Category: Public Finance

Revisualizing the Financial State of the States: 2021 edition

Mary Pat Campbell

Link:https://marypatcampbell.substack.com/p/revisualizing-the-financial-state

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Excerpt:

One large benefit of a tile grid map is you can see the geographically small states, which are often more obscured when you a geographically accurate map.

When viewed in this way, with the states colored by their grades, you can see that there’s a Northeastern Rogue’s Gallery, in addition to the expected stinkers of Illinois, Kentucky, and California (also, Hawaii, but many people don’t expect that one.)

But I want to point out that a lot of “red” states, in the political sense, also have crappy finances.

Texas is a particularly bad offender here, with a taxpayer deficit of -$13,100 per taxpayer. It’s not just the “expected” states where pensions are grossly underfunded — mind you, pretty much every single taxpayer sinkhole here has grossly underfunded state-level pensions — but it is a widespread problem.

Author(s): Mary Pat Campbell

Publication Date: 29 Sept 2021

Publication Site: STUMP at substack

Yellen Is Wrong. The US Government Doesn’t Always Pay its Debts.

Mary Pat Campbell

Link: https://mises.org/wire/yellen-wrong-us-government-doesnt-always-pay-its-debts

Excerpt:

In 1934, the United States defaulted on the fourth Liberty Bond. The contracts between debtor and creditor on these bonds was clear. The bonds were to be payable in gold. This presented a big problem for the US, which was facing big debts into the 1930s after the First World War.

….

So how did the US government deal with this? Chamberlain notes “Roosevelt decided to default on the whole of the domestically-held debt by refusing to redeem in gold to Americans.”

Moreover, with the Gold Reserve Act of 1934, Congress devalued the dollar from $20.67 per ounce to $35 per ounce—a reduction of 40 percent. Or, put another way, the amount of gold represented by a dollar was reduced to 59 percent of its former amount.

The US offered to pay its creditors in paper dollars, but only in new, devalued dollars.1 This constituted default on these Liberty Bonds, since, as the Supreme Court noted in Perry v. United States, Congress had “regulated the value of money so as to invalidate the obligations which the Government had theretofore issued in the exercise of the power to borrow money on the credit of the United States.”

This was clearly not a case of the US making good on its debt obligations, and to claim this is not default requires the sort of hairsplitting that only the most credulous Beltway insider could embrace.

Author(s): Ryan McMaken

Publication Date: 28 Sept 2021

Publication Site: Mises Wire

How Will The Biden Medicare Dental Plan Affect The Trust Fund Solvency?

Mary Pat Campbell

Link:https://www.forbes.com/sites/ebauer/2021/09/20/how-will-the-biden-medicare-dental-plan-affect-the-trust-fund-solvency/

Excerpt:

Among the changes coming if the Democrats succeed in their $3.5 trillion reconciliation bill would be the inclusion of dental, vision, and hearing coverage through Medicare, possibly in 3 – 5 years due to implementation challenges, and with suggestions of a voucher/cash payout in the meantime. There is not yet an official cost estimate as the details are still being negotiated, but a similar proposal in 2019 would have cost $358 billion over 10 years.

At the same time, late last month, the latest Trustees’ Report for Medicare determined that the Medicare Part A Trust Fund will be exhausted in the year 2026, which, if you do the math, is a mere five years from now. At that point, Medicare would have to cut reimbursement rates for doctors by 9%, increasing to 20% in 2045, or even more if the report’s assumptions don’t pan out.

How will the new dental benefits — assuming they remain in the bill — affect Medicare Part A and its trust fund? Strictly speaking, not at all. The new benefits would be a part of Part B of the program, that is, doctors’ charges, rather than Part A, which covers hospital charges. In one respect, it would be its own benefit structure entirely, since, unlike “regular Part B” Medicare, the proposal would have the federal government pay 100% of the benefit’s costs, rather than requiring participants to pay a 25% cost-share premium. It would, in a way, become Medicare Part E.

Author(s): Elizabeth Bauer

Publication Date: 20 Sept 2021

Publication Site: Forbes

States Have $95 Billion to Restore their Unemployment Trust Funds—Why Aren’t They Using It?

Mary Pat Campbell

Link:https://taxfoundation.org/state-unemployment-trust-funds-2021/

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States are permitted to replenish their unemployment compensation (UC) trust funds using the $195.3 billion they received in Fiscal Recovery Funds under the American Rescue Plan Act (ARPA)—and they need the help, having paid out $175 billion in state-funded benefits since the start of the pandemic, in addition to the $661 billion shelled out by the federal government in extended and expanded benefits, for a total of about $836 billion between January 27, 2020 and September 11, 2021.[1]

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Pre-pandemic trust fund balances stood at $72.5 billion. Today, aggregate trust fund balances are negative, at -$11.1 billion, reflecting $44.8 billion in indebtedness currently incurred by 10 states and the U.S. Virgin Islands. By federal standards, 34 state accounts are currently insolvent, with $114.6 billion needed to bring them all up to what the federal government regards as minimum adequate levels.

Author(s): Savanna Funkhouser, Jared Walczak

Publication Date: 22 Sept 2021

Publication Site: Tax Foundation

5 THINGS WRONG WITH ILLINOIS HOLDING 30% OF U.S. PENSION BOND DEBT

Mary Pat Campbell

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It is bad Illinois has the nation’s worst pension crisis, but state politicians have made it worse by using risky debt to delay the day of reckoning, and done so to the point that Illinois now owes 30% of the nation’s pension obligation bonds.

Pension obligation bonds are a form of debt used by state or local governments to fund their pension deficits. Illinois holds $21.6 billion of the nation’s $72 billion pension obligation bond debt.

The theory behind the bonds is that if a pension system can borrow money at a lower rate by selling bonds and earn a higher percentage from investing those funds, then it has realized a net gain using them. The issue is the gamble rarely works out that way, as the Government Finance Officers’ Association points out. Pension obligation bonds place taxpayer money at risk and often leave governments saddled with more debt rather than less. They often do not achieve a high enough return to justify their use.

Illinois’ five statewide retirement systems hold $144 billion in debt, according to official state reporting based on optimistic investment estimates. But Moody’s Investors Service says the true debt is $317 billion, which it calculates using more accurate methods common in the private sector.

Author(s): Adam Schuster, Aneesh Bafna

Publication Date: 10 Sept 2021

Publication Site: Illinois Policy Institute

ILLINOIS MISSES DEADLINE TO REPAY $4.2 BILLION FEDERAL UNEMPLOYMENT INSURANCE LOAN

Mary Pat Campbell

Link: https://www.illinoispolicy.org/illinois-misses-deadline-to-repay-4-2-billion-federal-unemployment-insurance-loan/

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Illinois missed the September deadline to repay a $4.2 billion federal unemployment loan. Employers warn inaction by state lawmakers could ‘cripple’ businesses and the COVID-19 economic recovery.

Illinois state leaders missed the Sept. 6 deadline to repay a $4.2 billion federal loan to the state’s unemployment insurance fund, which leaves Illinois taxpayers on the hook to pay $60 million in annual interest on that loan.

The unemployment fund has been depleted during the COVID-19 economic downturn. Between the loan and failure of state leaders to replenish the fund, potentially by using federal COVID-19 bailout funds, the deficit stands at $5.8 billion.

Business leaders warn a failure to repay the debt would result in automatic tax hikes on Illinois’ employers starting at $500 million, further waylaying the state’s stagnant job recovery. There would also be automatic benefit cuts of the same amount. Employers could be subjected to further, discretionary tax hikes by the state legislature if those automatic solvency measures fail to fill the hole.

Author(s): Adam Schuster, Patrick Andriesen, Perry Zhao

Publication Date: 17 Sept 2021

Publication Site: Illinois Policy Institute

NJ Sustaining Corruption

Mary Pat Campbell
NJ Sustaining Corruption




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gsi-3.jpg (1027×311)

Excerpt:

The Garden State Initiative released a report on the state of New Jersey finances. You have heard it all before but what keeps being left out of these ivory tower pronouncements is the systemic corruption at all levels and in all corners of officialdom here that makes even the slightest improvement in our general fiscal situation a pipe dream.
Here are some excerpts along with a few charts on the pension system, the last of which makes my point.
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Focus on that last chart. Liabilities actually decreased over the last two years. Significantly decreased against all logic and reason. Did everybody take a pay cut? Did 30% of plan participants disappear? No. The actuaries just got told to lower liability values and like dutiful apparatchiks they complied.

Author(s): John Bury
Publication Date: 22 Sept 2021
Publication Site: Burypensions

GSI REPORT: TOWARD A FISCALLY SUSTAINABLE NEW JERSEY: ANALYSIS & RECOMMENDATIONS

Mary Pat Campbell

Link: https://www.gardenstateinitiative.org/updates/sustainability

Full report: https://static1.squarespace.com/static/5956385fe4fcb5606a4d46ac/t/613f51e3dae757528286a93a/1631539687957/GS-1438_Fiscally_Sustainable_Final_01.pdf

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NJ’s revenue is being produced by higher rates on a smaller tax base: New Jersey needs to ensure that the outmigration of high-income residents does not continue. Between 2008 and 2017, New Jersey experienced growth in the number of tax filers of 4.2%; however, growth in those making $500,000 or more annually was only 2.5% during the same time.

NJ’s public spending is growing faster than inflation, our population or job creation:  Our state will continue to see specific needs increase, especially in public health, health insurance, and public safety. New Jersey already taxes residents and businesses more than most other states. The problem is not too little revenue; rather, it is that the state’s spending is growing at a faster pace than inflation and the state’s population

The cost of NJ’s public workforce retirement and healthcare is the key driver of escalating spending and taxes: What New Jersey owes employees and retirees is growing significantly faster than the underlying economy that must support this liability. This is not sustainable. Pension liabilities are growing faster than assets

Author(s): Thad Calabrese, Thomas Healey

Publication Date: 22 Sept 2021

Publication Site: Garden State Initiative

CalPERS Devises “Heads I Win, Tails You Lose” Gamble for Long-Term Care Policyholders in Settlement

Mary Pat Campbell
CalPERS Devises “Heads I Win, Tails You Lose” Gamble for Long-Term Care Policyholders in Settlement

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Excerpt:

The graphic “Settlement Bet” shows options that policyholders have to choose from in the Settlement. The graphic “Settlement Happens??” shows the consequences of the “Settlement Bets” if the Settlement happens or not.

Policyholders not wanting to terminate their CalPERS policies will select not to participate (“opt out”) in the Settlement (as participation will end policyholders’ policies if the Settlement is approved).

Policyholders whose preference in light of announced rate increases would be to terminate because of the new CalPERS rate increases can be divided into two groups in light of the Settlement options: (1) those that wish simply to terminate and stop paying premiums; and (2) those who wish to terminate but are prepared to gamble with CalPERS to get a refund.

In making these choices, all policyholders are being forced to gamble a lot of money. Why the Settlement is structured as a gamble is unclear, but it is. That seems incredibly unfair to policyholders who can ill afford more financial losses after their losses already caused by CalPERS LTC.

Author(s): Yves Smith, Lawrence Grossman

Publication Date: 23 Sept 2021

Publication Site: naked capitalism

Report finds Illinois holds 30% of pension obligation bond debt in nation

Mary Pat Campbell

Link: https://www.thecentersquare.com/illinois/report-finds-illinois-holds-30-of-pension-obligation-bond-debt-in-nation/article_0ab6d148-1716-11ec-b36b-1b03ea725eeb.html#new_tab

Excerpt:

A new report shows Illinois holds 30% of the nation’s pension obligation bond debt.

A pension obligation bond is a form of debt that some states use to make payments to state-run pension funds. A pension obligation bond gets paid out by a third party and the state then pays back that loan with interest. Financial experts often advise against the use of pension obligation bonds, said Adam Schuster of the Illinois Policy Institute.

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The interest on the pension obligation bonds continues to climb and is leaving Illinois in a worse spot than it was previously in. The state has borrowed a total of $17.2 billion since 2003, but repayment cost is now $31 billion. Pension obligation bonds can save taxpayers money if the interest rates on the bonds is lower than the rate of return on the pension investments. If the rate of return drops below the interest rate on the bonds, then taxpayers are on the hook for the difference. This is a strategy that Schuster said is the same as gambling with the state’s money.

Author(s): Andrew Hensel

Publication Date: 16 Sept 2021

Publication Site: The Center Square

The tart truth underlying SALT repeal arguments

Mary Pat Campbell

Link: https://www.washingtonpost.com/opinions/2021/09/18/tart-truth-underlying-salt-repeal-arguments/

Excerpt:

According to the Tax Foundation, just 13.7 percent of filers itemize their deductions — a prerequisite for deducting state and local taxes. Only at the top 10 percent of the income distribution do even a majority of taxpayers itemize. But among the top 1 percent of taxpayers, 92 percent do, and of course, their higher marginal tax rates make each deduction more valuable.

So it is these taxpayers whom the SALT deduction primarily benefits. According to Maya MacGuineas of the Committee for a Responsible Federal Budget, households in the top 0.1 percent of earners would receive an average benefit of about $150,000, while those in the middle would get closer to $15. Repealing the caps would cost about $350 billion by 2026, and an estimated 85 percent of that revenue would end up in the pockets of the richest 5 percent of Americans.

You can probably think of many better uses of taxpayer money than giving a tax break to the most affluent people in the most affluent parts of the most affluent states in the country. Unless, of course, you are someone who would benefit from a larger SALT deduction. As, I admit, I would.

Author(s): Megan McArdle

Publication Date: 18 Sept 2021

Publication Site: Washington Post

Tax Me, I’m From New Jersey

Mary Pat Campbell

Link: https://www.wsj.com/articles/regressive-tax-new-jersey-salt-cap-reconciliation-2017-cuts-and-jobs-act-aoc-biden-11632167030

Excerpt:

I am no billionaire. But like Mr. Buffett, I am willing to take one for the team. So as Democrats in Congress come under pressure to roll back the $10,000 cap on the federal tax deduction for state and local taxes, or SALT, this long-suffering resident of New Jersey offers his own Buffett-like message:

Don’t do it. Make me and people like me — those who choose to live in high-tax states — pay our full, fair share of federal taxes.

Such an approach accords well with what Mr. Biden has been saying about taxes and the wealthy. In his most recent remarks about his Build Back Better plan, the president said he’s “tired” of the rich not paying their “fair share.” And he attacked the 2017 tax cuts passed under Donald Trump as a “giant giveaway to the largest corporations and the top 1%.”

But that’s exactly who would benefit most from any expansion of the SALT deduction. According to the Tax Policy Center, 57% of the benefits of eliminating the cap on the SALT deduction would go to the top 1% of filers. The same researchers likewise reckon that the top 1% would get an average tax cut of more than $35,000 — against just $37 for middle-class taxpayers.

Author(s): William McGurn

Publication Date: 20 Sept 2021

Publication Site: WSJ