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Government Reform

States Ready to “Break the Glass” on Public Pensions
Posted By:  - 08/12/10

Several states want to "break the glass" to save their public pensions from fiscal ruin. The only question is, will the courts allow them to do so?

For decades, the defined-benefit retirement plans relied on by millions of government employees such as schoolteachers, police, and transit workers have been sacrosanct; few if any state lawmakers dared to suggest adjusting benefits promised to retirees as a way to save money and ensure the long-term viability of the pensions for fear of enraging the politically powerful public employees unions. The most any state has been willing to do is adjust benefits for new government employees, as Illinois and New Jersey did earlier this year.

But times have changed. A new study by the National Center for Policy Analysis shows that the public employee pensions are underfunded by an estimated $3.1 trillion – three times higher than reported previously. There are now whispers in some circles that the states, already overwhelmed by the recession and years of overspending, cannot afford the pensions and plan on seeking a federal bailout of the pensions. Besides the economic ramifications, a federal bailout of public pensions also has political, legal, and social aspects that we are only beginning to understand. In these extraordinary times, states must take extraordinary measures.

Now, some states are willing to adjust benefits for future and current retirees because no good alternative exists for shoring up the pensions. This year, Minnesota, Colorado, and South Dakota voted to limit cost-of-living adjustments (COLAs) enacted in previous years because they cannot afford to pay them. According to Stateline, Colorado, in the face of projections that the state's pensions will run out of money within 30 years  eliminated the 3.5 percent COLA planned for this year. All future increases will be set at 2 percent, unless the funds investments experience another huge decline in value. Meanwhile, Minnesota eliminated a 2.5 percent COLA and set any future increase for its pension plans to between 1 and 2 percent. South Dakota reduced its COLA by 1 percent and tied future increases to the market.

Unsurprisingly, current retirees are challenging these decisions in court. The retirees argue that their pensions are contracts and, therefore, are protected against impairment by the contracts clause of the Constitution. Conversely, the states are arguing that the economic crisis is like nothing ever seen before and the states, out of “actuarial necessity,” need the ability to adjust pension benefits to save the plans from collapse. The Minnesota case shall be the first to be heard on September 15. If these states win, others may be emboldened to make the difficult choices necessary to protect the pensions from fiscal collapse. But if the retirees win, then the pressures on the plans will increase and the states will not have many options short of massive tax increases and borrowing. With all that is happening in pensions today, these cases are worth your time following.

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Cry Me A River
Posted By:  - 08/04/10

One thing politicians love to whine about is an increasingly common rule that requires a 2/3 majority vote in favor of any tax increase. "It's minority rule!," they shout. "We have no money for schools!," they gripe. "We must raise revenue in this time of economic despair!," they preach. They also conveniently overlook their responsibilities to the taxpayers who repeatedly show their abhorrence for higher taxes and the laws that allow them to pump up the state's coffers through a simple majority vote. Some California politicians and their allies in public employee unions are now trying to change the rules of the game by pushing Proposition 25, a scheme to make it easier for those crybabies in Sacramento to take your money.

Supporters of Proposition 25 will tell you that the legislation only allows for "bills providing for appropriations related to the budget bill" to be passed with a simply majority vote. What they won't tell you is that there is nothing in Proposition 25 (or California's Constitution for that matter) that prohibits tax increases from being included in the same legislation as budget appropriations. Given the latest trend in American politics of passing legislation that rivals War and Peace in length, it doesn't take a crystal ball to see that the first "appropriations" bill to be passed under Proposition 25 would be little more than a Trojan horse delivering malicious tax hikes to unsuspecting Californians.

It is said that desperate times call for desperate measures, and this attempt to circumvent the 2/3’s majority vote requirement to increase taxes is nothing more than a desperate scramble for money by the California legislature trying to fill a $19 billion budget gap without addressing the spending that dug the hole in the first place. We have said it a thousand times on this blog and we will say it a thousand more if we have to: the only way to resolve deficits without smothering the economy under a heavy tax burden is to decrease spending. The fact that a state is running a deficit in the first place is sign that they are spending too much, not that they aren’t bringing enough money in. It’s time for politicians to wake up and the longer you hang on to the idea of spending your way to prosperity, the longer your state will remained mired in the pitch and tar of economic ruin. And if that happens, we will all have something to cry about.

