CLT
UPDATE
Tuesday, September 16, 2003
CLT quietly wins one with Romney
Hats off to Gov. Mitt Romney for calling a spade a spade and putting a stop to public employee unions' improper use of state resources for political purposes....
From now on, the unions must pay administration costs, and they can no longer solicit PAC money on public property, said a ruling by the Office of Campaign and Political Finance....
That Citizens for Limited Taxation weighed in
on Romney's side, arguing it should be given the same prerogative as the unions to solicit donations, probably helped regulators see the light. (Although, the basic fairness question raised by CLT is unresolved.)
A Boston Herald editorial
Sunday, September 14, 2003
Closing a PAC loophole
State employee unions will be able to continue collecting money for their political action committees through automatic payroll deductions, but will have to reimburse the government for the administrative cost, under a ruling issued Tuesday by the state campaign finance office....
The Romney administration, which has been waging a battle against the state's unions since taking office, responded to the decision by asking the state Comptroller to calculate the cost of administering the payroll deduction plan and instructing state agencies to bar solicitation of donations on public property.
"This is an important victory for the taxpayers of Massachusetts who will no longer be asked to subsidize the political activity of unions and for state employees who may have felt coerced at the workplace into making these political contributions," said Shawn Feddeman, the Republican governor's spokeswoman.
Associated Press
Tuesday, September 9, 2003
Campaign office gives mixed response to Romney union query
By the start of 2002, Massachusetts had the seventh largest pension fund debt in the country, according to the Wilshire study.
More recent figures show the debt has grown from around $7.5 billion in 2002 to $12.5 billion today.
The debt - more than half the size of the entire state budget - threatens to force the state to make more painful choices in the years ahead after a round of program cuts and fee increases to balance this year's spending plan.
Meanwhile, the state's obligation to retirees is growing faster than ever as thousands of public employees take advantage of early retirement offers worth tens of thousands of dollars over the life of their pensions.
"It's a sleeping giant," said Michael Widmer, executive director of the Massachusetts Taxpayers Foundation. "The No. 1 problem in the state is (the cost of) Medicaid. This is now the No. 2 problem, and it's a major one." ...
By law, that liability - now pegged at between $12.5 billion and $16 billion - must be paid off by the year 2023.
Widmer and others say that may be impossible without severe program cuts or increased taxes....
"There's really nowhere to go," said Widmer, whose group has advocated higher taxes in the past. "We already led the nation in new fees."
The Salem News
Monday, September 15, 2003
The pension fund nightmare:
Growing obligations, shrinking resources
Part
2 of the Salem News pension fund series
Chip Ford's CLT
Commentary
While we wait for the moment to continue with the income tax rollback to 5 percent, it's good to win a small battle without a major petition drive or lobbying effort. Sometimes CLT prevails just by its existence as a vigilant independent counterbalance that weighs in with
creative responses to the most recent government absurdities.
When Governor Romney moved to address an abuse by labor unions, we backed him up with a
letter to the Office of Campaign and Political Finance on August 5. Until Sunday's Boston Herald's editorial, our involvement went unmentioned but likely helped with OCPF's decision.
The good guys won again, in part thanks to your support.
CLT's biggest contribution, however, will always be its unswerving allegiance to "no new taxes" public policy that helps drive the ongoing debate on Beacon Hill. We are the balance not only to pro-tax-hike politicians, unions, municipalities, and other spending advocates, but to the misnamed Massachusetts Taxpayers
Foundation. And here it goes again....
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It looks like our Massachusetts Legislature is shooting for another "first in the nation" with its usual effect. According to a comprehensive report in yesterday's Salem News, we taxpayers are burdened by the seventh-highest state employee pension
debt.
Part Two in the Salem News series will be found here
tomorrow.
Of course, the so-called Massachusetts Taxpayers Foundation has its usual solution -- providing cover for another tax increase to bail out dysfunctional government policy.
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Chip
Ford |
The Boston Herald
Sunday, September 14, 2003
A Boston Herald editorial
Closing a PAC loophole
Hats off to Gov. Mitt Romney for calling a spade a spade and putting a stop to public employee unions' improper use of state resources for political purposes.
The unions are allowed, under the terms of their collective bargaining agreements, to solicit employee participation in political action committees through a payroll deduction. Surely public employees have the right to voluntarily fund their unions' political activist if they so choose.
