Category Archives: Public Sector

Supplemental Retirement Plans Offered by City and County Governments

Source: Robert L. Clark, Melinda Sandler Morrill, Matthew Anderson, and Aditi Pathak, Center for State and Local Government Excellence, Issue Brief, February 2014

From the summary:
– Fifteen of the local government employers offer only one type of plan; all 20 local government employers in the study offer at least one 457 savings plan.
– Most plans allow loans.
– Employers match employee contributions in just four plans.
– Employees need more financial literacy and good information about plans to make optimal decisions when they have more choices to make.
– More choices for employees may not be better if the quality of the plans, in terms of fees and investment options, is inferior to the quality of a more restricted access model.

Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings

Source: Paula Sanford, Center for State and Local Government Excellence, Issue Brief, March 2014

From the summary:
This brief looks at how automatic escalation features can help public employees save more for retirement, and the challenges and opportunities state and local governments may encounter as they consider automatic escalation policies.

As states and localities continue to modify their retirement packages, public employees may need to save more to ensure that they have an adequate retirement income.

This is the first study to examine automatic escalation options for public sector retirement plans and supplemental defined contribution plans.

Using interviews, case studies, and a review of academic and practitioner research, the brief offers recommendations on how governments might incorporate an automatic escalation policy into their defined contribution retirement plans, including:
– Ensure that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy.
– Acknowledge that there is no uniform approach to automatic escalation policies. The policy should reflect a government’s unique workforce preferences and policy environment.
– Reduce or eliminate as many barriers to enrollment as possible.
– Communicate with employees about the benefits of the feature when it is adopted.
– Consider implementing it in conjunction with other features, such as automatic enrollment.

The report also includes case studies of successful implementation of automatic escalation in supplemental defined contribution plans for some public employees in Missouri, Ohio, and Virginia.

The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow

Source: Pew Charitable Trusts, Fact Sheet, March 2014

From the summary:
Based on the most recent comprehensive data, the gap between what state and local governments have promised in pension benefits to their workers and the funding to meet those obligations continues to widen. New data for fiscal year 2012 show that state-run retirement systems had a $914 billion shortfall. When promises by local governments were factored in, the total pension debt was over $1 trillion.

Since the financial crisis of 2008, policymakers have increasingly focused attention on the fiscal health of staterun retirement systems. A combination of investment return shortfalls, missed contributions, and unfunded benefit increases had left states with a $452 billion unfunded liability for pensions in fiscal 2008; by 2010 this funding gap had grown to $757 billion.

In spite of recent strong investment returns, the new data show that the funding gap for state plans has continued to grow—increasing by $157 billion from 2010 to 2012. This figure represents 14 percent growth, adjusted for inflation, and is primarily the result of states continuing to acknowledge the investment losses suffered in fiscal 2009. Because most state pension plans smooth out gains and losses over five years, they would not finish absorbing the impact of the market collapse until fiscal 2013. …

Selected Characteristics of Private and Public Sector Workers

Source: Gerald Mayer, Congressional Research Service, CRS Report, R41897, March 21, 2014

An issue for Congress and state and local governments is whether the pay and benefits of public workers are comparable to those of workers in the private sector. In addition, among the ways to reduce budget deficits, policy makers are considering the pay and benefits of public sector employees.

The number of people employed in both the private and public sectors has increased steadily as the U.S. economy has grown. However, after increasing to 19.2% of total employment in 1975, the percentage of all jobs that are in the public sector fell to 15.7% in 1999. In 2013, public sector jobs accounted for 16.0% of total employment.

The recession that officially began in December 2007 and ended in June 2009 affected employment in both the private and public sectors. From 2007 to 2010, the number of jobs in the private sector fell by an estimated 7.9 million, while the number of jobs in the public sector increased by almost 272,000. Conversely, from 2010 to 2013, private sector employment grew by approximately 6.7 million jobs, while public sector employment fell by about 626,000 jobs. Reflecting the effects of the 2007-2009 recession on the budgets of state and local governments, from 2010 to 2013, public sector employment as a share of total employment fell from 17.3% to 16.0%.