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New Poll Shows Ohioans Want Reform, Not More of the Same
Posted By:  - 07/28/10

Winds of change appear to be blowing across Ohio. This morning, the Buckeye Institute released the results of a poll it commissioned from Magellan Data and Mapping Strategies. A statewide survey of 1,900 Ohioans reveals that they are very concerned with the current state of affairs and want some serious reform to solve the major fiscal problems in the state. But what stands out from this poll is the finding that Ohioans do not want increases in government spending and higher taxes to cure the fiscal maladies that plague the state. Instead, Ohioans want public employee compensation reduced first and foremost, and they think the tax burden is already too high. What's more, Ohioans think that the regulatory burden on business is excessive, employees should enjoy the right to work, and energy policy needs be comprehensive. Here are highlights from the poll, which had 2.31% margin of error:


  • 50% think Ohio government leaders should first reduce government worker compensation to eliminate the $8 billion state budget deficit;
  • Only 16% think taxes should be increased to eliminate the Ohio deficit;


  • 52% think Ohio's state and local taxes are too high;


  • 56% think Ohio's regulatory environment makes it harder for businesses to create jobs and grow;
  • 85% think workers should be free to choose whether to join a labor union to get a job; and;


  • 67% think Ohio should stick with coal or add nuclear and natural gas energy;

Politicians in Columbus should not ignore this poll. The poll clearly shows substantial majorities of residents, from across the state, are concerned about Ohio's fiscal problems and the tax and regulatory burdens. By zeroing in on public employee compensation, Ohioans demonstrate that they understand government spending, which includes generous public employee salaries and pension benefits, needs to be addressed. The Buckeye Institute has found that public employees earn more than their private sector counterparts by an average of almost 25 percent. Ohioans also recognize that the state's tax burden, which includes the onerous Commercial Activity Tax and the draconian death tax, is far too high to encourage long-term economic growth, something that is sorely needed in this former industrial powerhouse. Ohio, like other states across the country, have spending and regulatory, not revenue problems. As the State Legislature begins to figure out how to resolve the upcoming deficits and candidates for elected office present their solutions for Ohio, they should take heed the results in this poll. The results are clear: Ohioans want reform in their state, not more of the same.

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For County Government, One Vacation Just Isn't Enough
Posted By:  - 07/27/10

Have you ever wondered how to extend your vacation? The answer, surprisingly, is to work for the Montgomery County (MD) government. County Executive Isiah Leggett has just announced that county government employees will receive additional paid vacation days that total to more than 100 years. Actually, 117 years to be exact if all of the 87,000 government employees take their new vacation hours that range from 26 for general government and police officers to 48 for firefighters. While Leggett claims that this is a cost cutting measure, it is actually part of a deal with the unions who were upset with recent budget cuts.  But cutting a deal with the unions will have a price that rivals some of the "cuts" in the recent $4.27 billion budget. The County Council's Office of Legislative Oversight estimates the new comp days are valued at around $7 million. After all the hand wringing to close a $1 billion shortfall, where's the Council's concerns for this new $7 million cost?

These new comp days create the ultimate lose-lose dilemma. If the employees take these new days along with their vacation, then there will be a significant decrease in the services received per government expenditure. However, if the employees take these days in lieu of their vacation then they can log their vacation time and cash in later.  This option creates a "newly accrued liability assumed by the County and will eventually result in the direct expenditure of public dollars," according to the Office of Legislative Oversight. There are other, better ways to save tax dollars, such as reducing spending on wasteful programs and reforming the tax code to foster economic growth. Hopefully, County Executive Leggett will think about better ways to save taxpayers' money while he is on vacation this summer. If not, overburdened taxpayers may consider giving Leggett and other spendthrift members of the Montgomery County Council a much longer vacation come the next Election Day.

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Welcome Back TABOR!
Posted By:  - 07/16/10

Call me crazy, but I feel like singing. Why? I want to celebrate the end of Colorado's Referendum C and the full Return of the Taxpayers Bill of Rights (TABOR).

