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Monday, April 30, 2012

How Big Government Is Killing California

When you've lost the entrepreneurs, free-spirits, and dreamers, you've lost the Golden State.
Steven Greenhut | April 27, 2012
The new USC study pointing to a much-slower population growth rate in California has been greeted by demographers and urban planners as good news, in that it supposedly gives our state’s leaders a little breathing room to plan better for the future. The rate of growth has slowed to about 1 percent a year, the result of fewer immigrants coming here and so many Californians heading to other states.
“The cooling pace means the state, city and county governments and other entities will have more time to prepare for a bigger population than they did in years past, allowing for more effective planning,” according to the Los Angeles Times, paraphrasing the study’s authors. “That could ensure that new roads and parks, for example, are put in areas where they are most needed and where growth is likely to be sustained, they said.”
That’s an absurdly optimistic spin. California’s elected officials have been doing as little planning as possible, unless one counts planning to spend tens of billions of dollars the state doesn’t have on a high-speed rail line that will partially replicate what the airlines already do now. Our leaders are battling new water-storage facilities and punishing farmers with absurd water restrictions. They impose roadblocks toward building new highway systems and land-use regulations make it nearly impossible to build the homes and businesses necessary to meet the needs of a growing population. One can hardly call that planning.
The state is still growing, but this decline in the rate of growth is symbolic news: The California Dream is over. People don’t want to come here even though this is, with little question, the most beautiful state in the union. Americans -- even those who like to mock our state -- ought to think about what this means.
California has always been a magnet -- a land that has called people from across the country and the world. It’s a place that was known for its entrepreneurial spirit and open culture. But it has been turned into a regulatory and tax nightmare, a place where those who already have their money can live in their coastal palaces and enjoy the splendor of the landscapes, but where it’s unnecessarily difficult to move one’s way up the economic ladder. The USC study doesn’t reveal anything new as much as it confirms trends already apparent.
Four million more people have left California for other states than have come here from other states in the past two decades, according to demographer Joel Kotkin. The population growth has been coming mainly from immigrants and births from people already living here, but now the USC study shows that immigrants are going elsewhere. A cynic might say that California’s liberal elites have ended the state’s contentious battles over illegal immigration by destroying opportunities here.
Kotkin, an old-time liberal, sees troubling trends. “Basically, if you don’t own a piece of Facebook or Google and you haven’t robbed a bank and don't have rich parents, then your chances of being able to buy a house or raise a family in the Bay Area or in most of coastal California is pretty weak,” he said in a recent Wall Street Journal interview. “The new regime wants to destroy the essential reason why people move to California in order to protect their own lifestyles.” He says the state is run for the benefit of the very rich, the very poor, and public employees.
This is not a healthy society. And the demographic changes point to an aging population. Far from reducing the burdens on the state government, this will increase them. State officials are not building to meet future needs, but they have been squandering future dollars on excessive pay and pension packages for public employees. Look for a coming battle between services for lower-income Californians and retirement benefits for the most powerful special interest group in the state, public employees.
There’s no chance the state’s most serious fiscal issues will be solved or even addressed soon. Earlier this month, Democratic Assembly leaders announced that they have no time to deal with the governor’s modest pension reform plan. They do have time to deal with hundreds of other bills, most of which range from the silly to the crazy. What’s the chance they will handle any of the other issues restricting California’s economy?
Gov. Jerry Brown points to economic growth in Silicon Valley as evidence of the success of his policies, but that area is an anomaly. The rest of the state is struggling. The anti-business, anti-growth policies pursued by Brown’s party will not make the situation better. People fleeing California are small business owners, young families, and tax-producers. They also tend to be more Republican, which means that as the exodus grows, so too grow the state’s tax and political problems. There will be fewer taxpayers and less political competition. 
California’s leaders want a slower-growing population. Many Californians, even more conservative ones, will be happy that there will be fewer people and less development. But it’s disturbing that California’s official policy has been to punish people who want to pursue their dreams here. The state’s draconian land-use policies involve limiting growth, thus inflating the cost of property near the coast and pushing less-affluent people inland and to other states.
“What I find reprehensible beyond belief is that the people pushing [high-density housing] themselves live in single-family homes and often drive very fancy cars, but want everyone else to live like my grandmother did in Brownsville in Brooklyn in the 1920s,” Kotkin added, pointing to the “smart-growth” policies that dominate development decisions across California.
California remains a beautiful place, but it no longer is the destination for entrepreneurs, free-spirits, and dreamers. These are the fruits of modern-day progressive policies. This should be the cause of much sadness.
Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.

