Present consequences of unfunded pension liabilities and ways forward

Source: Jeffrey Cheng and David Wessel, Brookings Institution, July 16, 2018

Note: This paper will be presented at the 2018 Municipal Finance Conference on July 16 & 17, 2018.

State governments with large unfunded pension liabilities are paying more to borrow from capital markets than are other states, according to Chuck Boyer of the University of Chicago Booth School of Business.

In the paper, “Public pensions, political economy and state government borrowing costs,” to be presented at the 2018 Municipal Finance Conference at Brookings this week, Boyer argues that markets view states with large pension deficits as riskier investments. His evidence suggests that states are already paying for municipal government’s unfunded pension liabilities in the form of higher borrowing costs. He asks two questions: 1) how are state governments’ borrowing costs affected by unfunded pension obligations? and 2) do states with political constraints face higher borrowing costs?

Boyer constructs a panel dataset using each state’s Comprehensive Annual Financial Reports for the period 2005 to 2016. He focuses on balance sheet variables—revenues, expenses, assets, and liabilities—to capture a state’s financial health and credit default swap (CDS) spreads – the premium paid to protect buyers from an issuer defaulting – to measure borrowing cost. The author reasons that CDS reflects market sentiments better than market yields because CDS are more liquid, and because they are standardized, whereas market yields may be affected by additional features of a particular bond.

Related:
Public pensions, political economy and state government borrowing costs
Source: Chuck Boyer, University of Chicago Booth School of Business, current draft: July 11, 2018

I find that public pension funding status has a robust and statistically significant relationship with state borrowing costs, as measured by credit default swap spreads. A one standard deviation increase in the net pension liability to GDP ratio is related to an 18 basis point increase in CDS spreads. This effect is most pronounced among states with constitutional protection for pension liabilities, suggesting the markets perceive these legal protections as material. I also find suggestive evidence that states with more powerful unions pay higher borrowing costs. Results are robust to using spreads from the underlying bonds themselves. These findings highlight the fact that states are already paying for potential future pension problems through higher borrowing costs.

Related: presentation slides

When Needed Public Pension Reforms Fail or Appear to Be Legally Impossible, What Then? Are Unbalanced Budgets, Deficits and Government Collapse the Only Answer?
Source: James E. Spiotto, Chapman Strategic Advisors, May 30, 2018

The problem of underfunded public pensions confronts a number of states and local governments in the United States. In the past, numerous public employers in the United States have agreed to pension benefits that now appear challenging to afford given current revenues and the increased cost of providing governmental services. Further, this challenge has been exacerbated by past failures to set aside sufficient moneys to meet the pension benefits obligations incurred to date. All of this is occurring on the heels of the Great Recession of 2007, followed by an anemic recovery, and at a time many states and local governments are faced with an aging infrastructure that must be attended to and increased demands for basic public services (sanitation, water, streets, schools, food inspection, fire department, police, ambulance, health and transportation) that must be met. Because the public pension underfunding problem pits the requirement of meeting pension obligations against the need to provide for essential public services, all citizens have an interest in the fair and equitable solution to the dilemma.

Unfortunately, a just and effective method of resolving unaffordable public pension obligations has been elusive for some public governmental employers and employees. This is due in part to promised pension benefits costs exceeding the government’s ability to pay and the failure to fund promptly the incurred obligations. In some cases, solving the problem has been complicated by the lack of any ability to adjust or modify pension benefits to those that are sustainable and affordable to the fullest extent possible without adversely affecting the funding of essential public services. This paper will provide a review of some legal and practical obstacles that have been making needed pension reform and balancing the budget difficult, if not impossible, and will suggest possible new approaches to the problem that have not yet been tried. …..

Related: presentation slides

Behind The Campaign To Get Teachers To Leave Their Unions

Source: Anya Kamenetz, NPR, July 19, 2018

….Last month, the Supreme Court in Janus v. AFCSME dealt a major blow to public sector unions. The court ruled that these unions cannot collect money, known as agency fees, from nonmembers who are covered by collective bargaining agreements.

Organizations on both sides across the country sprang into action.

The Mackinac Center for Public Policy, based in Michigan, is running My Pay, My Say as a national campaign. The Freedom Foundation, with headquarters in Washington state, is targeting teachers in Oregon, Washington and California with the slogan, Opt Out Today.

Other groups targeting teachers and public employees in specific states include: the Commonwealth Foundation, the Yankee Institute for Public Policy, the Center of the American Experiment, the Center for Union Facts and Americans for Prosperity.

The outreach tactics include paper mail, phone calls, emails, hotlines, Facebook ads, billboards, TV advertising and even door-to-door canvassing. Organizations are using publicly available email addresses to reach their targets, as well as purchasing mailing lists. ….