Among all full-time and part-time workers ages 16 and over, the number of workers covered by a collective bargaining agreement has fallen in both the private and public sectors. The decline has been greater in the private sector. In 2009, for the first time, a majority of workers who were covered by a collective bargaining agreement were employed in the public sector (8.7 million workers in the public sector, compared to 8.2 million private sector workers). By 2013, the situation had reversed; a slight majority of workers covered by a collective bargaining agreement were employed in the private sector (8.1 million private sector workers, compared to 7.9 million public sector workers). In the federal government, except for the Postal Service and some smaller agencies, employees do not bargain over wages.

Among workers ages 18 to 64 who work full-time, differences in characteristics that may affect the relative pay and benefits of private and public sector workers include the following:
• Age. ….
• Gender. ….
• Education. ….
• Occupation. ….
• Union coverage. ….
• Metropolitan area. ….

NAFTA’s Approach to Public Services

Source: J. Anthony VanDuzer, University of Ottawa – Common Law Section, Ottawa Faculty of Law Working Paper No. 2014-01, January 31, 2014

From the abstract:
Public services are treated differently in the North American Free Trade Agreement (NAFTA) compared to the WTO General Agreement on Trade in Services (GATS) and European Union (EU) trade treaties. The approach in NAFTA, which is followed in many bilateral and regional agreements worldwide, has three main distinctive characteristics: 1. NAFTA is a negative list agreement – meaning that all of the obligations in the treaty, including those related to services and investment, apply to all state actions except to the extent specifically carved out through reservations or exceptions. GATS and EU trade treaties to date are positive list agreements in which many obligations only apply to sectors listed by each party. 2. NAFTA contains no general exception from all treaty obligations for public services. There is no exception for services delivered in the exercise of governmental authority as is found in the GATS and many EU trade treaties, nor is there any unifying concept of public services in the treaty. Instead, there are a variety of limited exceptions and country-specific reservations that exclude the application of certain treaty obligations to some identified kinds public services and to specific measures that may be related to public services, like subsidies. 3. NAFTA contains comprehensive obligations relating to investment, which are not found in the GATS or EU trade treaties. These obligations are similar to those found in the bilateral investment treaties of EU member states.

Because it relies on reservations for lists of services instead of a general exception that excludes all services that have the character of public services, NAFTA’s protection of state regulatory freedom in relation to public services is arguably more certain but over-inclusive for public services that are named in reservations and under-inclusive for public services that are not specifically named. Some public service activities, like waste removal, are not the subject of any special rules. All NAFTA’s investment and services obligations apply to these services. Others, like postal services, are subject to reservations from some obligations but some of these apply to only one country. Some NAFTA obligations, notably the Parties’ obligations not to expropriate investments without compensation and to provide fair and equitable treatment to investments, apply to all public services. No reservations are permitted.

The broad scope of NAFTA’s investment obligations and their ability to constrain the public service policy choices of NAFTA countries render their application to public services a particular concern. NAFTA has not be updated to adopt some of the limitations on investment obligations that that Canada and the US now routinely incorporate in their treaties, such as a specification of when an indirect expropriation occurs and, in Canada’s case, the application of GATT Article XX-like exceptions to investment obligations.

The Speech and Association Rights of Employees: Implications of Knox v. SEIU, Local 1000 and Harris v. Quinn

Source: Catherine Fisk, Erwin Chemerinsky, University of California, Irvine School of Law, Research Paper No. 2014-13, February 12, 2014

