CLT UPDATE
Wednesday, December 7, 2006
Is the next "Massachusetts Miracle"
upon us?
MTF gives state borrowing the green light, again
The state has to borrow an additional $600 million
this month to address a short-term cash-flow shortage and meet
end-of-the-year local aid payments to cities and towns, prompting
warnings from the Romney administration and the state treasurer that the
Commonwealth is spending at a perilous pace.
Treasurer Timothy P. Cahill and Thomas H. Trimarco, the secretary of
administration and finance, sent a joint letter to lawmakers late
yesterday outlining a plan to borrow the $600 million, which would be in
addition to $300 million the state borrowed last month for the same
purpose.
The $900 million total the state is borrowing to cover its current
obligations is the highest such amount in at least six years and will
cost taxpayers $12 million in borrowing costs....
News of the borrowing follows Governor Mitt Romney's decision last month
to cut about $425 million in spending, which he cast as a corrective
measure made necessary by overspending by the largely Democratic
Legislature....
Yesterday, Romney's communications director, Eric Fehrnstrom, said
short-term borrowing is a step the state takes annually, but that the
high amount the Commonwealth is borrowing this year "underscores the
wisdom" of Romney's spending reductions last month.
"There is a now-typical pattern of tightening in the Commonwealth's cash
position in the second and third quarters of the fiscal year, but this
year it has been exacerbated by the fact that the Legislature is
spending at a high rate," Fehrnstrom said....
In their letter to DeLeo and Murray, Cahill and Trimarco cite as a
reason for the borrowing $935 million in spending that the Legislature
authorized in the prior fiscal year but that was carried forward to this
fiscal year and is projected to be spent by June....
Michael Widmer of the Massachusetts Taxpayers Foundation, one of the
state's leading fiscal watchdogs, said he thinks the amount of borrowing
should result in a "cautionary note" but is no cause for alarm.
"It's certainly a yellow flag, and it reflects the fact that the
spending increases in [fiscal year] 2007 were ... larger than they
should have been," he said. "But at the same time, tax revenues are
likely to cover the spending increases in 2007 when the year ends."
The Boston Globe
Tuesday, December 5, 2006
Spending by state prompts warnings
Further loan of $600m needed for year's end
Two documents released this week ought to temper the urge
towards irrational exuberance exhibited by those looking forward to the new era
of Democratic hegemony on Beacon Hill.
The governor-elect, Deval Patrick, continues to keep his own
counsel regarding the budget. But some of those who were in his camp, along with
certain members of the Legislature, seem poised to embark on a spending spree
the likes of which has not been seen since William Weld took office in 1991.
But Monday the outgoing Republican administration and Democratic State Treasurer
Timothy Cahill warned in an unusual joint letter to lawmakers that the amount of
short-term borrowing required in order for the state to meet its obligations so
far this year is reason for concern. In contrast to the $200 million the state
had borrowed to this point in 2005, it's already had to go to the short-term
market for $900 million in order to pay its bills through December....
It appears that in the wake of Patrick's victory, talk of an income-tax rollback
has gone by the wayside. But we don't sense any appetite for a tax increase. On
the other hand, there are those clamoring for the state to spend more on
everything from local aid to park maintenance.
A Salem News editorial
Wednesday, December 6, 2006
Now's not time to take lid off state spending
Over-exuberant spending on Beacon Hill hasn’t yet put
Massachusetts on the brink of fiscal disaster, but the extraordinary level of
borrowing this year to keep the government afloat should be a wake-up call.
While short-term loans in anticipation of tax collections are not unusual, the
amount of borrowing this year is the biggest this decade....
Moderate economic growth in recent years has resulted in billions of dollars in
revenue surpluses, but the unanticipated collections largely have evaporated in
a series of "supplementary spending" sprees.
The budgetary brinksmanship continued this fiscal year. Lawmakers balanced the
budget, but only by reneging on the income tax rollback and drawing deeply on
"rainy-day" funds — while overriding Gov. Mitt Romney’s efforts to rein in
spending.
A Telegram & Gazette editorial
Wednesday, December 6, 2006
Cash crunch
State’s short-term borrowing hits $900 million mark
The Telegram & Gazette
December 6, 2006
Editorial Cartoon by David Hitch
Voters in Massachusetts cities and towns have
rejected two-thirds of proposed property tax overrides this year,
reflecting widespread distaste for higher property taxes, according to a
Globe review of state property tax records.
The rejections marked the first time this decade that more proposed
Proposition 2½ overrides failed than passed....
Approximately 59 override votes have been rejected, while 30 have been
approved, the lowest rate since at least 1999....