TABOR is the strongest set of taxpayer protections and spending limits in the country. TABOR requires the Colorado state government to return excess taxes to the people in the form of rebates, limits government growth to a formula of population growth plus inflation, and allows tax increases only through a popular vote. Since 1992, TABOR lowered Colorado's income and sales taxes, and by 2001 returned $3.2 billion in refunds to taxpayers.

But since 1992 tax and spenders in Colorado have bemoaned TABOR. These special interests, especially public employee union and others who live off of government largess, claim that TABOR has led to so-called "crippling cuts" in government services. The tax and spenders ignore the fact that TABOR does not stop the growth of government; it only keeps it to a more manageable size. In fact, Colorado's education spending has grown by at least 1/3 and math and reading test scores have consistently been above the national average.

In 2005, the tax and spenders waged a massive campaign to suspend TABOR and succeeded in enacting Referendum C, which suspended the limits on government expenditures for five years. Between 2006 and this year, Coloradans missed out on approximately $5 billion in tax relief while the government grew. Moreover, Referendum C did not live up to its promises to save the government from draconian cuts. What's ironic is that without Referendum C, the cuts probably would have been more gradual. On July 1st, the suspension ended.

On Tuesday, I was in Colorado to speak at a press conference, along with Jon Caldara of the Independence Institute, Marty Nielson with the Colorado Union of Taxpayers, Joshua Culling of Americans for Tax Reform, State Senator Shawn Mitchell, Amy Oliver with Mothers Against Debt, and Laura Carno with Americans for Prosperity Colorado, recognizing the return of TABOR. You can read about it here.

As I said at the press conference, "NTU's members welcome the end of Referendum C and the beginning of a new chapter in the TABOR success story. We will work with groups like the Independence Institute, Mothers Against Debt, Colorado Union of Taxpayers, Americans for Tax Reform, and Americans for Prosperity Colorado, and individuals like State Senator Shawn Mitchell, to ensure the strongest taxpayer protections remain in place well into the future."

Welcome back, TABOR!

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Illinois Hands Out Money It Doesn't Have
Posted By: Kristina Rasmussen - 07/15/10

If you were amazed that the State of Illinois is handing out pay bumps to tends of thousands of state workers in the midst of a multi-billion dollar budget deficit, get ready for this.

Between June 2011 and January 2012, unionized state workers are scheduled to receive a total of 7.25 percent in cost of living adjustments. You read that right: 7.25 percent over a period of seven months. Pay steps outside of cost of living adjustments would only grow this amount.


So a state worker making $60,000 on May 31, 2011 will be earning $64,443 on January 2, 2012. Not bad, if you can get it. Or take it, from taxpayers. 

The state is essentially a failing business. It can't pay its bills on time, and it's default risk is heading in the wrong direction. Failing businesses looking to recover don't hand out pay raises like candy -- they work to balance costs with revenues.

Read about ways to right size public employee pay in our latest Spotlight on Spending.

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Will We Even Be Celebrating?
Posted By: Pete Sepp - 07/08/10

As we all get back into the post-July 4th work groove, we'd do well to read and tuck away for future reference this commentary by NTU Board Member Ken Blackwell and Ken Klukowski. The Kens' disscussion centers on the Obama administration's attempts to dismantle the concept of American exceptionalism.

Blackwell and Klukowski recently authored a book, The Blueprint: Obama's Plan to Subvert the Constitution and Build an Imperial Presidency, in which they recount our President's dismissal of the notion that America is blessed with more freedom and prosperity than anywhere else.  But as Blackwell and Klukowski observe, "If we're all exceptional, then none of us are exceptional. President Obama could not be more wrong." And it shows, given the way "he's leading a government takeover of our marvelous free-market economy."

If Blackwell and Klukowski are right, what will July 4, 2011 look like? Maybe next year July 4th will be seen as merely another day off for federal workers, rather than the holiday that celebrates the birth date of our country's independence and the freedoms we enjoy.

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Massachusetts Leaves Tough Decisions to Local Governments
Posted By:  - 07/07/10

If awards for work shirking existed, Massachusetts would win in a walk. Last week, Governor Deval Patrick signed a budget that severely cuts funding to local governments but prohibits them from reforming one of the most costly aspects of their budget, namely health care plans for public employees.