From the abstract:
In 2012, the Supreme Court held in Knox v. SEIU, Local 1000 that a union representing government employees may assess money from the employees whom it represents to support political activity only if those employees first opt in to supporting political expenditures. In reaching this holding, the Court reasoned that public sector employees have a First Amendment right to refuse to contribute money to support the political speech of their union and that protection of that First Amendment right requires states to allow such assessments only if the employees first opt to make a financial contribution. Knox is the latest in a long series of Supreme Court cases delineating when a union selected as the exclusive bargaining representative by the majority of employees in a workplace violates the First Amendment rights of dissenting employees by acting on behalf of the majority. The Court’s next case in this line, Harris v. Quinn, which was argued in January and will be decided later this year, presents the question whether home care workers who are state employees have a First Amendment right to refuse to pay the union anything for the services the union is statutorily obligated to provide them. The petitioners in Harris invite the Court to overrule decades of precedent and hold that the First Amendment prohibits a union representing government employees from collecting dues or fees from dissenting employees. In colloquial terms, the petitioners in Harris seek to have the Supreme Court declare that, as a matter of the First Amendment, all government employment must be on a “right-to-work” basis. The petitioners in Harris argued that bargaining on behalf of employees is petitioning the government and “political in nature” even when it addresses wages, and it violates the First Amendment to require dissenting employees to support the union’s bargaining. As the Justices recognized at oral argument, the logical extension of the petitioners’ argument is that the First Amendment invalidates any statute allowing employees to bargain collectively on the basis of exclusive representation. While the petitioners noted that the Harris case itself did not require the Court to consider whether empowering a union to be the exclusive representative of employees for purposes of negotiating wages and working conditions necessarily involves compelled speech with respect to those employees who disagree with the majority representative’s positions, their brief invited the Court to find collective bargaining on the basis of exclusive representation to be unconstitutional. This article analyzes Harris, Knox, and other leading Court cases to assess union representation and the First Amendment, contradictions in applied standards of associational speech, and the future of public sector collective bargaining.

Symposium on State and Local Government Pensions

Source: Public Budgeting & Finance, Volume 33, Issue 3, Fall 2013
(subscription required)

Articles include:
Introduction: Symposium on State and Local Government Pensions
by Philip Joyce

In this issue, Public Budgeting & Finance presents new research on a topic of vital importance to the future of state and local finance. States and localities face substantial challenges in making good on promises to retirees—promises that cover both traditional defined benefit pensions as well as health care coverage. While imbalances in pension funding are a relatively old story, it is only since the Governmental Accounting Standards Board’s (GASB) requirement that states and localities disclose their Other Post-Employment Benefits (OPEB) liabilities that the funding gaps for health care benefits have become obvious.

Pension Reform in Atlanta: Funding Past Promises in an Uncertain Future
by Sarah Beth Gehl, Katherine G. Willoughby And Michael J. Bell

his research assesses state and local pensions in the U.S. Concerns of locally administered pensions are addressed; actions taken and possible reforms to these plans are noted. Then, recent pension reform in Atlanta, Georgia is examined. In 2009, Atlanta had the 12th lowest funding ratio for its general employee fund compared to all other city plans in Georgia. Atlanta’s story explains the depths of its pension problems, how the pension got into trouble and the changes necessary to advance fiscal sustainability. Such plans will require strict discipline by politicians, pension boards and financial managers, and tempering member expectations to reach sustainability.

Impact of Unfunded Pension Obligations on Credit Quality of State Governments
by Christine R. Martell, Sharon N. Kioko And Tima Moldogaziev

This study reviews the funding status of state-administered pension plans and their impact on state credit quality. As the fund ratio (actuarial assets/actuarial accrued liability) of state-administered pension plans decreases, states are more likely assigned a lower rating. Moreover, rating outlooks are sensitive to the fund ratio, especially for migration between stable and negative outlooks for states with lower fund ratios. These results are a timely pretest to the 2013/2014 implementation of GASB Statements No. 67 and 68, serving as a benchmark to assess whether new reporting requirements will yield information to alter the market’s response to unfunded pension liabilities.

The Impact of Budget Stabilization Funds on State Pension Contributions
by Travis St.Clair

Despite the shortfalls in public employee pension funds, there is little known about the effect of fiscal institutions on pension funding. This paper focuses attention on the link between pension contributions and budget stabilization funds (BSFs) over the period 1997–2008. It employs the Blundell–Bond (1998) estimator in order to address the concern that the deposit and withdrawal rules that drive the management of BSFs may be endogenous to state pension contributions. Empirical results suggest that BSFs with strict deposit rules are associated with higher pension contributions, while strict withdrawal rules are associated with lower contributions.

