Tag: Reason

Debtor Nation

Mary Pat Campbell

Link: https://reason.org/debtor-nation/

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Excerpt:

Organizations incur long-term financial obligations in forms other than bonds and the U.S. federal government is no exception. Some common types of financial obligations include pension and retiree health care costs for veterans, civilian federal employees, and the general public (through Social Security and Medicare benefit commitments). Looking at the federal government’s balance sheet as of 2021, public holdings of U.S. Treasury securities make up less than one-quarter of total federal liabilities. Unfunded entitlements, like Medicare and Social Security, account for the most at 59% of obligations.

Overall federal obligations have now surpassed $300,000 per American. While substantial in their own right, the debt obligations of state and local governments across the country are dwarfed by the various categories of federal debt.

Author(s): Jordan Campbell, Marc Joffe

Publication Date: 16 May 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

Study: Jersey Girls’ Refusal To Pump Gas Is Costing Everyone a Lot of Money

Mary Pat Campbell

Link: https://reason.com/2022/05/24/study-jersey-girls-refusal-to-pump-gas-is-costing-everyone-a-lot-of-money/

Excerpt:

Bills that would have ended the last state-level bans on adults pumping their own gas in Oregon and New Jersey both flamed out this year. A new study purports to show how much the failure of reform is costing drivers.

In March, the Oregon Legislature adjourned without passing a bill allowing gas stations all over the Beaver State to make some of their pumps self-service. Self-service pumps are currently only allowed in smaller rural counties.

Over in New Jersey, another bill similarly allowing gas stations to have some self-service pumps stalled after legislative leaders came out against it in March, reports NJ.com.

…..

By not wanting to take on the political and regulatory costs of reform, politicians from both states are forcing the costs of higher gas prices onto motorists. That’s according to a new study from Clemson University’s Vitor Melo which finds that bans on self-service gas stations reduce supply and drive up prices.

In 2018, Oregon implemented a slight reform of its full-service mandate by allowing gas stations in counties of 40,000 or fewer people to have self-service pumps. Melo’s study used daily gas prices for all gas stations in the state reported to the website Gas Buddy between 2016 and 2019 to tease out what impact the repeal of self-service had on gas prices.

After controlling for counties’ levels of unemployment, poverty, and median income, Melo finds that allowing self-service saw gas prices drop in the affected counties by 4.4 cents per gallon. The price decline nets out to $90 a year for a household with three drivers.

Author(s): CHRISTIAN BRITSCHGI

Publication Date: 24 May 2022

Publication Site: Reason

The broken federal budget process gets even worse with $1.5 trillion omnibus spending bill

Mary Pat Campbell

Link: https://reason.org/commentary/the-broken-federal-budget-process-gets-even-worse-with-1-5-trillion-omnibus-spending-bill/

Excerpt:

Tardy federal budgets are nothing new in Washington. According to the Tax Policy Center, Congress has only completed the budgetary process in a timely fashion, which requires passing all 12 appropriations bills prior to October 1, four times since fiscal year (FY) 1977. The last time Congress’ budgetary process worked as expected was FY 1997, more than two decades ago.

When the budget does not pass on time, Congress must pass a continuing resolution (CR) to avoid a government shutdown. Since continuing resolutions typically maintain departmental funding at prior-year levels, they do not signal the policy choices ultimately made in the budget process. As a result, federal managers must begin the fiscal year without a clear direction as to whether they should be increasing or decreasing staff and non-employee operational expenditures. If a federal agency or department ultimately receives a significant funding increase or funding cut in the final appropriations bill, managers may have insufficient time to respond efficiently.

While federal budgeting has been broken for some time, the situation in 2022 is especially bad. Over five months into the budgetary year, the House Rules Committee produced a 2,741-page omnibus budget bill in the wee hours of March 9, just hours before the bill’s scheduled vote on the House floor.

Author(s): Marc Joffe

Publication Date: 11 March 2022

Publication Site: Reason

Study: Seattle’s Soda Tax Has Been Great for…Beer Sales?

Mary Pat Campbell

Link: https://reason.com/2022/02/12/study-seattles-soda-tax-has-been-great-forbeer-sales/

Excerpt:

A new study is pouring cold beer on Seattle’s soda tax. The study, published in the peer-reviewed journal PLoS ONE, reveals that since the city I call home adopted a soda tax in 2018, residents have swapped out soda and replaced that soda with beer. Pointedly, the study says Seattle’s soda tax “induced” consumers to buy more beer.

“The good people of Seattle responded to a tax on sugary drinks by buying more beer,” Christopher Snowdon, director of Lifestyle Economics at the Institute of Economic Affairs and a leading critic of the nanny state, tweeted after the study’s release.