The outrage was that tax dollars were used to administer the deduction and transfer the funds to the unions' PAC. The unions were, in effect, soliciting contributions on public property, in contravention of state law, by publicizing the deduction option at work sites.
The Romney administration objected to the practice and now the state's campaign finance regulators have agreed it's wrong.
From now on, the unions must pay administration costs, and they can no longer solicit PAC money on public property, said a ruling by the Office of Campaign and Political Finance.
Romney didn't get everything he wanted from the campaign watchdogs. The PAC deduction still can be taken. But its worst aspects are fixed.
That Citizens for Limited Taxation weighed in on Romney's side, arguing it should be given the same prerogative as the unions to solicit donations, probably helped regulators see the light. (Although, the basic fairness question raised by CLT is unresolved.)
OCPF should have put a stop to this flouting of state law long ago. But then again, no politician until Romney had the guts to ask them to.
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Associated Press
Tuesday, September 9, 2003
Campaign office gives mixed response to Romney union query
By Jennifer Peter
State employee unions will be able to continue collecting money for their political action committees through automatic payroll deductions, but will have to reimburse the government for the administrative cost, under a ruling issued Tuesday by the state campaign finance office.
In response to a complaint filed on behalf of Gov. Mitt Romney, the Office of Campaign and Political Finance also barred the public employee unions from including information about the payroll deduction system in the state's orientation packets for new employees or in any way soliciting participation on public property.
The Romney administration, which has been waging a battle against the state's unions since taking office, responded to the decision by asking the state Comptroller to calculate the cost of administering the payroll deduction plan and instructing state agencies to bar solicitation of donations on public property.
"This is an important victory for the taxpayers of Massachusetts who will no longer be asked to subsidize the political activity of unions and for state employees who may have felt coerced at the workplace into making these political contributions," said Shawn Feddeman, the Republican governor's spokeswoman.
Union representatives said the decision contained no surprises. If the state had ever asked them to pay for the cost of the payroll deduction program, they would have readily agreed, according to David
Holway, president of the National Association of Government Employees, SEIU Local 5000.
"The pettiness here is remarkable," Holway said. "They address so much time and energy to addressing this issue where a phone call could have accomplished it. Maybe as we enter the second year of the Romney administration, maybe we'll have a government that discusses things rather than issuing press releases."
Holway denied the administration's assertions that the payroll deduction plan has been pitched on state property as part of the orientation package for new employees.
The administration, however, provided the campaign finance office with the copy of a flier, allegedly included in orientation packets that asks employees whether they want to contribute 50 cents to the NAGE political education fund.
In a letter sent to OCPF in early August, Romney's chief counsel challenged the legality of the payroll deductions, which allows state employees to contribute 50 cents a week from their paychecks into union political action committees.
Chief Counsel Dan Winslow said the system unfairly favors unions that support Democrats. About 12.5 percent of state employees opt for the deduction.
Administration officials say the program raises $435,000 annually for the state employee PACs, many of which opposed Romney in 2002.
In its decision, OCPF reiterated a previous ruling that these types of payroll deductions are legal as long as they were are part of a negotiated collective bargaining agreement.
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The Salem News
Monday, September 15, 2003
The pension fund nightmare:
Growing obligations, shrinking resources
By Bill Kirk, Staff writer
One government watchdog group calls it a "sleeping giant."
Gov. Mitt Romney says it is a "large, looming problem."
House Speaker Thomas M. Finneran says it keeps him awake at night.
They're all worried about the same thing: the state's trouble-plagued $28 billion pension fund.
Across the state and the country, public employee pension fund managers are grappling with the same set of problems: a growing number of retirees living longer and collecting more, a faltering stock market eating into the money saved to pay those retirees and a growing burden on taxpayers to make up the difference.
Nationwide, public pension assets plummeted by $120 billion between 2001 and 2002, while liabilities - what is owed retirees - grew 10 percent, or $172 billion, according to Wilshire Associates, a pension fund consulting company.
Massachusetts was no exception. By the start of 2002, Massachusetts had the seventh largest pension fund debt in the country, according to the Wilshire study.
More recent figures show the debt has grown from around $7.5 billion in 2002 to $12.5 billion today.
The debt - more than half the size of the entire state budget - threatens to force the state to make more painful choices in the years ahead after a round of program cuts and fee increases to balance this year's spending plan.