Providence Council OKs $236M in Pension Cuts

Biggest union backs changes; fire union outraged
Updated: Friday, 27 Apr 2012, 6:08 AM EDT
Published : Thursday, 26 Apr 2012, 8:19 PM EDT
PROVIDENCE, R.I. (WPRI) - The Providence City Council on Thursday night unanimously and quickly approved a far-reaching overhaul of the cash-strapped capital's pension system that would freeze the size of its retirees' pensions for about 24 years.
After a half-hour debate, the council voted 15-0 to approve an ordinance implementing six of the seven recommendations put forward a week ago by a special subcommittee on the pension system. City lawyers advised them not to include the seventh proposal because it related to retiree health care, not pensions. The rest of the changes would take effect July 1.
The all-Democratic council must hold a second vote on the pension ordinance, which will likely happen Monday and is expected to be a formality. The measure will then go to the desk of Mayor Angel Taveras, who has said he will sign the pension cuts into law and use $16 million in savings from them to balance next year's budget.
"I commend the Council for making the tough choices to move Providence forward," Taveras said in a statement. "The current pension system is unsustainable and driving the capital city toward a black hole." He called their action "a vote to support working families, small business owners, taxpayers and dedicated city workers."
Igliozzi wants further talks
Councilman David Salvatore, who chaired the pension panel, argued the changes will fix a system "that has been broken for quite some time" and is a major reason the city is facing bankruptcy. The changes will reduce the city's $901 million pension shortfall by at least $236 million.
Salvatore highlighted the endorsements of the plan by the Greater Providence Chamber of Commerce, the Rhode Island Statewide Coalition, the Providence Foundation and The Providence Journal's editorial board.
"These endorsements send a clear message that Providence cannot and will not move forward without comprehensive pension reform," he said, adding that "the sins of the past will never be repeated again in the city of Providence."
Councilman John Igliozzi suggested retirees, particularly those with 5% and 6% compounded cost-of-living adjustments (COLAs), should reach out to the mayor to negotiate an alternative compromise that eases the burden on other pensioners. He also suggested Taveras should immediately file suit to begin the process of getting a judgment on the law's legality.
Iannazzi, Doughty split on move
Union leaders were divided. Local 1033, the largest city union which represents municipal employees, supports the pension ordinance, its business manager Don Iannazzi told . "We hope it turns the page," he said. "It's tough medicine but it's the only thing that we can do to begin a step in the right direction."
Iannazzi echoed Igliozzi's suggestion that a compromise could be reached even after the ordinance passes. "I'm also hoping that the discussions that have taken place rather hot and heavy for the last two weeks continue, because this is a legislative process," he said. "The art of compromise is here."
Paul Doughty, president of the city firefighters union, lambasted city leaders for pushing the measure through rapidly and negotiating in bad faith. He called on Taveras to return to the negotiating table before the second council vote to reach a compromise or else risk poisoning the relationship between City Hall and its firemen.
"Today's a teachable moment for this union and any union that works with this city," Doughty said. "We stepped up [last year] and helped with a $110 million deficit. That will never happen again in a generation." He added: "The ink's not even dry on that. This is ridiculous."
"I've cautioned the city that this road is perilous, because if they lose in court - and they're certain to get sued - they're automatically going to end up in bankruptcy, because they won't be able to refund the money," Doughty said.
Nearly 3,000 of Providence's 4,300 retirees are in the city pension system, including former police officers and firefighters. Retired teachers get their pensions as part of the state-run system, but they receive health insurance benefits through the city.
People 'should be put in jail'
In addition to freezing COLAs, the ordinance would cap pension benefits at 150% of Rhode Island's median household income; reduce tax-free disability pensions from 66.6% to 50% of final salary; base pension benefits off a five-year average salary; and make employees contribute to the system for the duration of their careers.
More than one member of the council said Thursday night's vote was among the most difficult decisions any of the members had ever been asked to make. Councilman Luis Aponte said the city was forcing municipal, police and fire employees to take "a haircut and a shave" to stabilize Providence's finances.
"This is not a magic bullet," Aponte said. "This will not resolve the problems that our city faces. It is one step in the right direction. It is part of an ongoing conversation." He also noted Brown University has yet to agree to raise its voluntary payments to the city to the level proposed by Taveras.
"The entire city is in peril, and there's a question as to whether the city will remain solvent through the end of the fiscal year," Councilman Sam Zurier said. "The facts are that the cupboard is bare."
"There's people in the past who should be put in jail for what they did to our pension system," added Councilman Nicholas Narducci, a member of the state pension system, which last November suspended COLAs and switched to a hybrid pension plan.
Ted Nesi ( ) covers politics and the economy for and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi
Copyright WPRI 12

Thursday, April 26, 2012

Aaron Hilmer on Mark Reardon Show - KMOX AM 1120 Tomorrow

Mehlville FPD chairman and MCTA member Aaron Hilmer will appear on the Mark Reardon Show Friday, April 27 in the 2 PM segment. Hilmer will participate in a lively discussion known as the "Reardon Roundtable" with two other prominent local personalities. Hilmer is nationally known as a successful public pension reformer.

