Tag: pension reform

Government Unions Target Fiscal Sanity in Connecticut

Mary Pat Campbell

Link: https://www.nationalreview.com/2024/02/government-unions-target-fiscal-sanity-in-connecticut/

Excerpt:

Connecticut taxpayers, saddled with a pension system for state workers and teachers marked by decades of underfunding, glimpsed a ray of hope in 2017 when legislators embarked on a path toward accountability and fiscal discipline by enacting “fiscal guardrails.”

Now, state unions under the umbrella of the State Employees Bargaining Agent Coalition are clamoring for the removal of the fiscal guardrails that were constructed to prevent the same unions from driving taxpayers over the cliff. The staggering state debt of more than $80 billion, including unfunded pension debt from the state workers’ and teachers’ pension funds, bonded debt, and health-care liabilities, was the result of years of irresponsibility and political horse-trading with state unions that were all too eager to negotiate benefits without a sustainable funding plan.

…..

Connecticut has long been a high-income per capita state and also imposes one of the country’s most burdensome tax systems. Yet it still managed to accumulate the highest state debt per resident. The 2017 bipartisan fiscal guardrails constituted a recognition that the previous decade’s cycle of budget shortfalls, followed by significant tax increases, was simply unsustainable.

The guardrails were codified in 2023, and the general assembly unanimously voted to extend them for another five years. Their very effectiveness in slowing spending growth has made them susceptible to attack from state unions.

Author(s): Frank Ricci and Bryce Chinault

Publication Date: 13 Feb 2024

Publication Site: National Review Online

Can France Escape Its Pension Overhang?

Mary Pat Campbell

Link: https://www.city-journal.org/can-france-escape-its-pension-overhang

Excerpt:

In 2021, government spending accounted for 59 percent of GDP in France, compared with 45 percent in the United States. Spending on public pensions accounts for much of that gap: it’s 15 percent of GDP in France, but only 7 percent in the U.S. This greatly inflates associated payroll taxes, which alone took 28 percent of workers’ incomes in France, compared with just 11 percent in the U.S.

President Macron argues that the cost of financing pensions is dragging down the whole economy, and that reform is necessary to make France an attractive venue for investment and employment. Whereas workers’ incomes in 1975 were 46 percent higher than those of retirees, by 2016 they were 2 percent lower. Many economists see it as senseless to redistribute so much from the young to the elderly, who seldom have childrearing expenses and whose mortgages are often paid off.

Pension reform is seen as necessary by 61 percent of French voters, but only 32 percent support raising the retirement age. Macron argues that the only alternatives to his reforms would involve cutting benefit levels, hiking taxes, or cutting public spending on other items such as education, health care, or defense. France already has close to the highest taxes in the developed world.

Median incomes for French residents aged 65 and over ($20,116) are little different than those for Americans ($19,704). The main effects of France’s extra pension spending are to crowd out private savings for retirement (which amount to 12 percent of GDP versus 170 percent in the U.S), and to cause French citizens to retire much earlier (at an average age of 60.4, vs 64.9 in the states).

Author(s): Chris Pope

Publication Date: 28 Mar 2023

Publication Site: City Journal

Young Versus Old Will Define Fight Over Public Pensions

Mary Pat Campbell

Link:https://www.washingtonpost.com/business/young-versus-old-will-define-fight-over-public-pensions/2022/10/06/d4fae69a-4566-11ed-be17-89cbe6b8c0a5_story.html

Excerpt:

Younger workers are mostly excluded from those benefits, and few believe pension funds will be around to pay them at retirement time anyway. So younger workers want salary increases rather than promises. Also, portable, employee-directed accounts like 401(k)s rather than large and ever-increasing contributions to black-hole public pension systems. The fight in 2023 may be more between younger and older public employees than between united public employees and taxpayers.I think young employees will score their first victory after many years of getting pushed down. It will be short-term inflation then that applies lethal pressure in a tight labor market, not stock prices, interest rates or even longer-term expectations of price increases. Wages will have to be raised for public employees, who will refuse burdens from past underfunding or benefit cuts that apply only to them. The alternative is unacceptable declines in public services as the best employees quit, job openings go unfilled and qualifications for new hires are lowered.The most heavily indebted states, with the worst credit ratings and biggest pension funding shortfalls, may not be able to pay these increases. While 2022 should be a good revenue year for a majority of state and local governments, heavily indebted states with big pension-funding gaps need to brace for some serious headwinds. Illinois already spends 11% of its revenue to service debt. Increased yields on its bonds could double that to 22% as debt is refinanced, even if the state runs balanced budgets.