Meanwhile, the state's obligation to retirees is growing faster than ever as thousands of public employees take advantage of early retirement offers worth tens of thousands of dollars over the life of their pensions.
"It's a sleeping giant," said Michael Widmer, executive director of the Massachusetts Taxpayers Foundation. "The No. 1 problem in the state is (the cost of) Medicaid. This is now the No. 2 problem, and it's a major one."
The troubles of the state's pension system are not new. But the controversy over William M. Bulger's retirement deal have brought them back into the spotlight and raised new questions about the system.
In addition to a buyout package worth almost $1 million, Bulger walked away from his job as University of Massachusetts president with the state's richest public employee pension - potentially worth almost $300,000 a year.
"Is government about public service or self-service?" Romney asked during a meeting with editors and reporters of Eagle Tribune Publishing Co., the parent company of The Salem News, shortly after the deal was disclosed.
Romney is now proposing to limit such bonanzas for the politically connected.
But Bulger's six-figure pension, however excessive it seems to critics, is a pittance compared to the billions of dollars owed to tens of thousands of other former state and municipal employees - the "large, looming problem" referred to by Romney.
As the number of pensioners and the amount paid to them grew over the last five years, the state's pension fund was losing several billion dollars in value during the stock market's worst downturn in 50 years. After three consecutive years in the red, the fund began to recoup some of the losses this year. But the fund is still billions of dollars short of what it needs to pay retirees now and in the future.
Cuts may be needed
While the problem may be all but invisible to most taxpayers and retirees, who continue to get their checks and cost of living raises, the truth is, said House Speaker Finneran, that the growing pension debt could translate into severe budget cuts starting as soon as next year.
"I don't think we'll escape the cutting exercise again," said Finneran, who helped usher through a 2004 budget that trimmed nearly $2.5 billion in costs while increasing fees by a half-billion dollars. "I've already gone on record that we have a $1.5 billion to $2 billion challenge (for next year)."
And that's not including scheduled payments into the state pension system.
This year, the pension system will dole out nearly $1.5 billion in benefits to approximately 85,000 retirees. The funding for that comes from three sources: contributions from employees, pension fund investments and the state budget.
The state is on a pension payment schedule so that every year for the next 20 or so years the Legislature must contribute a certain amount of money both to help pay retirees and to pay down the pension debt - or unfunded pension liability, defined as the difference between what the state owes retirees and the amount of money on hand to pay them.
By law, that liability - now pegged at between $12.5 billion and $16 billion - must be paid off by the year 2023.
Widmer and others say that may be impossible without severe program cuts or increased taxes.
Widmer said three factors have contributed to the pension crunch.
First, the state has offered three early retirement programs in the last three years - two for general employees and one for teachers, adding thousands of new retirees and benefits to the pension system in a relatively short period of time.
Second, the bear market drove down the value of pension fund investments, which hit a high of almost $32 billion in 2000, before declining to $29.3 billion by the end of that year and dropping to a low of $25 billion in 2002. It is now about $28 billion. The shrinking returns mean less money is available in the fund to pay retirees and help pay off the pension liability.
Third, Widmer said, rather than increase the amount of money going into the pension system every year, the Legislature over the last three years has actually reduced funding because of the state budget crunch.
In 2000, before the stock market plunge, the state was putting as much as $1 billion a year into the system.
Last year, the Legislature put in just $687 million, then threw in the Hynes Convention Center and the Boston Common Parking garage - estimated to be worth $145 million - to bring the total to $832 million.
Finneran said the Legislature may have to put aside anywhere from $800 million to more than $1 billion next year to help close the pension gap.
And without new sources of revenue, that translates into cuts in such programs as local aid, school funding, human services, public safety and other programs that receive state funding.
"There's really nowhere to go," said Widmer, whose group has advocated higher taxes in the past. "We already led the nation in new fees."
Politics have made the problems worse, some say.
"We've been denying the problem for too long," said Rep. Harriet Stanley, D-West Newbury, who became intimately familiar with the workings of the state's pension system when she served on the House Ways and Means Committee. "We've been kiting pension checks for a number of years."
She added, "We are bringing more people onto the system and giving more benefits without increasing the amount of money going into the system. We need to put away the present value of future benefits. Not many people in the Statehouse understand that."
