Category Archives: Public Sector

Facts You Should Know: 2012 Fact Sheet / State and Municipal Bankruptcy, Municipal Bonds, and State and Local Pensions

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Source: NGA – National Governors Association, NCSL – National Conference of State Legislatures, CSG – The Council of State Governments, NACo – National Association of Counties NLC – National League of Cities, USCM – The U.S. Conference of Mayors, ICMA – International City/County Management Association, NASBO – National Association of State Budget Officers, NASACT – National Association of State Auditors, Comptrollers and Treasurers, GFOA – Government Finance Officers Association, NASRA – National Association of State Retirement Administrators, 2012

From the summary:
State and local government officials want you to know something: Yes, budgets are tight these days, but their overall financial picture is still solid. That is the message from a new fact sheet, “Facts You Should Know,” released by the International City/County Management Association (ICMA) and 10 other state and local government organizations….

The fact sheet makes the case, citing among other factors:
– Municipal bond defaults are rare. From 1970 through 2011, only five rated city or county governments defaulted. Of the 65 rated municipal bond defaults during this period, most were for not-for-profit hospitals or housing projects. Municipal securities are considered second only to Treasuries in investment safety.
– Most state and local pension systems have assets to weather the economic crisis, with nearly $3 trillion in pension trusts.
– Officials are working to improve their finances. State and local governments “have made changes to benefit levels, contribution rate structures, or both since 2009,” according to the news release.

Public-Sector Unionism vs. the Public Interest

Source: Brian Farmer, New American, December 5, 2011
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The unionization of government workers represents the ideal situation for labor unionism. The ultimate objective of labor unionism is to monopolize the available supply of labor to an employer and to eliminate all competing workers to that source of employment. If a labor union can accomplish that, it can raise the price of labor, be it through increased wages, more generous fringe benefits, or productivity-killing work rules in the determination of working conditions. And that is much easier to accomplish in the public sector than it is in the private sector, because private-sector businesses do not enjoy a monopoly in their provision of goods and services to consumers….By their very nature, collective bargaining laws create an adversarial relationship between the labor union and the employer, which makes strife inevitable. Labor unions know that no employer will seriously consider a labor union demand if it knows that the labor union has no power to enforce it. Obviously, to enforce their demands, labor unions will strike, no matter whether such strikes are contractually legal or not. In the public sector, it means the withholding of public services. Public officials become so desperate to settle the strike and restore public services that a settlement almost invariably involves an agreement not to penalize the labor union for engaging in an illegal strike. This gives the labor union disproportionate power and results in government decisions that have short-term political benefits but disastrous long-term financial consequences….

Title VII and the Public Sector Transgender Employee

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Source: Leslie Paul Machado, IPMA-HR News, Vol. 78 no. 1, January 2012
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There is a tendency among many employers to think of transgender issues as “someone else’s problem,” an issue not likely to affect their own organizations. That’s a misconception, and it’s as prevalent among public sector organizations as it is among private businesses. Several recent cases bear witness to this fact….Rather than isolated decisions, these cases may be part of a larger trend in which courts are increasingly holding employers liable under Title VII for alleged discrimination against transgender employees.

Benefits Design and Delivery – A New Era

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Source: Don Heilman, IPMA-HR News, Vol. 78 no. 1, January 2012
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Governmental employers are faced with many challenges in managing benefits in today’s environment. Among those challenges: static/decreasing revenues, increasing costs, future/unfunded liabilities, workforce planning and health care reform–not to mention increasing public scrutiny….[T]he benefits configuration creating many of the challenges is most valued by the baby boomers that are both contributing to the costs and who are entering their retirement phase. These employees in turn will be replaced with an employee population with a different level of expectations and values elated to benefits, and for that matter, total compensation.