The temptation to cut benefits for retirees may be overwhelming. While these people can (and will) yell and scream, that’s easier to accept than a teachers’ strike or a police slowdown. Current employees can be offered generous wage increases and portable pensions. Reducing actuarial pension liabilities will please creditors and rating agencies. Taxpayers will appreciate being spared. In many states, cutting benefits will require a constitutional amendment or other legal heavy lifting, but with enough incentive, that can be done.

I expect something like Social Security reforms. A cap will cut benefits for people receiving the highest pensions, and states will put tax surcharges on benefits for high-income people even if they have moved out-of-state. Copays and deductibles will be increased for health coverage.

The first state to try this will face strong legal challenges, a nationwide union counteroffensive and significant in-state political resistance. But with enough fiscal pressure it may happen. If state administrations can keep current public employees on the sidelines, via wage increases and benefit restructuring, it might succeed.

Author(s): Aaron Brown, Bloomberg

Publication Date: 6 Oct 2022

Publication Site: Washington Post

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

Mary Pat Campbell

Link: https://www.illinoispolicy.org/5-things-wrong-with-illinois-holding-30-of-u-s-pension-bond-debt/

Graphic:

Excerpt:

Pension obligation bonds, like payday loans, are a sign of mismanaged finances. Illinois not only leads the nation for using that risky debt, it owes the bulk of it.

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.

….

In 2013, Illinois took a significant step towards addressing the pension crisis by passing Public Act 98-0599. This bill protected any benefits that had already been earned by employees while it amended future benefits. The bill increased the retirement age, replaced 3% compounding annual raises with cost-of-living adjustments tied to inflation and capped maximum pensionable salaries. While not a solution, this bill provided a responsible roadmap addressing the financial issues in the pension system while preserving already earned benefits.

Unfortunately, the bill was declared unconstitutional by the Illinois Supreme Court in 2015 because it was interpreted as changing promised future benefits for pension recipients, even though this could potentially result in financial ruin for Illinois. As a result, a constitutional amendment is needed to allow changes to future pension benefits.

Author(s): Aneesh Bafna

Publication Date: 10 Sept 2021

Publication Site: Illinois Policy Institute

Appeals Court Rules In City’s Favor Following Challenge From The Houston Fire Firefighters’ Relief And Retirement Fund

Mary Pat Campbell

Link: https://cityofhouston.news/appeals-court-rules-in-citys-favor-following-challenge-from-the-houston-fire-firefighters-relief-and-retirement-fund/

Excerpt:

Today, the Court of Appeals for the First District of Texas reversed and rendered a decision in favor of the City of Houston against the Houston Firefighters’ Relief and Retirement Fund (HFRRF).

HFRRF had challenged the constitutionality of a Texas statute designed to reform the City’s firefighter pension system that ensures that the actuarial assumptions for determining the City’s contribution rates are based on sound actuarial principles and establishes a process for setting the contribution rate when the City’s and HFRRF’s proposed contribution rates differ by more than two percentage points.

“The City of Houston has consistently maintained the constitutionality of the historic pension reform and welcomes the appeals court ruling,” said Mayor Sylvester Turner. “The firefighters’ pension is now 93 percent funded – compared to just 80 percent funded pre-pension reform – and is actuarially sound. It is important to note that the three pension systems – municipal, police, and fire – are healthier today because of the pension reform we have put in place.”

The latest ruling is the second time the Court of Appeals has upheld the constitutionality of the statute reforming the firefighter pension system, making the pension system more secure for Houston’s firefighters, both now and in the future.

The estimated unfunded pension liability reached as high as $8.2 billion before the 2017 reforms. Today, the unfunded liability of the City’s three pension plans is less than $1.5 billion.

