Category Archives: State & Local Finance

Quarterly Survey of Public Pensions for 2015: Q3

Source: U.S. Census Bureau, G15-QSPP3, December 23, 2015

The Quarterly Survey of Public Pensions is a quarterly survey that provides national summary data on the revenues, expenditures, and composition of assets of the largest defined benefit public employee pension systems for state and local governments. This survey currently consists of a panel of 100 pension systems, which comprise 88.4 percent of financial activity among such entities, based on the 2012 Census of Governments.

For the 100 largest public-employee pension systems in the country, cash and security holdings totaled $3,211.8 billion in the third quarter of 2015, dropping from $3,377.7 billion in the second quarter of 2015, a decrease of 4.9 percent. Compared to the same quarter in 2014, assets for these major public pension systems decreased 2.5 percent from $3,292.6 billion (see Figure 1). This decline in assets is due to negative earnings, which fell from a gain of $32.6 billion in the second quarter of 2015 to a loss of $145.9 billion in the third quarter….
Related:
Cash and Security Holdings of Major Public Employee Retirement Systems
Earnings on Investments, Contributions, and Payments of Major Public Employee Retirement Systems
Percent Distribution of the Cash and Security Holdings of Major Public Employee Retirement Systems

Local Government Finance as Integrated System: The Uneasy Case for Using Special Districts in Real Estate Finance (A Response to Odinet’s Super-Liens to the Rescue? A Case Against Special Districts in Real Estate Finance)

Source: Darien Shanske, Washington and Lee Law Review Online, Vol. 72 No. 191, 2015

From the abstract:
Local governments have long used special financing districts to build infrastructure. If a local project, say building a pocket park, is likely to increase the values of properties very close to the park, then why should those properties not pay for the park in the first place? Though efficient and fair in many cases, the use of these districts can also be problematic. For instance, it seems likely that wealthier residents, with higher property values to leverage, are especially likely to use these districts effectively. It has also been the case that developers have used these districts speculatively, which had serious repercussions during the last recession. Christopher Odinet develops an additional, and important, critique of these districts. Odinet observes that these districts obtain a lien on benefiting properties, and that this lien takes priority over the liens of conventional lenders. Odinet then argues that this super-priority should only be honored if the district has served some substantial public purpose.

In this short Response, I agree with Odinet that these districts are problematic, but wonder whether his solution is the best one. This is because traditional lenders will generally know about these districts before lending. Furthermore, his solution only kicks in if there is an event of default, which is unusual, and thus this solution does not do much to counter the run of the mill socio-economic stratification that these districts often enable. I argue that an ex ante approach limiting the use of these districts therefore seems preferable. I conclude with the argument that, despite all their flaws, these districts should not be abolished outright. Local government finance is a dynamic system and the absence of any tool, even one prone to abuse, can have severe consequences, as illustrated by the recent history of California.

U.S. State and Local Public Pension Funds in Numbers

Source: Joshua Franzel, Center for State and Local Government Excellence, December 3, 2015

SLGE’s VP for Research Joshua Franzel spoke at the 5th Annual World Pensions & Investment Forum in Paris, France on December 3. His presentation focused on state and local public pension structures, funding, and the Public Plans Data resource.

State and Local Governments’ Fiscal Outlook: 2015 Update

Source: U.S. Government Accountability Office (GAO), GAO-16-260SP, December 16, 2015

From the summary:
Fiscal sustainability presents a national challenge shared by all levels of government. GAO simulations of long-term fiscal trends in the state and local government sector—published since 2007—have consistently shown that state and local governments face long-term fiscal pressures. Absent any policy changes, the state and local government sector faces a gap between expenditures and receipts in future years. Closing this gap will require state and local governments to make policy changes to assure that receipts are at least equal to expenditures.

GAO’s model uses the Bureau of Economic Analysis’s (BEA) National Income and Product Accounts (NIPA) as the primary data source and presents the results in the aggregate for the state and local sector as a whole. The model shows the level of receipts and expenditures for the sector until 2064 based on current and historical spending and revenue patterns. The model assumes that the current set of policies in place across state and local government remains constant to show a simulated long-term outlook. GAO’s model incorporates Congressional Budget Office (CBO) economic projections, which capture near-term cyclical swings in the economy. Because the model covers the sector in the aggregate, the fiscal outcomes for individual states and localities cannot be captured. This product is part of a body of work on the nation’s long-term fiscal challenges.
Related:
Podcast

Strengthening U.S. Manufacturing Through Public Procurement Policies: How Procurement Policies Can Promote Innovation and Good Jobs

Source: Robert Pollin, James Heintz, and Jeannette Wicks-Lim, Political Economy Research Institute (PERI), December 2015

From the abstract:
This study advances a policy framework capable of supporting a major revival of the U.S. manufacturing sector. The study focuses on one set of policy tools—U.S. public sector procurement of manufactured goods—to promote growth and expanding job opportunities within one manufacturing industry, the production of railcar transportation equipment. The authors find that significant but straightforward reforms of the “Buy America” program of the Department of Transportation are capable of generating major benefits to domestic railcar manufacturers and workers in this sector.
>> Read the study’s Policy Highlights and Summary
>> Read coverage of the study on Campaign for America’s Future blog: “Let’s Make Sure Our Tax Dollars Buy Good Manufacturing Jobs