The Management of Defined Contribution Pension Plans in Local Government
by Gang Chen, Carol Ebdon, Kenneth A. Kriz And Olivier Maisondieu Laforge

Despite the growing importance of defined contribution pension plans in state and local governments, little research exists on how those plans are actually managed. Our study fills a gap in the literature through using a mixed-methods approach on a sample of local governments in Nebraska. We employ a mail-out survey to get broad-based information on DC plan administration throughout the state, and use face-to-face interview techniques on a subsample of plans to investigate the details of plan management. We find several deviations from promulgated best practices, and substantial variation in administrators’ knowledge of and role perception related to DC plans.

The Opportunity Cost of Public Funds: Concepts and Issues
by Jérôme Massiani And Gabriele Picco

This paper reviews the main conceptual issues regarding the notion of Opportunity Cost of Public Funds (OCPF) and its use in normative economics. Despite the importance of the mechanisms it illustrates, the OCPF still has received too marginal attention in public economics literature and is often handled with some definitional ambiguity. Our review indicates that the core of the notion lies in the deadweight loss and, to a minor extent, in administrative costs, while other aspects like crowding out are more controversial. Moreover, we argue that the financing mechanisms of the public expenditures should be considered for a proper analysis and quantification of OCPF and suggest that public expenditures are generally financed through the displacement of funds from alternative uses. We conclude with a review of available quantifications.

Assessing the Relationship Between Objective and Subjective Measures of Fiscal Condition Using Government-Wide Statements
by Craig S. Maher And Steven C. Deller

Government Accounting Standards Board (GASB) Statement 34 has been in effect for a decade yet there is limited research examining government-wide financial reporting data. This study builds on our ability to delve into the fiscal condition of Wisconsin counties during the Great Recession. The principal aims of the research are: (1) expand on works utilizing GASB 34 reporting requirements; (2) report on county administrators perceptions of fiscal condition; and (3) examine the relationship between subjective and objective measures of fiscal condition. We find little evidence that objective fiscal condition indices are related to subjective administrative assessments of fiscal condition.

Pensions and Property Rights in Municipal Bankruptcy

Source: Richard M. Hynes, Steven D. Walt, Virginia Law and Economics Research Paper No. 2014-08, February 26, 2014

From the abstract:
Recent large municipal bankruptcies raise legal and moral questions of the priority in payment of the municipality’s pension obligations. Focusing on existing law, we describe the bases on which pension obligations might have priority in bankruptcy. Priority under existing bankruptcy law requires that these obligations be supported by property rights effective outside bankruptcy. Section I identifies and rejects arguments that pension priority can be granted without property rights as part of Chapter 9 reorganization. Section II describes the requirement that pension priority be supported by property rights, identifies how statutory liens or trusts in favor of pensions can create priority, and describes the barriers to using these devices. A conclusion briefly describes revisions to the Bankruptcy Code that would allow pension priority, with or without property rights.

Record 10.7 Billion Trips Taken On U.S. Public Transportation In 2013 / The Highest Transit Ridership in 57 Years

Source: American Public Transportation Association (APTA), Press Release, March 10, 2014

In 2013 Americans took 10.7 billion trips on public transportation, which is the highest annual public transit ridership number in 57 years, according to a report released today by the American Public Transportation Association (APTA). This was the eighth year in a row that more than 10 billion trips were taken on public transportation systems nationwide. While vehicle miles traveled on roads (VMT) went up 0.3 percent, public transportation use in 2013 increased by 1.1 percent. … Some of the public transit agencies reporting record ridership system-wide or on specific lines were located in the following cities: Ann Arbor, MI; Cleveland, OH; Denver, CO; Espanola, NM; Flagstaff, AZ; Fort Myers, FL; Indianapolis, IN; Los Angeles, CA; New Orleans, LA; Oakland, CA; Pompano Beach, FL; Riverside, CA; Salt Lake City, UT; San Carlos, CA; Tampa, FL; Yuma, AZ; and New York, NY. Since 1995 public transit ridership is up 37.2 percent, outpacing population growth, which is up 20.3 percent, and vehicle miles traveled (VMT), which is up 22.7 percent. …