The PLoS study, by University of Illinois-Chicago researchers Lisa M. Powell and Julien Lader, compared sales of beer in Seattle both before and since adoption of the soda tax with comparable sales in nearby Portland, Oregon, which has no soda tax.

Author(s): Baylen Linnekin

Publication Date: 12 Feb 2022

Publication Site: Reason

Suggested reforms for Pennsylvania’s Public School Employees’ Retirement System

Mary Pat Campbell

Link:https://reason.org/commentary/suggested-reforms-for-the-pennsylvania-teacher-pension-system/?utm_medium=email

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Excerpt:

Despite realizing excellent investment returns in 2021, industry capital market forecasts continue to suggest persistently volatile near-term investment returns that stand to only add to over $1 trillion in current pension funding shortfalls. Most near-term investment outlooks we’ve seen from pension boards across the country predict anywhere from a 6.0 percent-6.3 percent return over the next 10 years. PSERS’ assumed rate of return was recently lowered and currently sits at 7 percent.*

PSERS’s investment outlook is similar to these broad projections. Figures 1 and 2 present the results of the Monte Carlo simulation analysis developed by the Pension Integrity Project. This iterative analysis uses 10,000 simulations of PSERS’s asset performance over 20 years, considering expected returns and volatilities of plan assets, to generate both probabilities of hitting certain returns and expected return distributions.

These findings suggest that PSERS is not likely to achieve even a 6 percent average return over the next 10-15 years—much less its current assumed return of 7 percent. This suggests there is a high probability that the public pension plan’s unfunded liabilities could get worse, not better, in the near-to-mid term. This underperformance—relative to the plan’s own return rate assumptions—will make the system’s long-term solvency challenges even larger.

Author(s): Jordan Campbell, Ryan Frost

Publication Date: 11 Oct 2021

Publication Site: Reason

Texas teacher pension system makes investment in risky special purpose acquisition company

Mary Pat Campbell

Link:https://reason.org/commentary/texas-teacher-pension-system-makes-investment-in-risky-special-purpose-acquisition-company/

Excerpt:

The Texas Teacher Retirement System recently announced that it would make its first investment in a special purpose acquisition company (SPAC) totaling $200 million. Pension funds across the nations have spent the last decade seeking out higher investment yields from alternative investments like private equity in response to stagnating returns from more traditional investments. Recently a few funds have started to experiment with even more non-traditional vehicles such as cryptocurrencies and NFTs to improve investment results. Texas’ SPAC investment signals pension funds’ continued interest in these alternative assets.

….

SPACs are a perfect example of a high-risk, high-reward investment. Risk and transparency issues associated with this type of investment have even motivated the creation of SPAC insurance. Companies like HubInternational sell this insurance to investors for each stage of the SPAC process, ensuring they come out whole. Public pension funds like Texas TRS could theoretically buy this type of insurance on their SPAC investments, thus reducing the risk of the investment. The problem is the cost of SPAC insurance is rising fast, and the return adjusted for these costs is dwindling.

The risks associated with SPACs should make public pension funds very weary. Rather than continuing to take on riskier strategies to achieve lofty investment return goals, policymakers and those managing the retirement investments of public workers should lower assumed rates of investment returns and make other funding reforms that secure the long-term stability of retirement systems.

Author(s): Swaroop Bhagavatula

Publication Date: 21 Jan 2022

Publication Site: Reason

New York Is Trying To Punish Its Way to 100% Vaccine Compliance

Mary Pat Campbell

Link: https://reason.com/2021/12/15/new-york-is-trying-to-punish-its-way-to-100-vaccine-compliance/?utm_medium=email

Excerpt:

Beginning Monday, at the order of Democratic Governor Kathy Hochul, every business in the state was required by law to have every employee and customer show proof of full COVID-19 vaccination, or make everyone inside their doors over the age of 2 wear a mask.

Violators face fines of up to $1,000. Enforcement is being left to county governments, of which an estimated one-quarter—almost all run by Republicans—have indicated they will not participate in.

….

The two-shot vaccination rate for New Yorkers ages 12 and older currently stands at 81 percent. Six months ago, when Hochul’s predecessor Andrew Cuomo lifted almost all statewide COVID restrictions, he did so because the Empire State had crossed the 70 percent threshold set by the Centers for Disease Control and Prevention (CDC)—not for full vaccination of everyone over age 12, mind you, but for single shots among adults.

….

Contra Hochul, it is far from clear that even 100 percent vaccination would have prevented a third consecutive winter surge across the northeast, which currently has the highest rates of vaccination and coronavirus cases in the United States.

Author(s): Matt Welch

Publication Date: 15 Dec 2021

Publication Site: Reason

How High Will California’s Taxes Go Before There’s No One Left To Tax?