More Than Good Enough for Government Work

Wednesday, April 25, 2012 - THE AMERICAN

To reform public pensions, policymakers must tackle their structural problems.

State lawmakers face an uphill battle in trying to bring their governments’ pension costs under control, largely due to opposition from government employee unions. But the unions’ resistance to reform is beginning to weaken, and a growing number of states are enacting reforms.
The momentum for pension reform is likely to mount as long as state budget woes persist. And persist they do. Nationwide, public pensions are underfunded by a total of $4.4 trillion, according to Northwestern University finance professor Joshua Rauh.
According to a new report from the National Conference of State Legislatures, “From 2009 through 2011, 43 states enacted major changes in state retirement plans for broad categories of public employees and teachers to address long-term funding issues.” These reforms include increased employee contributions, higher age and service requirements for retirement, less generous cost-of-living benefit increases, and changes in formulas for calculating benefits.
This is a positive trend, but as Rauh’s estimate makes clear, much work remains to be done. If reform is to succeed, it must tackle head-on the following structural factors that caused pension costs to explode in states across the nation:
Structural factor 1: Pension payouts based on final year pay.
Many pension funds set retiree payouts based on the retiree’s final year earnings, rather than a career average. This has enabled some public employees to engage in a practice known as “spiking,” which involves employees racking up long hours of overtime during their last year on the job. Some employees even end up with pension payments that exceed their final year salary!
A recent Los Angeles Times investigation found that even though in 1993 the California Public Employees’ Retirement System (CalPERS) banned spiking, 20 of California’s 58 counties do not participate in the state plan and continue to allow the practice. The Times found that, “In Ventura County, where the pension system is underfunded by $761 million, 84% of the retirees receiving more than $100,000 a year are receiving more than they did on the job. In Kern County, 77% of retirees with pensions greater than $100,000 a year are getting more now than they did before.”
California Governor Jerry Brown recently proposed calculating payouts based on a three-year average of final pay. While a slight improvement, this proposal would still allow spiking to remain viable. For such a reform to have teeth, it should be based on a career average, or at least on a much longer time period.
Structural factors 2 and 3: Collective bargaining and binding arbitration.
Government employee unions have a vested interest in the growth of government. More government programs mean more government workers, which in turn mean larger union membership rolls. Membership dues go in large part to campaign contributions to politicians eager to expand government. Unlike the private sector, collective bargaining in the public sector places government employee unions on both sides of the table, as the unions spend huge amounts of time and resources in electing their own bosses.
Once in office, union-friendly politicians naturally seek to keep their union supporters happy. To do so, these elected officials vote to give unionized government employees greater pay and benefits. For politicians eager to please their union supporters while avoiding taxpayer ire, pensions are the perfect tool, as they allow them to kick the can down the road in terms of costs. When the payments come due, they’ll be out of office, and it’ll be somebody else’s problem.
Many unions and local governments agree to submit to binding arbitration to avoid strikes. However, this can be even costlier than strikes themselves. An arbitrator will never award a settlement that is less than management’s final offer, so the union is guaranteed to win at least some of its demands, and will never come out worse than the status quo ante, thus creating an upward ratchet effect on wages.
Structural factor 4: Politicized pension fund boards.
Overly generous pension commitments have been exacerbated by poor investment management, largely due to politics. CalPERS is a case in point. Despite its commendable ban on pension spiking, the fund’s management is hardly a paragon of sound investing. Even though the California state constitution requires pension fund managers to choose investments to maximize return and minimize risk, CalPERS board members have pursued a political agenda under what it calls a “triple bottom line,” which can include environmental and social objectives unrelated to increasing investment returns. As my Competitive Enterprise Institute colleague Trey Kovacs notes, in 2000, CalPERS stopped investing in tobacco firms, causing the fund to sacrifice $1 billion in potential gains. In 2008, CalPERS lifted its tobacco ban, admitting that it “could no longer justify” it.
U.S. state policymakers should look to the management of public pensions in Canada, which The Economist profiled recently, noting, “Those seeking to understand how Canadians have pulled it off are given two answers: Governance and pay. There is little political interference in the funds’ operations. They attract people with backgrounds in business and finance to sit on their boards, unlike American public pension funds, which are stuffed with politicians, cronies, and union hacks.”
Structural factor 5: Faulty accounting standards.
Many state pension managers base their funding projections on overly optimistic expectations of investment returns, resulting in too little being set aside for future beneficiaries. This has been allowed to happen under rules set out by the Government Accounting Standards Board (GASB), which governs public pensions. GASB rules allow public pension funds to set their liability discount rate based solely on their expected rate of return. For most pension funds, this lies in the 7.5 to 8.5 percent range.
However, while pension funds can achieve such rates of return in some years, they are extremely unlikely to replicate such performance in the long run and without taking a lot of risk. Thus, such interest rates should not be used to value benefit liabilities that are guaranteed. As Josh Barro of the Manhattan Institute notes, “Those higher returns carry a downside: volatility … In some moments, investments will produce windfalls that far exceed expectations; at other times, as in the period from 2008 to 2009, the funds’ returns will come in far behind.”
In the private sector, the Financial Accounting Standards Board requires pension fund discount rates to reflect investment risk. “For most private-sector pension plans,” notes Barro, “the market-value approach produces a discount rate between 5 percent and 6 percent—noticeably lower than the 8 percent presumed by the public sector.” Notably, Rhode Island’s wide-ranging pension reforms included a lowering of the state pension fund’s discount rate from 8.25 to 7.5 percent. While arguably it could have been lowered by more, the move is a step in the right direction.
Both political parties are to blame for budget deficits. Today, they threaten the fiscal viability of states both red and blue. As the National Conference of State Legislatures report makes clear, state officials across the nation and from both parties are finally working to pull their jurisdictions back from the brink. To do so effectively, they need to enact reforms that tackle structural problems head-on.
Ivan Osorio is editorial director and labor policy analyst at the Competitive Enterprise Institute.
FURTHER READING: Alan J. Haus writes “Right-To-Work Unionism?” Michael M. Rosen explains “The Real Problem with Government Employee Unions.” Andrew G. Biggs contributes “Cadillac Pay in the Land of Lincoln” and “Why Wisconsin Gov. Scott Walker Is Right about Collective Bargaining.” Michael Barone reports “Public Unions Force Taxpayers to Fund Democrats.” Nick Schulz declares “It's Time to End Rigged System.”

Saturday, April 21, 2012

COMMENTARY: Fed Screams Softly in Warning About Public Pension Crisis

by FRANK KEEGAN | April 18, 2012

This is what it sounds like when the Federal Reserve Bank screams: "Much has been written about the various headwinds restraining economic activity over the near term. However, our economy also has other headwinds to confront over the medium- to-longer-term. ... the finances of some state and local governments are also under stress and in need of serious adjustments."  - Federal Reserve Bank of Cleveland President Sandra Pianalto
Pianalto's carefully worded column in the latest "Forefront" magazine refers to "Public Finances: Shining Light on a Dark Corner," three reports on a year of research by the Cleveland and Atlanta Feds.
Forefront editors introduce the issue: "Many state and municipal budgets are in woeful shape. What concerns should we have about public pensions and municipal bond markets? ... we explain where risks could be building and how reforms might help forestall their impact on the broader economy and financial system."
Forestall? How about prevent their impact on the broader economy and financial system?
No such luck, citizens. "Public Pensions Under Stress" reports, "It now seems inevitable that sacrifices will be required from current employees, employers, and in some cases, retirees. ...
"Without strong remedies, at what point would pension plans run out of money, leaving financially impaired state and local governments on the hook? That question is not quite settled."
Actually, asking when they will run out of money instead of if they will run out of money confirms that politicians and pension fund managers have been denying reality for years.
Even under the most optimistic - even delusional - assumptions about fund investments, the article cites a study showing virtually all plans eventually "exhausted" even when using up annual contributions.
The study admits: "Other estimates paint a bleaker picture. Joshua Rauh, Northwestern University professor, ..." who calculated exhaustion dates if pension plans use risk-free assumptions and do not cannibalize annual contributions, but said, "... a recent GAO study concludes that Rauh's projected exhaustion dates are not a realistic estimate ...."
Actually, the Government Accountability Office said just the opposite.
The federal study offers a scary warning: "At this point, it seems unlikely that any major pension fund will run out of cash in the next few years, barring a general worsening of economic and financial conditions. Indeed, increased public attention on the underfunding problem has motivated pension plan sponsors to work with state legislators to implement substantive reforms. ...
"But most of these changes have only a limited effect on plan funding. ..."
That means "... we are not out of the woods yet. Many funds will require ... painful new contributions from employers and employees. ... Meanwhile, an imminent collapse of several large funds, accompanied by a shock to the financial system, remains improbable - though not impossible."
What if economic and financial conditions generally worsen and the improbable becomes possible? This study does not say.
However, fund "Managers' ‘reach for yield,' if practiced widely, would make pension plan sustainability particularly vulnerable to another negative shock to equity prices."
Managers are increasing risk by reaching for yield in desperate efforts to meet investment goals needed to keep funds from collapsing, just setting us up for a bigger crash next time. That, in turn, will have a negative impact on the general economy.
The second federal study asks: "Just how much should most Americans worry that some state and local governments could go into default?"
Researchers have "been looking at how shocks to the municipal bond market, continued problems with pension funding, and general fiscal stress could ripple into something much larger - either in the form of a (rather unlikely) threat to financial stability or perhaps as an aggravation of regional economic woes."
Rather unlikely? Those are the Fed's parentheses, citizens, not exactly reassuring.
The study ranks risk of state government default "extremely low" because, "After all, state governments maintain the authority to raise taxes (however politically unpopular) to cover any shortfalls." Again, parentheses are the Fed's.
They never even consider the possibility of taxpayers just saying NO!
"Even so, as the financial crisis demonstrated, improbable events can occur. So it's a useful exercise to think through what might happen if a government did fail, triggering a contagion that could spread to players ranging from banks to money market mutual funds."
What would that mean? According to the study: "Our preliminary analysis suggests that an isolated default is unlikely to trigger a systemic event, but it might cause a temporary contraction of credit as financial institutions reallocate their holdings and divest downgraded municipal debt. And we're still digging into what might happen if more than one default were to take place at the same time."
Gee, what are the odds of that happening with California and Illinois unable to pay bills and their governments paralyzed?
But states are the good news. Cities, counties and towns are the bad news, because financial "disclosures by municipalities or by other issuers, such as school and sewer districts, are provided inconsistently and with considerable lags."