Author(s): MAYOR’S OFFICE FILED UNDER: MYR – OFFICE OF THE MAYOR

Publication Date: 30 Aug 2022 (updated 14 Sept 2022?)

Publication Site: City of Houston, Texas

Ken Griffin talks the pension crisis, a once-secret meeting with Pritzker

Mary Pat Campbell

Link: https://www.chicagotribune.com/opinion/commentary/ct-opinion-ken-griffin-illinois-pension-jb-pritzker-desantis-20220809-jnrzlzbpvbfcnjauz522qcvi4m-story.html?utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-22956053

Excerpt:

Ken Griffin, founder and CEO of Citadel, spoke in his Chicago office to Editorial Page Editor Chris Jones on Aug. 2. This transcript has been edited for length.

Gov. J.B. Pritzker has said you and he met privately and that you agreed to drop your opposition to his graduated tax proposal if he took on pension reform in Illinois. True?

The Illinois pension crisis is rooted in the issue that politicians of the moment are able to make promises to the public sector workers, where the cost of those promises are borne by taxpayers, far into the future. So we have an intrinsic lack of accountability within the state when it comes to that dynamic between the leaders in Springfield and the public sector unions. (Former Gov.) Bruce Rauner and I actually would speak about this problem from time to time because it’s pretty well known that Bruce felt the state should move to a defined contribution program for the state employees.

And there are elements of that I think are attractive, but because the state employees do not participate in Social Security, a strictly defined contribution proposal leaves the state employee, in my opinion, at undue risk of adverse events if they do not invest their money successfully. … And there’s another issue, which is that the costs of the promises made by cities and counties are not borne by the cities and counties directly, they’re socialized across the entire taxpayer base of the state. So it’s pretty easy for the behavior of a number of Illinois cities to offer incredible increases in pay in final years to boost pension benefits, and that cost comes back to all Illinois taxpayers.

So these are some of the areas in which the average man in the street is really being handed a very significant bill. And the most tragic part of this whole story is that when the state hires people early in their careers, they’re not even placing that much value on these pension plans.

Twenty-two-year-olds don’t make lifetime career decisions on pension benefits. So, from my perspective, as a state we’re much better off having higher starting salaries to attract really good people to serve in the public sector. And, as with Bruce, my advice to the governor was consistently that either the state should mirror the benefits of Social Security as a baseline or, even better, go back to the federal government and get into Social Security again. We should reverse our opt-out from decades ago. And then to the extent that a city wants to offer benefits in excess of the Social Security baseline amount, that’s pay-as-you-go through a 401(k)-equivalent program. …

The proposal that I gave to J.B. to solve the state’s pension problems is exactly what I just shared with you. … It would, in all likelihood, require us to amend the constitution for the state to head in this direction. It might be for new employees only. I’m very sensitive to a promise made and earned. That’s your benefit. That’s a very different talking point than you’re 22 years old and it’s your first day working for the state.

But, big picture, we get the state into a program that looks like what I just described. And it’s gonna accelerate, in all likelihood, the costs of the current system. It may require revenue increases.

And like many of the business leaders in this city, I was very direct. I said, “If you’re willing to engage in pension reform, I’m willing to publicly support you in a tax increase.” It wasn’t graduated versus not graduated. It was just a tax increase.

I would’ve assumed that this meeting would’ve been private for the rest of my life until J.B. decided to open the door and talk about this. What he did talk about in terms of fiscal reform for the state was to restructure the state’s (information technology) budget.

And he felt he could achieve $50 million in budget savings for the state of Illinois by taking an ax toward our IT budget for the state, and that was going to be his victory lap for fiscal discipline in the state of Illinois. Here we have a multibillion-dollar problem on the left and 50 million (dollars) on the right. I was like, “J.B., we’re not having the same conversation here.”

To be clear, that was a fracturing moment between the two of us. … He does not want to use his political capital for good. He wants to maintain that capital to maintain the certainty of staying in power.

Author(s): Chris Jones

Publication Date: 10 Aug 2022

Publication Site: Chicago Tribune

Examining the Teachers Retirement System of Texas after the pension reforms of 2019

Mary Pat Campbell

Link: https://reason.org/backgrounder/reason-review-trs-after-sb12/

Graphic:

Excerpt:

TRS currently uses a 7.25% assumed rate of return, which is on the higher end of investment return assumptions among major public systems.