Whistleblower Retaliation in the Public Sector

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Source: Katie Lee and Brian Kleiner, Public Personnel Management, Vol. 40 no. 4, Winter 2011
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“Blowing the whistle” has never been an easy decision whether an employee is from the private sector of the public sector. Laws to protect employees from the private sector had long been established while whistleblowers from the public sector may have been scrutinized. After the media aired many high profile cases in which federal whistleblowers go through a series of retaliations by their supervisors, laws have been introduced to protect government whistleblowers as well. Although these laws have significantly given courage to whistleblowers, it is not without its flaws. There are still agencies that ignore these laws or find ways around these laws in order to cover up some of their own mistakes. The government must continue to find ways to encourage more people to step up and expose wrongdoings for the good of society.

Viewpoint: Lessons learned while adjusting retiree health benefits

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Source: Lynna Soller and Steve Burrows, American City and County, Vol. 127 no. 1, January 2012

For many years, Tempe, Ariz., provided active and retired employees — about 2,450 individuals — with a generous health plan at little or no cost. But recently, the city faced up to a hard reality: that plan simply was not sustainable.

Tempe officials had to figure out how to make good on retiree medical benefit promises in a sluggish economy marked by staggering deficits, relentless health care inflation and growing numbers of retirees. It was a huge challenge to design a plan that would stem the fiscal bleeding, be fair to all parties and that could be communicated in a clear, concise way. We had our ups and downs along the way. In the end, however, by working with retirees and unions, we achieved a consensus and achieved a long-term solution.

Here are seven lessons we learned that may be instructive to other cities and counties contemplating reform of their retiree benefits plans:

Too Big to Fail and Too Big to Pay: States, Their Public-Pension Bills, and the Constitution

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Source: Debra Brubaker Burns, Hastings Constitutional Law Quarterly, Fall 2011
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Faced with the most severe budget crises since the Great Depression, many state officials and lawmakers within the United States are desperately trying to pay their bills and balance their budgets. More than a few economists, reporters, academicians, lawyers, and politicians are arguing about legal solutions for pension liabilities that are too big to pay, including possible federal bailouts for states that are deemed “too big to fail.”

States choosing to default on or repudiate any public-pension obligation would face significant legal challenges to any action that impaired those pensions. Beyond the protections of the Constitution’s Contract Clause, state constitutional and statutory laws often provide additional legal protections against unilateral reduction of pension benefits.

This note analyzes two proposed solutions to the states’ expanding pension liabilities. The first is tax-exempt and conditional pension obligation bonds. The second is a newly instituted bankruptcy code for states. Because courts have recognized Congress’s broad discretion in its spending, conditional debt obligations for state pensions would likely survive a constitutional challenge. Bankruptcy for states, however, would face many more legal, practical, and political challenges. Arguably the Bankruptcy Clause of the Constitution is worded broadly enough to allow voluntary bankruptcy for states, and would preempt contradictory state law under the Supremacy Clause. Yet, even if Congress were to establish a new chapter of bankruptcy for states and the Supreme Court found it constitutional, states may in the end determine that on a practical level declaring bankruptcy creates more social, political, and other economic problems than it solves.

An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans

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Source: Nancy Mohan, Zhang Ting, Upjohn Institute Working Paper No. 12-179, November 18, 2011

From the abstract:
This paper investigates the determinants of public pension plan risk-taking behavior using the percentage of total plan assets invested in the equity markets and the pension asset beta as measures of investment risk. We find that government accounting standards strongly affect public fund investment risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and beta. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing financial constraints allocate more assets to equity and have higher pension asset betas. There also appears to be a herding effect in that a change in CalPERS portfolio beta or equity allocation is mimicked by other pension funds. Finally, the results offer mild support of a public union effect.

In Defense of Defined-Benefit Pensions / Modest Reforms to State Plans Are Best Option for Taxpayers

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Source: David Madland, Nick Bunker, Center for American Progress, February 2012

From the summary:
Because many states’ public-employee pension plans are currently underfunded–meaning that current assets are less than promised retirement benefits–proposals to drastically reshape public-sector pensions or eliminate them in favor of 401(k)-style retirement plans are expected to once again be introduced this coming year in statehouses across the country. While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely.