Category Archives: Public Sector

FAQ: Wide Differences in State Retiree Health Spending and Liabilities

Source: Moody’s, Sector In-Depth, December 19, 2017
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Retiree health benefits vary considerably among states. Despite generally greater legal flexibility to change these benefits compared to pensions, large liabilities and significant costs persist for some state employers who offer generous benefits. We do not expect new accounting rules to have a material impact on costs, but the new rules will facilitate probing credit risk, especially important for those issuers whose retiree benefits have stronger legal protections.

Adjustments to US State and Local Government Reported Pension Data

Source: Moody’s, December 19, 2017
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This cross-sector rating methodology replaces the Adjustments to US State and Local Government Reported Pension Data methodology published in April 2013. We have updated the description of our standard balance sheet adjustment and included a description of our standard income statement adjustment. Both of these reflect the implementation of Governmental Accounting Standards Board Statement 68 accounting standards, which requires adjustments that were not previously necessary. We have retired the concept of amortizing adjusted net pension liabilities on a level dollar basis over 20 years, a cost metric not included in any scorecards of primary rating methodologies. We have also added a description of how we calculate the “tread water” indicator….

Pension risks remain high for most of the 50 largest local governments

Source: Moody’s, Sector In-Depth, December 14, 2017
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Adjusted net pension liabilities (ANPLs) rose in fiscal 2016 for 42 of the 50 largest local governments, ranked by debt outstanding. Pension pressures will remain elevated due to coming ANPL spikes in 2017, even with moderate declines expected to follow in fiscal 2018. Most governments are contributing insufficient amounts to contain growth in net liabilities, and some are exposed to sizeable investment losses in the event of a market downturn. Retiree healthcare and other post-employment benefit (OPEB) liabilities are also significant for a handful of governments, and will likely increase due to lower discount rates under new accounting….

How Have Municipal Bond Markets Reacted to Pension Reform?

Source: Jean-Pierre Aubry, Caroline V. Crawford, Alicia H. Munnell, Center for State and Local Government Excellence, October 2017

From the summary:
This issue brief examines whether state and local borrowing costs have become more sensitive to pensions since the financial crisis.

The brief’s key findings include:
Rating agencies have begun to explicitly account for pensions in their methodologies;
Several governments have experienced downgrades attributable, in part, to their pension challenges;
Pension funded status can have a meaningful impact on the borrowing costs for a municipality; and
Adequate funding, monitoring, and management of public pensions should be an important component of state and local governments’ fiscal management.

Don’t Dismantle Public Pensions Because They Aren’t 100 Percent Funded

Source: National Conference on Public Employee Retirement Systems, NCPERS Research Series, November 2017

From the press release:
State and local pension plans have consistently been able to meet their benefit and other payment obligations over the past quarter century, according to a data analysis published November 16 by the National Conference on Public Employee Retirement Systems.

Between 1993 and 2016, contributions and investment earnings by 6,000 public pension plans exceeded benefit obligations in all but four years. And during those four years – 2002, 2008, 2009, and 2012 – all plans met their obligations in the aftermath of recessions because they had built up cushions during normal times, according to the analysis conducted by Michael Kahn, director of research for NCPERS.

The findings offer a striking counterpoint to initiatives under way in some states and municipalities to dismantle public pensions because they are considered under-funded, said Hank H. Kim, NCPERS’ executive director and counsel. ….

Critics of public pensions often cite funding ratios of less than 100% as evidence of pressing financial problems, but this is faulty logic, Kim said. Contributions and earnings continue to flow into plans even as benefits are being paid out, he noted. ….

Kahn found that individual states – regardless of whether their pension plans were underfunded or fully funded – had between five and eight years in which income fell short of obligations, and had to draw on their cushion to pay benefits. Far from being a cause for concern, “this is exactly what public pensions are designed to do – to provide a steady income over the long haul,” Kahn noted. “Pension assets typically are invested over a 30-year time horizon, so plans aren’t blown off course by short-term market shifts.”

NCPERS offered four recommendations for public pension plans:
– Stop dismantling plans on grounds that they are not fully funded.
– Improve funding by determining the appropriate levels of required employer contributions.
– Establish a pension stabilization fund that can set aside money from a certain revenue stream to be used in special circumstances such as a recession.
– Implement a mechanism to ensure that full employer contributions are made on a timely basis, perhaps by making employer contributions a nondiscretionary part of the budget.

Employee Contributions to Public Pension Plans

Source: National Association of State Retirement Administrators (NASRA), Issue Brief, September 2017

From the introduction:
Unlike in the private sector, nearly all employees of state and local government are required to share in the cost of their retirement benefit. Employee contributions typically are set as a percentage of salary by statute or by the retirement board. Although investment earnings and employer contributions account for a larger portion of total public pension fund revenues, by providing a consistent and predictable stream of revenue to public pension funds, contributions from employees fill a vital role in financing pension benefits. Reforms made in the wake of the 2008-09 market decline included higher employee contribution rates in many states. This issue brief examines employee contribution plan designs, policies and recent trends.

Reconstructing resistance and renewal in public service unionism in the twenty-first century: lessons from a century of war and peace

Source: Whyeda Gill-McLure & Christer Thörnqvist, Labor History, Volume 59, 2018
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From the abstract:
This special issue uses the occasion of the centenary of the Whitley Commission Reports to illuminate the contemporary crisis in public service industrial relations from a historical perspective. In all six countries studied—Britain, France, Germany, Italy, Sweden and the USA—public service employment is labour intensive and quantitatively significant in the overall economy. Public services have also been major targets of neoliberal reforms, starting in the UK and the USA at the turn of the 1980s and in the other countries about a decade later. In addition, the relatively high union density and the political dimension of public services and public union strategies have been major targets of new public management and more latterly austerity. However, the regressive period has had a differential impact in different countries. In the liberal market economies of the UK and the USA, the neoliberal turn has destabilised traditional patterns of public sector industrial relations to greatest effect. While in the more coordinated market economies, traditional arrangements and values have been more resistant to austerity and neoliberal reforms. We attempt to shed light on these differential impacts through a critical analysis of the historical evolution of public sector industrial relations in each country.

100 years of Whitleyism: a century of public service industrial relations in Europe and the US
Source: Guest Editors – Whyeda Gill-McLure and Christer Thörnqvist, Labor History, Volume 59, 2018
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Public sector unions, democracy, and citizenship at work

Source: Patrice M. Mareschal, Labor History, Volume 59, 2018
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From the abstract:
Since the 1970s, governments around the world have been engaged in a conflict over the appropriate role of public services in society. In the U.S. and elsewhere, public services have faced pressures to restructure, reduce the size of government, and make government more ‘business-like.’ This paper examines how the evolution of public services and public sector unions shaped the distinctive character of public sector industrial relations in the U.S. Next it demonstrates how this distinctive character made public services and public sector unions vulnerable to neoliberal attacks and New Public Management reforms. It concludes by theorizing about how the frameworks of citizenship at work and union renewal may be used to strengthen the essential identity and restore the positive role that public sector unions have traditionally played in society.

Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030

Source: Joe Nation, Stanford Institute for Economic Policy Research (SIEPR), Working Paper 17-023, October 2017

From the abstract:
California public pension plans are funded on the basis of policies and assumptions that can delay recognition of their true cost. Even with this delay, local and state governments are facing increasingly higher pension costs—costs that are certain to continue their rise over the next one to two decades, even under assumptions that critics regard as optimistic. As budgets are squeezed, what are state and local governments cutting? Core services, including higher education, social services, public assistance, welfare, recreation and libraries, health, public works, and in some cases, public safety.