Massachusetts state and local public employees receive generous health benefits. Currently, local government workers pay only $5 copayments when they visit a doctor. There is no question that such benefits put pressure on local government budgets. But only the state, not the local government, can modify employee health care plans through their Group Insurance Commission. In fact, local governments must get approval for all cost-saving steps by the municipal unions, who have incentives to maintain the benefits for their members rather than find savings for taxpayers. Allowing local government to modify their health benefits could ultimately save $100 million a year and help preserve the health care system, according to the Massachusetts Municipal Association. Geoffrey Beckwith, the Executive Director of the MMA said, "The current [public employee health care benefits] system is unaffordable - it costs taxpayers too much, crowds out important services, and forces the elimination of teachers, firefighters, police officers, and other workers."

Massachusetts' unwillingness to give local governments the ability to address the cost of health care gives the municipalities the mother of all unfunded mandates, namely providing the same health care plan to their employees, but with less money. The state has left the tough decisions to local government but has simultaneously tied their hands. Reforms of public employee health benefits are an important step in reducing government spending. Local governments in Massachusetts should have the same power as the state does to modify health benefits.


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Delaware Fails to Reform its Budget....Yet Again
Posted By:  - 07/01/10

Yesterday, Gov. Jack Markell of Delaware signed the budget for fiscal year 2011. While states across the country are tightening their wallets and making cuts, Delaware lawmakers, excited by an increase in tax revenue from the past year that is expected to continue, rushed to push money in every direction because, after all, it is an election year. Instead of being concerned with the long-term economic security of the state, the Joint Finance Committee struck down the budget cuts proposed by the Governor and fell back into old habits. It's more of the same in the First State where increases in public sector health benefits and pension plans, including free health insurance for the spouses of government employees, are digging the financial hole deeper and deeper.  In the end the budget they passed for 2011 is 6.5% larger than the 2010 budget.

But throwing money around will not solve the economic problems in Delaware. Currently, the ALEC-LAFFER State Economic Competitiveness Index ranks Delaware 47th in the nation for their top marginal corporate income tax rate at 9.98% and 42nd for their top marginal personal income tax rate at 8.20%. These exorbitant rates are to blame for their low personal income per capita cumulative growth; from 1998-2008 personal incomes only grew 39.9%, the tenth lowest in the nation. Additionally, the punitive Gross Receipts Tax levied on producers makes Delaware an unattractive option for businesses looking to relocate.

Delaware missed a great opportunity to make significant reforms that would have saved the state $200 million over the next five years. The state continues to pay large sums of money to keep state troopers instead of resource officers in schools and to put nurses in private schools. Additionally, making non-profits compete for their grants and requiring districts to share the costs of the bus routes they plan would have saved taxpayers even more. All in all, the short-sightedness of Delaware’s budget increase will be on display next year when they are in the same position with the same problems.

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A few thoughts about "stimulus"
Posted By: Ross Kaminsky - 06/21/10

The other day on CNBC, I saw Larry Kudlow discussing the Democrats’ desire for a second “jobs bill” – what they’re calling “stimulus” now that “stimulus” is known to be ineffective union-boosting pork.

I sent Mr. Kudlow a few thoughts on the subject (and he was kind enough to respond that I was “dead right.")

Here are those thoughts:

One thing I think is worth mentioning is how all of the jobs which are suggested to be saved by a proposed second “stimulus"/jobs measure, like teachers, cops, firemen, etc., are government employees…not just that, but state government employees.

Thus, this so-called stimulus is really just plugging holes in state budgets. Beyond its questionable legality, this has a bunch of other problems:

  1. Since some states have worse budget problems than others, the effect of the legislation will be to transfer money from taxpayers in some states to taxpayers in other states, like from Indiana to California, from Maine to New York, etc.

  2. The moral hazard problem is huge, removing pressure from states and municipalities to tighten their belts, feeling like they’re being seen as something like “too big to fail".

  3. Creating/saving government jobs adds to the long-term burden of the cost of government on the private sector in addition to increasing the power of public sector unions, one of the most destructive forces in the nation.
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