That means we don't have a clue how big this catastrophe could be.
"A sudden, unanticipated municipal bond default could cause a sharp decline in investor confidence, potentially leading to a rapid selloff. If investors thought that defaults among multiple issuers were highly correlated, growing uncertainty could fuel a downward spiral of selling and investor losses."
Such "potential for systemic risk seems low ...," according to the study. Seems?
However, "While the conclusions of preliminary analysis do not suggest the risk of systemic threats, we remain vigilant in monitoring conditions that could shock the financial system or threaten the economy's footing on its path to recovery."
Fixing underfunded pensions now would be the best way to prevent - not forestall - calamity. But that is not so easy, as the third article, "Navigating the Legal Landscape for Public Pension Reform: Travel at Your Own Risk," states explicitly.
Pension "... reform-minded policymakers have to tread carefully, treating each state as a separate case. By no means is public pension reform out of the question, but legal precedent in a given state determines what reforms are realistic there."
One reality the Fed delicately tiptoes around is that public-employee union voter drives and campaign contributions coupled with general voter ignorance, apathy and low turnout can be impenetrable barriers to reform until it is too late.
Ultimately, "If you want to help public pension plans close their funding gaps by reducing benefits, the law will probably work against you." Except citizens get to change the law.
Bottom line: Rotten state and municipal finances hit by pensions "whose troubles with chronic underfunding predate the financial crisis" could threaten the economic recovery necessary to save states and municipalities from their rotten finances.
This could be a fiscal event horizon feeding on itself and sucking America into a black hole of eternal debt.
Of course, that is not what the calm, measured words of the Fed say because the Fed always screams softly.
Think not? For perspective, consider these words by Donald Kohn, then-Fed vice chairman, in a speech May 20, 2008, to the annual National Conference on Public Employee Retirement Systems, or NCPERS, the people who have been and still are assuring us they have everything under control, and there is no public pension crisis:
"Although the current financial and economic situation remains quite difficult, I believe that the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and then gathers some strength in 2009. ...
"The pace of activity should continue to improve next year, with an important part of the gains coming from the abatement of the forces currently restraining activity. That said, a number of factors suggest that the recovery could be relatively moderate."
Relatively moderate? How about a 49 percent plunge in the Dow over the next nine months and the worst recession since the Great Depression?
As for public pensions, Kohn said, "From what we have seen so far ... systems generally appear to have avoided the worst of the damage resulting from the recent tumult." They did not avoid it for long.
He pointed out that as of 2007 "Even by current measures of liability, which themselves may not be fully revealing, last year about three-fourths of public pension systems were underfunded, and about one-third were funded at less than 80 percent. ...
"The funding situation puts systems under a great deal of pressure to reach for higher returns by investing in riskier assets. ... The generally high weight on equity and real estate investments in the typical public pension fund portfolio has increased in recent years."
Since then, it's just gotten worse. What about those high return on investment assumptions politicians and pension fund managers use to assure us everything is OK?
Kohn told NCPERS, "While economists are famous for disagreeing with each other on virtually every other conceivable issue, when it comes to this one there is no professional disagreement: The only appropriate way to calculate the present value of a very-low-risk liability is to use a very-low-risk discount rate."
Doing otherwise "pushes the burden of financing today's pension benefits onto future taxpayers, who will be called upon to fund the true cost of existing pension promises."
But we do not even know how huge those costs are because "... public pension systems do not account for liabilities in a standardized way. As a result, public employees, taxpayers, municipal bond investors, credit rating agencies, and other market participants have a hard time comparing funding levels across systems and over time."
He concluded, "Public pension funds hold more than $3 trillion in assets and cover nearly 20 million workers and retirees."
Four years after that warning public pension fund assets are down about $500 billion and must cover nearly 24 million employees; current obligations increased more than $600 billion and return on investments fell more than $1.3 trillion short of what is needed to pay promised benefits. The accrued actuarial liability probably is more than $4 trillion.
This is what happens when the Fed screams softly and nobody listens.
State and local politicians must listen up this time and begin the painful work of cutting pensions before contributing to the next crash, or they not only will help cause it, they will make it worse.