Unfortunately, she said, getting her colleagues to do something about it is difficult.
"It's got no political juice," she said. "Good financial management is not sexy. It's a steady, dull thing."
Stephen D'Arcy, a finance professor in the business school of the University of Illinois at Urbana-Champaign and an expert on public pension systems, agreed.
"The biggest problem is that it's an expenditure politicians can put off to the future," he said. "But the longer you put it off, the more serious the problem becomes."
Most people "don't pay attention to this, and politicians are influenced by people who benefit, such as teachers and municipal employees," he said. "Politicians are under pressure to increase benefits, making the cost go up."
Special deals
That's exactly what has happened in Massachusetts.
Over the last three years, the state has offered three early retirement incentive plans - two for general state employees and one for teachers.
This has added thousands of people to the pension rolls, costing millions of dollars, at a time when the pension fund has been hit with the largest losses in 50 years.
Last year, 4,700 people took an early retirement package that added five years of age or five years of service to their records, so that more and more people are retiring at a younger age with the maximum benefit of 80 percent of their salaries. As of last week, another 3,300 public employees had opted for another early retirement deal, adding to the pension liability.
But Stanley said the real culprits in pension system abuse are legislators who file what's known around the Statehouse as "special interest legislation" - bills that benefit specific people or groups of people to enhance their retirement benefits. Those bills all end up in the Public Service Committee.
This year alone, about 50 bills on pensions and retirement await action by the committee.
One bill would offer retirement benefits to a whole new class of employee - volunteer firefighters. Another would increase benefits to survivors of retirees. There are bills to increase benefits to veterans, police officers and firefighters.
More than 40 bills are designed to benefit specific individuals.
Finneran said that the majority of these bills don't even get out of committee.
"We already have a system that is under stress," he said. "We can't add to the stresses. But you can't fault a group or an individual from trying to get that addressed. Very few end up going forward.
"Sometimes you get the rare case, someone who had nine years and 10 months of service and then came down with cancer, so you try to do something. But we have to be careful not to create inappropriate precedents."
The larger problem
While legislators focus on improving benefits for individuals or groups, the pension debt grows with little official notice.
"It's an esoteric issue in the sense that most legislators don't pay attention to it," said
Widmer, of the Massachusetts Taxpayers Foundation.
By law, the unfunded pension liability must be fully funded for all retirement systems no later than 2023.
But the state's own budget woes make the task even more difficult, and less palatable, for legislators.
Some say the state should borrow to fill the hole, while others advocate a tax increase. Some lawmakers say the pension fund payment schedule may have to be changed; others say the road to pension stability is more budget cuts.
Ron Snell, director of the economic and fiscal division for the National Conference of State Legislatures, said borrowing is "one of the alternatives available. It's a way of dealing with this year and next year's fiscal problems."
Wisconsin, Illinois and California are among the states borrowing billions of dollars to pay off their pension fund obligations in the face of declining state revenue.
Ultimately, Snell said, borrowing becomes a political decision.
"If you're looking at cutting education and transportation programs or borrowing to pay the pension funds, all those things have to be weighed," he said.
Some states have raised taxes to pay their pension obligations, but Romney, Finneran and many lawmakers have said a tax hike is out of the question.
Finneran also opposes borrowing to pay off pension obligations.
He favors a combination of budget cuts and revisions to the payoff schedule that would keep annual payments at current levels for the next year or two and increase them aggressively when the economy improves.
Another option is pushing back the deadline for full funding to 2028. That was the original target date. During the stock market boom years, the Legislature advanced the date to 2018 but changed it again this year to 2023 to reduce pressure on the budget.
But changing the deadline doesn't seem to be an option, either. If the state extends the deadline for fully funding the system, it could take a hit from bond rating agencies, which grade states based on their financial health. The lower the grade, the more it costs to borrow.
State Treasurer Timothy Cahill said he remains committed to meeting the 2023 deadline. "We have no intention of re-setting it. If we had concerns, we'd go to the Legislature," he said.
But one way or another, the state must deal with the issue soon, or face even tougher choices in the future.
"There's major resistance to dealing with it in the middle of a fiscal crisis, which is understandable but not responsible," Widmer said. "When the stock market has dropped as dramatically as it has and the state offers three early retirement programs, that creates a big hole, and we have to fill it."
Part
2 of the Salem News pension fund series
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