The national average expected rate of return has fallen to 7.0% over the years, with major plans like CalPERS now lowering assumptions into the 6-7% range.

Despite SB12 (2019), with investment returns expected to underperform over the next decade relative to expectations, capping contribution rates in statute creates the perfect conditions for unfunded liabilities to keep accruing just as they have since 2001.

Author(s): Leonard Gilroy, Steven Gassenberger

Publication Date: 3 June 2022

Publication Site: Reason

Jacksonville’s public pension reform helps the city get an improved credit rating

Mary Pat Campbell

Link: https://reason.org/commentary/jacksonvilles-public-pension-reform-helps-the-city-get-an-improved-credit-rating/

Excerpt:

The city of Jacksonville is about to enjoy the benefits of a credit rating boost. Moody’s Investors Service moved the Florida city’s credit rating to Aa2 from Aa3, citing pension reform among the main reasons for the upgrade. The credit rating increase will allow the state to borrow funds at a lower interest rate and invest in more infrastructure and public services. 

Five years ago, the Jacksonville City Council approved a pension reform package while enacting innovative changes, reducing debt by more than $585 million and adding over $155 million to pension reserves. A key element of the pension reform that led to reduced debt was closing the city’s three pension plans to new public employees in 2017. Since that change was put in place, over $715 million has been used to grow Jacksonville’s economy and invest in public services for its population. In addition, credit rating agencies, such as Moody’s, assign “grades” to governments’ ability and willingness to service their bond obligations, taking into consideration the jurisdiction’s economic situation and fiscal management. Since the pension reform reduced budgetary pressure, it improved the chances of the city getting a credit upgrade. 

Author(s): Jen Sidorova

Publication Date: 1 Jun 2022

Publication Site: Reason

ILLINOIS FORWARD 2023: ONLY PENSION, BUDGET REFORM CAN SAVE TAXPAYERS WHEN FEDERAL AID ENDS

Mary Pat Campbell

Link:https://www.illinoispolicy.org/reports/illinois-forward-2023-only-pension-budget-reform-can-save-taxpayers-when-federal-aid-ends/

Graphic:

Excerpt:

Spending in the state budget actually has increased – significantly – under Gov. J.B. Pritzker relative to baseline expectations in the state budget. Even if lawmakers and the governor make no further increases to spending in the fiscal year 2023 budget, which is unlikely given that Pritzker has proposed spending increases in each February budget address of his term, then total spending during Pritzker’s first term will be up nearly $5 billion, or 3% higher than when he took office.

Author(s): Adam Schuster

Publication Date: accessed 2 Feb 2022

Publication Site: Illinois Policy Institute

Undermining Pension Reform

Mary Pat Campbell

Link:https://www.city-journal.org/undermining-pension-reform

Excerpt:

The Biden administration is trying to prohibit California from receiving billions of dollars in new federal aid because, the administration claims, the state’s 2013 Public Employee Pension Reform Act (PEPRA) denied workers the right to bargain for changes to their retirement benefits. The move could undermine state-worker pension reforms passed over the last decade.

In a letter to the state, the Department of Labor says that the 2013 pension-reform act “significantly interferes” with the collective bargaining rights of public employees, including transit workers. As a result, California risks losing some $12 billion in transportation money, most of it from the recently passed federal infrastructure bill. The administration is strong-arming the state and its municipalities to choose between tens of billions of dollars in savings for a deeply indebted pension system and grants from Washington. And its move raises serious questions about similar reforms enacted by other states that allow collective bargaining by public employees, including New York and New Jersey.

….

The Labor Department’s ruling, California governor Gavin Newsom said in a letter to Walsh, “deprives financially beleaguered California public transit agencies that serve essential workers and our most vulnerable residents of critical support, including American Rescue Plan Act funds that those agencies need to survive through the pandemic.” Newsom called the decision a “complete reversal” from a 2019 ruling by the Labor Department, which held that the state’s pension reforms did not represent a violation of federal law.

Author(s): Steven Malanga

Publication Date: 23 Nov 2021

Publication Site: City Journal