing San Fran pension scrum: trying to keep Adachi from running his own, stiff proposal.

Yes, people do understand what happens when you've got "tiers" of pensions, and you especially get a generational divide. The younger guys aren't going to give a crap what happens to the retirees with the cushier benefits. There will be no solidarity.

Gifts to state pension officials under investigation. This will be interesting, I'm sure.

Daniel Borenstein asks for an honest accounting of Calpers plans. Let us know how that goes.

GEORGIA

Atlanta Mayor Kasim Reed directly calls for pension reform. Yes, the debate is rather heated.

ILLINOIS

Low-hanging fruit: high pensions for politicians. Let's just whack it. The base assumption should be they're all base. I know John Adams could probably be a perpetual motion source at this point to see what "public servants" are, but he saw the Lee boys in action back in the day, so none of this should be new to him. [there are some excellent comments on this piece]

Did you know that Illinois is having trouble paying its regular bills? Again? The Repubs aren't allowing $6B (yes, billion) in borrowing to cover the the backlog (but it looks like quite a few Dems voted against it, too), to force the issue.

Even the state treasurer has gotten into the game, saying he is going to make borrowing more expensive for the state by asking rating agencies to downgrade state debt (that's not what it says explicitly, but read between the lines), to try to make the legislators a little more responsible and cut spending. (Okay, it is more complicated than that -- but the point is to make new debt issues more difficult for the state, and that includes rolling over debt.) Isn't public finance fun?

Sharing the pain: Chicago retirees will see a 15% hike in their health premiums. And they begin to see that an unfunded liability is not just a danger to taxpayers (and bondholders), but also to the people who were promised something.

Speaking of unfunded liabilities (and their causes), I would like you to consider the following report from the Commission on Government Forecasting and Accountability. I draw your attention to Appendix M, at the bottom of page 104 which shows the total for the 5 Illinois state-funded pension plans -- a breakdown of the sources of the unfunded liability change over the period from 1996-2010:

	$Billion	Percentage
Salary losses	0.7	1%
Investment losses	11.7	20%
Employer contribution shortfall	24.7	43%
Benefit increases	5.8	10%
Changes in assumptions	3.5	6%
Other (spike) increases	10.6	19%
Total	57.0	100%

Now, that's not the full unfunded liability, by the way, but about 2/3 of it. That's merely the increase over 15 years... and the largest percentage is due to (begin EDIT:) "employer contribution shortfall" - as noted by Bill Zettler in the comments, this is mostly coming from interest on the already accrued unfunded liability not being covered...but the main point is the pension not being funded when the liability is being accrued, more than the investments going south (end EDIT). In short, these plans have been systematically underfunded for at least 15 years, and while yes, crappy investments did a number on the fundedness, you have to actually stick some cash in there from time to time, and the pols were loathe to do that.

I think you will find in many of the cases of the worst-funded plans across the country that the reason almost always has been underfunding as opposed to only investment problems....though there are wacky investment things going on at various points, but I'll save that for a different time.

In any case, this is why the pols in Illinois are actually working together to pass pension reforms, over the objections of the public unions who had good reason to think they had bought the pols.

But according to the report linked above, the combined plans are less than 40% funded, so political contributions can't keep fiscal reality from hitting Springfield. The unions have got to realize the three options being offered are what they have to work with: keep current benefits but have to pay more for them; don't pay more but get less in benefits; or get thrown to the DC wolves. Make your choice, guys.

But wait! Unions win! They make the pols put off a reform til fall. I don't know if I'd call that a win, guys. As Marc Levine says, you may regret this. The choices may become more harsh as the state's finances deteriorate. Cook County employees are seeing furlough days, and I bet there's going to be more fiscal pain shared ith public employees before this is over. And don't expect a federal bailout... remember who holds the purse strings now.

So what were the Illinois pols doing instead of fixing the pension mess? Betting on casinos.

KANSAS

Gentlemen, ready your lawsuits! The employees of Illinois may wish to look at what is going on in Kansas as employee groups there seek to sue over a law that intends to force employees to either contribute more to their pensions or receive less in benefits. Though this involves COLAs alone it seems, and not the general benefits.

MICHIGAN

Biggest change to tax code: taxability of pensions.

I still think it's dumb. Who the hell wants to retire to Michigan in the first place? Great way to drive people away even more, dumbasses.

Emergency finance manager stirring debate.

NEVADA

Double-dipping law under fire. Unlike most states, "double-dipping law" here means a law that allows for public employees to collect pension payments and also remain public employees. In most places, it's a law to preclude such behavior.

NEW HAMPSHIRE

Negotiations ongoing.

OREGON

Pension reform poops out.

PENNSYLVANIA

After all that work to get the numbers to dance, the state may end up taking over the Pittsburgh pensions after all. Well, expecting money to magically appear was never much of a plan.

RHODE ISLAND

The governor is getting a bit tetchy that the treasurer has all the press over the awful state of RI pensions. Dude, just let her have the issue. There's not going to be a huge amount of glory there.