Mary Pat Campbell

Link: https://reason.com/2022/01/11/how-high-will-californias-taxes-go-before-theres-no-one-left-to-tax/

Excerpt:

It’s hard to say which of these is the “worst,” but the 2.3 percent gross receipts tax sticks out. That gross receipts taxes are an awful way to structure a business tax is one of the few things that tax policy experts across the political spectrum almost universally agree on. That’s because they make no allowance for the large variance in profit margins that different types of businesses make—whether a business has a profit margin of 0.1 percent or 10 percent, it would still have to pay the same percentage of its total revenues.

That’s a problem with any gross receipts tax, but California’s proposed tax would exacerbate this inherent problem with a rate that is three times the level of the nation’s current highest. The higher the gross receipts tax rate, the more low-margin businesses that could be put in a position where operating in California would lose them money.

Almost as bad is the proposal to institute a payroll tax on businesses with 50 or more employees. Not only are payroll taxes a regressive tax (even if the tax is imposed on the employer, it would be passed on to employees in the form of lower wages), but the 50-employee threshold would create an obvious disincentive for businesses to hire their 50th employee.

Author(s): JOE BISHOP-HENCHMAN AND ANDREW WILFORD

Publication Date: 11 Jan 2022

Publication Site: Reason

Milwaukee pension debt clouds Wisconsin’s otherwise positive retirement system picture

Mary Pat Campbell

Link:https://reason.org/commentary/milwaukee-pension-debt-clouds-wisconsins-otherwise-positive-retirement-system-picture/

Excerpt:

According to its most recent actuarial report, the Milwaukee County Employees’ Retirement System (ERS) had a funded ratio of 75.3% and unfunded liabilities of $569 million. The county also has separate retirement plans for mass transit employees and temporary employees, but these plans have relatively small unfunded liabilities.

Milwaukee County ERS’ liabilities grew, in part, because the county did not make its full actuarially determined contributions between 2012 and 2016, according to its most recent Annual Comprehensive Financial Report. During that five-year period, the county’s contributions fell $12 million short of recommended levels.

Since 2015, Milwaukee County’s contributions to ERS have tripled from $19 million to $57 million, as it began to meet and then exceed actuarial recommendations. These contributions exclude debt service the county pays on pension obligation bonds it issued in 2009 and 2013.

Author(s):Marc Joffe

Publication Date:13 Jan 2022

Publication Site: Reason

McConnell Won’t Block Debt Ceiling Increase, Says He Wants Democrats To ‘Proudly Own It’

Mary Pat Campbell

Link:https://reason.com/2021/12/08/mcconnell-wont-block-debt-ceiling-increase-says-he-wants-democrats-to-proudly-own-it/

Excerpt:

Congressional showdowns over the debt limit are nothing new, but this time around there’s a unique wrinkle. The House approved a bill on Tuesday night with what was essentially a party-line vote that paves the way for Congress to avoid a possible default on the national debt in the coming weeks. Here’s the tricky part: “The measure would create a special pathway—to be used only once, before mid-January—for the Senate to raise the debt limit by a specific amount with a simple majority vote, allowing Democrats to steer clear of a filibuster or other procedural hurdles so that Republicans would have no means to block it,” The New York Times reports.

The upshot, assuming this deal holds up long enough to avert the December 15 deadline for raising the debt limit, is that there won’t be another showdown like this before the midterm elections next November.

Author(s):Eric Boehm

Publication Date:8 Dec 2021

Publication Site:Reason

No, the United States Has Not Always Paid Its Debts

Mary Pat Campbell

Link:https://reason.com/2021/11/19/no-the-united-states-has-not-always-paid-its-debts/

Excerpt:

Most recently, the U.S. defaulted on Treasury bill payments in 1979 shortly after Congress raised the debt ceiling. According to the Congressional Research Service analysis: “In late April and early May 1979, about 4,000 Treasury checks for interest payments and for the redemption of maturing securities held by individual investors worth an estimated $122 million were not sent on time. Foregone interest due to the delays was estimated at $125,000.” The default was due to technical problems and was cured within a short period of time.

The claim that the United States has never defaulted, despite its frequent repetition, is not strictly true. Officials could make more modest and qualified claims such as “aside from a relatively minor operational snafu, the United States has not defaulted in the post-World War II era.” Such a claim lacks the power of a more sweeping generalization, but at least it’s accurate. If President Joe Biden and Treasury Secretary Janet Yellen want to seem credible, they should avoid making historic statements that are easily refuted by a small amount of Googling. If they cannot be believed about the basic reality of the federal government’s credit history, how can we believe what they say about current policy choices?

Author(s): MARC JOFFE AND JEFFREY ROGERS HUMMEL

Publication Date: 19 Nov 2021

Publication Site: Reason