…. The groups behind the opt-out campaign, which describe themselves as conservative, libertarian or free-market, share many donors in common, such as the State Policy Network, the Donors’ Fund and DonorsTrust. Many of these groups have long opposed not only agency fees, but teachers unions in general, on the grounds that they inhibit education reforms such as vouchers and charter schools.

According to an analysis of tax filings by the website Conservative Transparency, the top contributors to the Mackinac Center specifically include the Dick and Betsy DeVos Family Foundation, and the DeVos Urban Leadership Initiative (formerly the Richard and Helen DeVos Foundation). These are the family foundations of the U.S. education secretary, Betsy DeVos, and her husband’s parents. ….

Related:Trump Nominee Is Behind Anti-Union Legal Campaign
Source: Noam Scheiber, New York Times, July 18, 2018

Even before the Supreme Court struck down mandatory union fees for government workers last month, the next phase of the conservative legal campaign against public-sector unions was underway.

In March, with the decision looming, lawyers representing government workers in Washington State asked a federal court to order one of the state’s largest public-employee unions “to disgorge and refund” fees that nonmembers had already paid. Similar lawsuits were filed in California, New Jersey, New York, Pennsylvania, Minnesota and Ohio. ….

….Beyond their legal claims, the cases share another striking detail: The lead counsel in each is a conservative lawyer named Jonathan F. Mitchell.

Mr. Mitchell, 41, has a formidable résumé. He was a Supreme Court clerk to Justice Antonin Scalia; worked at the Justice Department under President George W. Bush; taught at several law schools, including Stanford; and spent more than four years as the solicitor general of Texas.

After the 2016 election, he served as a volunteer attorney on the Trump transition team, where he helped review future executive orders. In September, the president nominated him to head the Administrative Conference of the United States, a small federal agency that advises the government on improving its inner workings. His nomination awaits action by the Senate after the Judiciary Committee approved him on a party-line vote in March…..

Four-Day Working Week Trial

Source: Perpetual Guardian, 2018

Perpetual Guardian is embarking on a world-first: we are running an unprecedented productivity trial for six weeks, starting 5 March. As part of the trial, all our staff – more than 200 people around New Zealand – are being offered a free day off every week. All other employment conditions, including remuneration, are unchanged. Andrew Barnes, our founder and CEO, says the decision to test the new way of working is “the right thing to do.” He was inspired to conduct the trial by several global productivity reports and our recent internal survey, which asked staff how productivity, innovation and engagement can grow. …..

Related:
A 4-Day Workweek? A Test Run Shows a Surprising Result
Source: Charlotte Graham-McLay, New York Times, July 19, 2018

A New Zealand firm that let its employees work four days a week while being paid for five says the experiment was so successful that it hoped to make the change permanent. The firm, Perpetual Guardian, which manages trusts, wills and estates, found the change actually boosted productivity among its 240 employees, who said they spent more time with their families, exercising, cooking, and working in their gardens…..
Four-day working week trial at New Zealand company so successful its boss wants to make it permanent
Source: Tom Embury-Dennis, The Independent, July 19, 2018

A four-day working week trial at a company in New Zealand was so successful its boss wants to make it permanent. The firm, which deals with wills and trust funds, conducted the eight-week experiment earlier this year. It saw its 240-strong workforce, in 16 offices across the country, retain full pay alongside a three-day weekend. Andrew Barnes, chief executive of Perpetual Guardian, said he had made a recommendation to the board to continue the policy after an analysis revealed a “massive increase” in staff satisfaction with no drop in productivity. The research, Mr Barnes said, was conducted by two independent academics drafted to ensure an objective analysis of the impact on the company and workforce.

Research suggests there’s a case for the 3-hour workday
Source: Chris Weller, Business Insider, September 27, 2017
– The average worker spends most of the eight-hour workday doing many other things beside work, including eating, socialising, or reading the news.
– Psychologists have found the brain can’t focus on tasks for more than a few hours at a time.
– Some companies have started adjusting their schedules to help employees maximise their efficiency.

In Sweden, an Experiment Turns Shorter Workdays Into Bigger Gains
Source: Liz Alderman, New York Times, May 20, 2016

Arturo Perez used to come home frazzled from his job as a caregiver at the Svartedalens nursing home. Eight-hour stretches of tending to residents with senility or Alzheimer’s would leave him sapped with little time to spend with his three children. But life changed when Svartedalens was selected for a Swedish experiment about the future of work. In a bid to improve well-being, employees were switched to a six-hour workday last year with no pay cut. Within a week, Mr. Perez was brimming with energy, and residents said the standard of care was higher. …. The experiment at Svartedalens goes further by mandating a 30-hour week. An audit published in mid-April concluded that the program in its first year had sharply reduced absenteeism, and improved productivity and worker health. ….

