Tag: federal stimulus

Prelude to a State Pension Bailout

Mary Pat Campbell

Link: https://www.wsj.com/articles/prelude-to-a-state-pension-bailout-11614547953

Excerpt:

Ordinarily, insolvency means pension freezes and benefit reductions, but multiemployer pensions are run by labor unions, a key Democratic constituency. And so the House Covid bill plans to dole out an estimated $86 billion from 2022 to 2024 to 186 pensions, enabling these plans to pay full benefits through 2051. With no incentive to cut costs, there’s little reason to think the pensions will be solvent after 2051. Look forward to more spending down the road.

Bailout supporters argue they’re helping impoverished workers make ends meet, but that doesn’t add up. The average monthly benefit from a plan like Central States is a seemingly modest $1,400. But that average is skewed downward by large numbers of employees who retired after only a few years of service. The one-third of Central States retirees who receive more than $2,000 a month — plus Social Security benefits — make a bailout expensive. No one in this group is even close to being in poverty.

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The larger worry is that Congressional Democrats’ willingness to bail out private-sector multiemployer pensions signals they would do the same for state and local employee plans. Public-employee pensions operate under the same loose funding rules as multiemployer pensions, and public plans in Illinois, Kentucky, New Jersey, Texas and other states are no better funded than the worst multiemployer plans.

Author(s): Andrew Biggs

Publication Date: 28 February 2021

Publication Site: Wall Street Journal

Does Every State Really Need a Big Biden Bailout?

Mary Pat Campbell

Link: https://www.governing.com/finance/Does-Every-State-Really-Need-a-Big-Biden-Bailout.html

Excerpt:

Then there are states like Hawaii, where cratering tourism has left the state in a $1.8 billion budget hole, with tax revenues not expected to recover until 2024. Florida and Nevada are also missing their frequent flyers after tax receipts plummeted by 7.9 percent and 13 percent, respectively. States dependent on taxing energy and mining, such as Alaska, North Dakota, Texas and West Virginia, have seen their own devastating budget hits. And sales-tax-dependent states like New York wound up in worse shape than those reliant on less volatile revenue streams like Vermont, where 32 percent of revenues come from property taxes. In all, 26 states saw their tax revenues decline in the first 10 months of 2020.

But every state’s been a winner this past year with the federal government, whose aid to states and localities rose an astonishing 42 percent. What might have been a $331 billion budget shortfall due to COVID-19 instead came to a $165.5 billion dip, according to Moody’s, and that’s before counting $79 billion in state rainy day funds. Federal aid also propped up businesses and households, which led to economic activity and hiring that boosted state and local tax revenues, while also hiking taxable unemployment benefits. Having the Federal Reserve goose the stock and housing markets with super-low interest rates didn’t hurt either.

Author(s): MICHAEL HENDRIX, MANHATTAN INSTITUTE

Publication Date: 24 February 2021

Publication Site: Governing

The good and bad in Biden’s giant relief bill

Mary Pat Campbell

Link: https://finance.yahoo.com/news/the-good-and-bad-in-bidens-giant-relief-bill-210546323.html

Excerpt:

Aid to states and cities. Cost: $350 billion. This money would offset lost tax revenue and help mayors and governors “mitigate the fiscal effects stemming from the public health emergency,” according to draft legislation. it’s clearly related to the pandemic, so it counts as relief, but it might also be more than states and cities need, since government revenue has held up better than expected during the last 12 months. 

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Pension relief. Cost: $74 billion. This money would address longstanding problems at roughly 1,400 underfunded pensions covering 10 million workers and retirees, most of them belonging to unions. A government agency called the PBGC is supposed to backstop pensions that run short of money, but it, too, is drastically underfunded and poised to collapse in coming years. The money in the House bill would bail out the riskiest pensions, but it’s controversial because it’s not paired with needed reforms—and it’s not specifically related to problems caused by the pandemic. This could be one provision that doesn’t survive the Senate.

Author(s): Rick Newman

Publication Date: 22 February 2021

Publication Site: Yahoo Finance

The $1.9 trillion Biden stimulus plan is moving forward — here are the biggest parts of it

Mary Pat Campbell

Link: https://www.marketwatch.com/story/the-biden-stimulus-plan-moved-forward-today-here-are-the-biggest-parts-of-it-11614032251

Excerpt:

The House Budget Committee approved on Monday a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, the first step toward likely House passage by the end of the week.

The vote was 19-16. Texas Democrat Rep. Lloyd Doggett voted with Republicans in opposition to the bill but a spokeswoman for him later said he had cast his vote in error and supported the legislation.

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Aid to state, local and tribal governments: This would provide money for states and local governments, as well as tribal governments, to offset tax-collection losses and increased spending resulting from the coronavirus pandemic. Price tag: $350 billion.