Thursday, April 19, 2012

MFPD Setting the Standard for Good Fiscal Stewardship

Mike Anthony
Executive Editor - Call Newspapers

April 18, 2012 - An open house for the Mehlville Fire Protection District's new No. 3 Firehouse at 4811 S. Lindbergh Blvd. is set for Saturday, April 28.

The open house is slated from 11 a.m. to 2 p.m.

The new firehouse is the fourth constructed since 2005, starting with the No. 1 Firehouse at 3241 Lemay Ferry Road. Work on that firehouse began under a previous board, but was completed after Chairman Aaron Hilmer and Treasurer Bonnie Stegman took office in April 2005.

Under the current board — Hilmer, Stegman and Secretary Ed Ryan, who was elected in April 2007 — three more firehouses have been constructed, including the new No. 3 house.

The No. 2 Firehouse at 5434 Telegraph Road was completed in 2009 and the No. 4 Firehouse at 13117 Tesson Ferry Road was finished early last year.

All of the new firehouses are magnificent structures, enhancing the neighborhoods in which they are located. But even more remarkable is the fact that all four of the new firehouses have been constructed without a tax-rate increase or bond issue — no legacy debt whatsoever.

That's on top of the board rolling back a 33-cent tax-rate increase that was approved by MFPD voters in November 2004, and voter approval of two tax-rate-decrease measures in April 2009 that reduced the district's tax-rate ceiling by a total of 40 cents.

Hilmer has calculated the savings to taxpayers from the tax-rate-decrease measures at $10.5 million annually.

Contrast that with the fact taxpayers still are paying for the expansion and renovation of the district's No. 5 firehouse and administrative headquarters on Mueller Road in Green Park. Though work was completed in 2001 — long before the current board took office — the legacy debt associated with that project continues through 2020.

Early in their tenure on the board, Hilmer and Stegman voted to refund the bond-like certificates issued to fund the project. While the district saved roughly $240,000 in interest and reduced its annual payments, the legacy debt continues until 2020.

Many governing bodies currently are struggling to balance their budgets or contemplating seeking additional funding through tax-rate increases.

But the MFPD board and administration should be applauded because the district continues to deliver excellent service to the public and provide employees with a good pay and benefits package while living within the funding provided by taxpayers.

Illinois Shows What Not to Do

Wise Wisconsin isn’t imitating its spendthrift neighbor.
STEVEN MALANGA - The City Journal

In January 2011, facing a forbidding budget deficit and a backlog of unpaid bills, Illinois officials decided that a massive tax increase would lay the groundwork for the state’s recovery. As Barbara Flynn Currie, the majority leader in the state house of representatives, said at the time, the nearly $7 billion in new revenues would allow Illinois to “pay our old bills and deal with the structural deficit.” The taxes passed with little controversy. Several weeks later, Wisconsin governor Scott Walker proposed fixing state and local fiscal problems by narrowing public-sector workers’ collective bargaining rights and requiring them to contribute more to their pension and health-care benefits. His reforms, which took months to become law, provoked an occupation of the capitol and set off a national debate.

Little more than a year has passed, and Illinois is right back where it started: the state’s unpaid bills now top $9 billion. Meantime, Wisconsin’s state and local governments have made substantial strides toward long-term budget stability. The different fiscal outlooks of the neighboring states illustrate a crucial fact in today’s budget wars: you can’t tax your way to a better future. That’s because the promises made by previous generations of politicians to public employees and special interests have become, as one northeastern mayor colorfully put it, the “Pac-Man” of budgets, gobbling up revenues faster than governments can raise them.

Illinois has emerged as a poster child for fiscal irresponsibility. With its legislature beholden to public-sector unions, Illinois has long avoided financing state workers’ pensions out of its own budget. Instead, the state skips its contributions into retirement funds in some years and borrows money to finance the pensions in others. Since 2003, Illinois has floated more than $15 billion in pension-obligation bonds rather than pay for workers’ benefits out of its annual budget. Even with the borrowing, Illinois has one of the worst-funded pension systems in the country. One study estimates that the system could run out of money by the end of the decade.

Illinois legislators have consistently avoided tough choices. When the recession of 2008 curtailed tax collections, Illinois stopped paying its bills rather than cut spending. The state has accumulated a steep pile of IOUs, including tax refunds owed to corporations and Medicaid payments owed to doctors and hospitals. Though Illinois’ constitution mandates a balanced budget, the state has met that requirement only by ignoring those bills. The Chicago-based Civic Federation projects that, under current budget trends, the state’s backlog of unpaid bills would grow to $34 billion in five years.

All this has made investors and job creators leery of the Prairie State. In February, Peoria-based Caterpillar announced that it would not consider Illinois as a potential home for a Japan-based plant that the giant company was moving to the United States. In a statement to Illinois leaders, the company noted that “even if your community had the right logistics for this project, Caterpillar’s previously documented concerns about the business climate and overall fiscal health of the state of Illinois still would have made it unpractical for us to select your community for this project.”

When Governor Walker took office in January 2011, Wisconsin had already tried the Illinois approach to deficit reduction, hiking taxes by an estimated $3 billion in its 2009–11 budget cycle. Yet as it prepared for another two-year cycle, the Badger State faced a new deficit estimated at $3 billion to $4 billion. In tackling the budget, Walker used some typical strategies for cutting spending, including the increased pension and health-care contributions by government employees, which could save three- quarters of a billion dollars. But Walker also wanted structural changes in government that would make managing state and local budgets easier.

To accomplish that end, Walker looked not to Illinois but to Indiana, where in 2005 Governor Mitch Daniels had rescinded collective bargaining rights for state employees as the prelude to a vast restructuring of state government. Among the innovations Daniels put in place, once he no longer had to negotiate every change in compensation with the unions, was a money-saving benefits plan for state workers featuring individual health savings accounts. With moves like that, Daniels put Indiana on better footing to withstand the 2008 financial meltdown, one reason that the state today enjoys one of the soundest budgets in the country.

Critics branded Walker’s push to narrow collective bargaining rights an effort to break the state’s public-sector unions. What the legislation actually did was break the unions’ hold on the public purse. The Wisconsin Education Association, the state’s teachers’ union, had used its collective bargaining power to require school districts to offer health insurance through a union-affiliated insurer—the WEA Trust. With that benefit collectively bargained into many contracts, the WEA Trust charged 20 percent more for its coverage than competing insurers, on average, according to a 2010 study by the MacIver Institute. Then Walker’s reform eliminated the unions’ ability to bargain collectively for health benefits. By September 2011, just months after the Walker reforms went into effect, two dozen school districts had already competitively bid out new health-insurance plans, saving millions (see “It’s Working in Walker’s Wisconsin,” Winter 2012).

Though Walker’s collective bargaining reform got most of the press attention, the governor’s efforts are part of a broader trend. Last year in Tennessee, Governor Bill Haslam signed a bill ending collective bargaining rights for public school teachers as part of an effort to jump-start school reform. In New Jersey, Governor Chris Christie signed legislation narrowing the rights of public employees to bargain collectively on pension and health benefits.

Wisconsin is in far better shape today than Illinois, but it has a long way to go to make itself more attractive to new investment. In the hypercompetitive environment emerging since the financial meltdown, businesses are weighing carefully where they invest dollars to create new jobs. According to the Tax Foundation, Wisconsin still has the nation’s seventh-highest business-tax burden and the fourth-highest overall tax burden.

Those are two reasons, no doubt, that the state wasn’t adding many jobs even before the recession. From 2000 through 2008, Wisconsin ranked only 30th among the states in the various elements of job creation, called “job dynamics,” measured by the National Establishment Time-Series database. The state performed particularly poorly—36th among the states—in “job migration,” which measures jobs gained or lost when firms relocate from one state to another. Wisconsin also ranked 34th in jobs created by new firms versus jobs lost through business failures.

Many see Walker’s budget-repair bill of 2011—and the current union efforts to recall him from the governor’s office and rescind that legislation—as a battle over the future of Wisconsin. But the real struggle for Wisconsin’s future is about whether the state can emerge from the country’s long economic slump fiscally sound and positioned to win the jobs race.

Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. His latest book is Shakedown: The Continuing Conspiracy Against the American Taxpayer.

Tuesday, April 17, 2012

Drama in the June Hlections

By Roger Hedgecock
Monday, April 16, 2012 - The San Diego Union-Tribune
For decades, public employee unions in state and local government negotiated with the politicians they helped elect to add layer after layer of compensation, benefits and perks.
As a result, today the potholes don’t get fixed, the library hours are curtailed, the parks are closed, but the gold-plated pension and health benefits of our “public servants” get more costly every year.
The state of Illinois spends 20 percent of its annual budget in addition to the earnings of its state employee retirement system just to keep up with employee retirement benefit costs. In a few years, Illinois estimates that percentage will increase to 50 percent of state revenue.
The city of San Diego paid just $48 million in pension contribution in 2000. Last year it was $231 million. In five years, it will be $340 million, or nearly 20 percent of the city budget.
This same trend afflicts every state and municipality in the country.
You may be fortunate enough to have a private-sector pension plan.
Does your pension plan allow you to use your top year of earnings (rather than an average of the top three or five years) to calculate your pension? Does it allow you to pad your top-year earnings with unused sick pay and vacation time?
Does it allow for higher retirement pay than the salary for the job? Does it provide for unlimited free health benefits in retirement? Does it allow you to “retire,” then come right back and be rehired for the same job, effectively getting paid twice for the same work?
These and other benefits have accrued to public workers to the point that state and local governments are now run largely of, by and for the unions. These governments are going broke and taxpayers have had enough.
Republican Gov. Scott Walker of Wisconsin faces a recall election on June 5 because he fought for reform. National public employee unions have pledged over $12 million to defeat him.
Elected in 2010, Walker inherited a $3.6 billion budget deficit (in a state of just 5.7 million people), millions in unpaid bills to state vendors and the expectation that tax increases were necessary to solve the problem.
Walker supported spending reduction and reform instead of tax increases.
His reform proposal included requiring state workers to contribute 5.8 percent of their salary toward their pension plan where no employee contribution had been required since 1966.
Walker also supported restricting collective bargaining only to salary, not benefits, and supported an end to automatic union dues collection by the state from employee paychecks.
Last year, public employee unions noisily occupied the Wisconsin statehouse and state Senate Democrats fled the state to prevent a vote on Walker’s reforms. The reforms passed anyway.
One year later, spending reductions and pension reform have erased the Wisconsin deficit without tax increases. San Diego is running an $11 million surplus because of lowered city retirement costs.
The demand for reform is bipartisan. The movement is nationwide.
In Rhode Island, a comprehensive pension reform package similar to Wisconsin’s passed the heavily Democratic legislature and was signed by the governor.
In Massachusetts, Democrat Gov. Deval Patrick has asked the heavily Democrat legislature to adopt a pension reform package that will save that state more than $5 billion over 30 years by raising the retirement age and basing pensions on the average of the five highest years of earnings.
In San Diego, Councilman Carl DeMaio heads a reform movement that placed a nationally important Comprehensive Pension Reform on the June 5 ballot by initiative petition.
CPR bans “pension spiking” by restricting the pension calculations to base salary, requires 401(k)-style pension plans for all new hires and for city politicians, requires equal employee contributions to the pension plan, and caps employee compensation for five years.
The largest national public employee union, the American Federation of State, County, and Municipal Employees has just opened a super PAC to funnel millions of national union dollars into defeating CPR on June 5 in San Diego.
For good measure, AFSCME opened a second super PAC to defeat Carl DeMaio, who is also on the June 5 ballot running for San Diego mayor on his reform platform.
These June elections will determine whether state and local governments are responsive to the taxpayers or to the unions, and could set the stage for the presidential election in November.
Hedgecock is a nationally syndicated radio talk show host and a former mayor of San Diego and county supervisor.
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