U.S. Public College And University Fiscal 2017 Median Ratios: Lower-Rated Entities Continue To Face Financial Stress

Source: S&P Global Finance, July 16, 2018
(subscription required)

The credit quality of most rated U.S. public colleges and universities was relatively stable in fiscal 2017, except for lower-rated schools, whose credit issues continued. Enrollment and demand metrics were favorable across higher-rated categories and as a sector, although schools in the ‘BBB’ and speculative-grade categories generally saw theirs weaken.

Related:
U.S. Not-For-Profit Private Universities’ Fiscal 2017 Median Ratios: Competition And Affordability Continue To Be Main Credit Risks
Source: S&P Global Finance, July 16, 2018
(subscription required)

Despite the sector facing continuous challenges in the areas of competition and affordability, S&P Global Ratings’ key median indicators for U.S. not-for-profit private universities in fiscal 2017 were relatively flat as compared with those from a year earlier, reflecting the sector’s continued ability to withstand medium-term pressures.

After Janus, How to Tilt the Balance of Power Back to Workers

Source: Jessica Stites and Aaron Tang, In These Times, August 2018
This is the first of a four-part series on rebuilding labor after the Supreme Court’s Janus ruling. The second part will debut online Tuesday. You can read all four pieces, as well as an exclusive interview with Bernie Sanders on the future of the labor movement, in the August issue of In These Times magazine.

There’s a simple fix to Janus’s “free-rider” problem. …

…. The labor and employment protections that do exist have been eroded for decades, often on the Democrats’ watch. But unions and workers weary of broken promises from corporate-captured legislators may find a glimmer of hope in the current rise of progressive Democrats. To those candidates and legislators looking for strong pro-labor proposals, we invited labor experts to offer four concrete policies to bolster workers’ rights. You can find the first proposal, by Aaron Tang, below, and the rest on InTheseTimes.com over the course of the week.

We offer these with one caveat: Legislative change won’t happen without a groundswell of worker action, rooted in the conviction that we do not shed our rights when we clock in to work. ….

Worker wages drop while companies spend billions to boost stocks

Source: Irina Ivanova, Moneywatch, July 11, 2018

Six months after the Tax Cut and Jobs Act became law, there’s still little evidence that the average job holder is feeling the benefit.

Worker pay in the second quarter dropped nearly one percent below its first-quarter level, according to the PayScale Index, one measure of worker pay. When accounting for inflation, the drop is even steeper. Year-over-year, rising prices have eaten up still-modest pay gains for many workers, with the result that real wages fell 1.4 percent from the prior year, according to PayScale. The drop was broad, with 80 percent of industries and two-thirds of metro areas affected. ….

…. Businesses are spending nearly $700 billion on repurchasing their own stock so far this year, according to research from TrimTabs. Corporations set a record in Q2, announcing $433 billion worth of buybacks — nearly doubling the previous record, which was set in Q1. ….

Government Reorganization: Key Questions to Assess Agency Reform Efforts

Source: United States Government Accountability Office, Report to Congressional Requesters, GAO-18-427, June 2018

From the fast facts:
A March 2017 executive order requiring executive branch agency reorganization is intended to improve efficiency and effectiveness. If it works, it could save billions of dollars—but similar reform efforts in the past have not always come to fruition.
Our prior work on government reform indicates that agencies can change if they
– follow an effective process
– allocate sufficient implementation resources
– consider workforce needs during and after the reform

In this report, we provide questions that Congress can ask in its critical oversight role to determine whether agencies are on track for effective change.

The Supreme Court vs. democracy

Source: Ezra Klein, Vox, July 9, 2018

Even those most invested in the Court’s grandeur are finding it hard to defend its reality. ….

…. The first seat Trump filled opened under Barack Obama, but Senate Republicans refused to consider any replacements, hoping to win the 2016 election and see the seat filled by a Republican. Mitch McConnell’s bet paid off: Trump did win that election, though he lost the popular vote decisively, and Neil Gorsuch was named to the Court.

Such appointments are becoming the norm. With Kennedy’s replacement, four out of the Supreme Court’s nine justices — all of whom have lifetime tenure — will have been nominated by presidents who won the White House, at least initially, despite losing the popular vote.

There’s nothing necessarily wrong with that. America, for all its proud democratic rhetoric, is not actually a democracy. Until and unless the country chooses to abolish the Electoral College, it will remain not-quite-a-democracy, with all the strange outcomes that entails. Liberals may complain, but the rules are the rules, and both sides know what they are.

But the Supreme Court’s conservative bloc doesn’t just reflect the outcomes of America’s undemocratic electoral rules; it is writing and, in some cases, rewriting them, to favor the Republican Party — making it easier to suppress votes, simpler for corporations and billionaires to buy elections, and legal for incumbents to gerrymander districts to protect and enhance their majorities.

The Supreme Court has always been undemocratic. What it’s becoming is something more dangerous: anti-democratic. ….