Fiscal Survey of States, Fall 2015

Source: National Association of State Budget Officers, December 2015

Enacted state budgets for fiscal 2016 represent a sixth consecutive year of spending and revenue growth, according to this report. Forty-three states enacted general fund spending increases for fiscal 2016, helping to bolster core services such as K-12 education and health care. Overall, state fiscal conditions continue to be stable, but growth remains modest and long-term spending pressures continue to increase, often faster than state revenues.
Related:
Summary

Forensics and the Future of a Connecticut Pension Plan

Source: Jean-Pierre Aubry and Alicia H. Munnell, Center for Retirement Research at Boston College, State and Local Pension Plans, SLP#46, December 2015

The brief’s key findings are:
– Connecticut’s State Employees Retirement System faces a large unfunded liability, despite recent efforts by the State to fund.
– A significant source of the liability is the “legacy debt” built up before the State began pre-funding its pensions in the 1970s.
– More recently, inadequate contributions, low investment returns (since 2000), and early retirement incentives have added to the problem.
– A promising approach for addressing the funding problem is to provide more breathing room in exchange for a real and sustained commitment to funding by:
– separately funding the legacy debt over multiple generations; while
– funding ongoing benefits using a stricter method for calculating required contributions, and reducing the long-term assumed return on plan assets.

A Region Left Behind: Lost Opportunity In The Deep South

Source: Chico Harlan, Washington Post, 2015

….It is a downbeat reality for a region that for much of the second half of the 20th century was actually closing its gap with the rest of the country, helped by the federal war on poverty and the end of legalized segregation. But during the past 15 years — and particularly since the Great Recession — the catch-up has stalled. By some measures, it has reversed. Somebody born today in Mississippi, Alabama, Louisiana, Georgia or South Carolina is far more likely than someone born elsewhere in the United States to attend a poorer school, drop out before high school, work a low-paying job, struggle with debt, go to prison and die young, according to national health, labor and education statistics. …. But the troubles in the Deep South go well beyond race to include frayed state finances, which have eroded the safety net for the poor, as well as public school underfunding, which leaves those who can afford it scrambling to private schools. And it extends to a growing technological divide that has left significant rural areas without access to the digital world; a rise in single-parenthood, which is a major indicator for generation-to-generation poverty; and the decline of rural job opportunities in states that have long relied on agriculture rather than on urban hubs….

Articles include:
An opportunity gamed away
Source: Chico Harlan, Washington Post, July 11, 2015
For a county in the Deep South that reaped millions from casino business, poverty is still its spin of the wheel. …. What went wrong in Tunica is a matter of perspective. For many African Americans — and the county’s current officials — it was a story of a largely white political leadership that did not grasp the depths of poverty facing many black residents and did not choose to use the casino revenues that flowed into the county in an equitable way. So instead of funding skills training and providing programs for the vulnerable, they poured money into a riverfront wedding hall, an Olympic-size indoor swimming pool and a golf course designed by a former PGA Tour pro — all while implementing a massive tax cut that primarily benefited the wealthy. …..

Graduating, but to what?
Source: Chico Harlan, Washington Post, October 17, 2015
Poor students in the Deep South who successfully navigate traumas at home and dysfunction at school find few opportunities afterward. ….The Deep South’s paralyzing intergenerational poverty is the devastating sum of problems both historical and emergent — ones that, in the life of a young man, can build in childhood and then erupt in early adulthood. Students such as Davis deal with traumas at home and dysfunction at school — only to find themselves, as graduates, searching for low-paying jobs in states that have been reluctant to fund programs that help the poor. That cycle carries implications not only for the current generation, but also for the ones to come, and holds back a region that has fallen further behind the rest of the nation….. In recent years, shriveling job prospects for the high-school-educated and scant state support for the poor have combined with the Deep South’s more timeworn problems — single-parenthood and under-education — to diminish the chances of a middle-class life for somebody born into poverty….

A grim bargain
Source: Chico Harlan, Washington Post, December 2, 2015
Once a weakness, low-skilled workers who get paid little have become the Deep South’s strength. ….In wide swaths of the Deep South, public schools struggle, turning out workers who lack basic skills. Agricultural work has long faded, while job opportunities in once-prosperous industries such as textiles and timber have been lost to cheaper options in Latin America or automation at home. Politicians say they must give freebies to lure companies here, or offer nothing at all and watch the region — which already lags behind the rest of the country on most measures of well-being — fall even further behind. But in some cases, when opportunity arrives, it highlights a grim bargain: Jobs come at great cost but offer only a slightly better version of a hard life. The region’s weaknesses — a low-skill workforce that doesn’t expect particularly high wages — become its competitive strengths. And suddenly, the only opportunity for somebody such as Deshler becomes a Chinese company looking for a place from which to do more business in the United States….