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Multiemployer pension plan aid: The Pension Benefit Guaranty Program would be able to give grants to underfunded pension plans guaranteed by the PBGC. The PBGC revolving fund to help pay full benefits when pensions fall short is set to be exhausted in 2027 under current law. Price tag: $81.5 billion.

Author(s): Jonathan Nicholson

Publication Date: 23 February 2021

Publication Site: MarketWatch

State and local government revenues have recovered from the pandemic, and further federal aid is unnecessary

Mary Pat Campbell

Link: https://www.city-journal.org/state-and-local-revenue-has-rebounded-to-pre-pandemic-levels

Excerpt:

“California is not only poised for recovery, but we’re seeing real signs of recovery in our state,” Governor Gavin Newsom announced in early January, as he unveiled a state budget with record spending fueled by a $15 billion budget surplus. Yet two weeks later, Newsom sent a letter to President Biden expressing support for his plan to give an additional $350 billion in aid to state and local governments.

Similar stories have played out in other states. “We’re going to need a robust federal support system to help our states and economies recover beyond the federal CARES funds that expire at the end of the year,” said Wisconsin governor Tony Evers in November. Yet within weeks, the state was projecting a budget surplus, and by January it had revised that estimate up to $1.8 billion. Rather than drawing on these reserves, Wisconsin added to its “rainy day” fund, the balance of which is expected to hit nearly $1 billion this year.

Author(s): Noah Williams

Publication Date: 11 February 2021

Publication Site: City Journal

More Federal Aid to States Not Needed

Mary Pat Campbell

Link: https://www.cato.org/blog/more-federal-aid-states-not-needed

Graphic:

Excerpt:

Spending advocacy groups are still claiming that state and local budget “shortfalls” are hundreds of billions of dollars. It is true that tax revenue growth in 2020 was slower than projected before the pandemic, but that is only a “shortfall” if you assume that budgets must always grow at the strong pre‐​pandemic rates. Yet states should know that booms do not last forever. If revenues are growing slower, then states should slow spending growth to match.

Perhaps tax revenues will fall in 2021, as they did in 2009. But that seems unlikely. CBO projected yesterday that real GDP will rise a strong 4.6 percent in calendar 2021. Private forecasters are also projecting solid growth. As incomes rise, state tax revenues should grow. Meanwhile, local governments are gaining from rising house prices because property taxes account for 70 percent of local tax revenues. U.S. house prices in the fourth quarter were up 14.9 percent on the year and are expected to remain strong in 2021.

Author(s): Chris Edwards

Publication Date: 12 February 2021

Publication Site: Cato Institute

The problem with going big on stimulus, as Biden is

Mary Pat Campbell

Link: https://www.startribune.com/the-problem-with-going-big-on-stimulus-as-biden-is/600021428/

Excerpt:

First, wise public sector investments are better for the poor than one-time wealth transfers. The U.S. is still reaping the benefits of the great public health and public works achievements of the 20th century. Second, the most enduring and beneficial government-transfer programs, such as Social Security, have been built on sustainable majorities.

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It’s not as if there aren’t obvious candidates for alternative investment: green energy, broadband and public health infrastructure for the next pandemic, to name a few. Yes, I am familiar with the argument that spending the extra trillion or so now will make it possible to spend more trillions later, including on such policies. But whatever kind of complicated political story you might tell, the basic laws of economics have not been repealed. Increasing current expenditures does, in fact, involve foregone future opportunities.

Author(s): Tyler Cowen, Bloomberg Opinion

Publication Date: 10 February 2021

Publication Site: Star Tribune

As Federal Aid Stalled, State And Local Governments Issued Bonds To Pay Current Bills

Mary Pat Campbell

Link: https://www.forbes.com/sites/lizfarmer/2021/01/30/as-congress-stalled-on-a-relief-package-governments-relied-on-borrowing-to-pay-the-bills/?

Excerpt:

Between August and mid-December of 2020, at least one-quarter of large bond issuances in the municipal market involved some form of deficit financing, according to an analysis by Municipal Market Analytics (MMA). The firm analyzed 442 municipal bond issuances that totaled at least $100 million.

MMA’s Matt Fabian and Lisa Washburn added that their tally was conservative and that as many as half of those 442 issuances may have involved deficit financing because the ultimate use of the money wasn’t always clear.

“These are not typical uses of the municipal bond market, where an overwhelming majority of financing is for long-term infrastructure projects,” they told the Pew Charitable Trusts. “But last year, with state and local governments seeking as much as possible to avoid cutting spending, raising taxes, or postponing pension payments, they shifted their emphasis to short-term and temporary solutions. As the pandemic continued and federal stimulus money dried up, they increasingly took on debt for budgetary help.”

Author(s): Liz Farmer

Publication Date: 30 January 2021

Publication Site: Forbes