"In times of fiscal distress, where communities are making cuts and
increasing their reliance on property tax, you do hit a point of voter
fatigue, where the voter passage rates start to decline," said Geoffrey
Beckwith, executive director of the Massachusetts Municipal
Association....
A town official in Newbury -- where a number of overrides have been
struck down in recent years, including two this year -- said tax
increases are a tough sell, politically.
"I've been approached on the street by citizens saying, 'How many times
do we have to tell you no? Stop asking us to raise our taxes,'" said
Vincent J. Russo, chairman of the Board of Selectmen. "We are at the end
of our ropes here as far as overrides." ...
Critics, however, say that local officials became overly accustomed to
the economic prosperity of the 1990s and expanded services too rapidly
and signed off on overly generous collective bargaining agreements
during the boom....
But, as a further sign that taxpayers are squeamish about raising taxes,
debt exclusions also failed far more frequently this year. Less than
half of the 219 debt exclusions on the ballot this year were approved,
while 85 percent were approved in 2001, according to the Globe analysis.
"We've seen a broad decline in local services across the Commonwealth
over the last several years, first with cuts to local aid and then
voters' reluctance to approve overrides," said Michael J. Widmer,
president of the Massachusetts Taxpayers Foundation....
The average override attempt this year was $630,160, highest in three
years, according to the Globe analysis.
The Boston Globe
Saturday, December 2, 2006
Voters saying enough to Proposition 2½ overrides
More localities now reject efforts
My first reaction to Gov.-elect Deval Patrick’s plan to use
his grassroots organization to influence debate on Beacon Hill is akin to my
reaction when I come across a particularly explicit medical documentary on TV --
equal parts revulsion and fascination.
The idea of all those drivers with the "Together, we can" bumper stickers still
on their cars using their hands-free cellphones to call the State House operator
should be enough to make every taxpayer left off Patrick’s e-mail list queasy.
For one thing, the Democratic convention delegates, caucus-goers, union local
leaders, town meeting goers and coat-holders of mayors and selectman aren’t
really "grassroots," or the voice of the people, in the way, say, the 170,000
voters who want a vote on gay marriage or majority of voters who supported the
income tax rollback are grassroots.
The Patrick enthusiasts are activists. And they are just as likely to influence
policy debates for their own purposes as any well-heeled lobbying group such as
the trial lawyers or teachers’ unions....
Call me a cynic but I have goose bumps, too, for a far different reason. The
incoming administration which said "grassroots is not just a strategy for
winning but a strategy for governing" is in danger of using the grassroots as a
strategy for manipulating.
The Boston Herald
Tuesday, December 5, 2006
Deval’s grassroots more like AstroTurf:
Silent majority remains silenced
By Virginia Buckingham
President Bush recently signed into law the Pension
Protective Act of 2006 in an effort to strengthen the financial health of
corporate defined benefit pension plans. However, little attention is paid to a
retirement sector in even greater financial straits: state government pension
plans. These plans are facing a $1.3 trillion shortfall that presents a serious
threat to their very survival -- as well as to every taxpayer in the country....
At first glance, state plans seem to be nearly as healthy as their corporate
counterparts: they face a shortfall of $348 billion under current accounting
rules, according to the National Association of State Retirement Administrators.
This implies they are 86 percent funded, versus 90 percent for corporate plans.
However, these projections are misleading. The real shortfall of state-defined
benefit pension programs is closer to $1.3 trillion, which translates into the
plans being 64 percent funded. This alarming gap could set off a crisis whose
magnitude would dwarf the $200 billion government bailout of the savings and
loan industry in the 1980s. Just as disturbing, this threat is largely ignored
because of opaque accounting....
States must be honest about their pension liabilities and the true value of plan
underfunding.
The Boston Globe
Tuesday, November 28, 2006
The ticking time bomb in state pensions
By Thomas J. Healey
When Michael Travaglini [brother of Senate President Robert]
received a $42,000 pay raise in August, upping his annual salary to $322,000, it
made for big headlines in The Boston Herald, which alleged that Travaglini, even
without the raise, was already receiving a fatter annual paycheck than everyone
else in state government....
Travaglini had compensation on his mind again and publicly informed state
Treasurer Timothy Cahill and the other eight members of the state pension fund
board that he plans to weigh their "appetite" and look for a "consensus" about
changes in the compensation packages of 22 other employees at the $45 billion
pension fund....
Outgoing board member Peter Schwarzenbach, a Romney appointee, encouraged the
board to make sure any changes in compensation structures incorporate incentives
based on performance. "You don’t want a bonus to be a slam dunk every year,"
said Schwarzenbach. "The challenge is to do it right." ...
The board today signed off on an expansion of employee family and medical leave
benefits that fund officials said would bring those benefits on par with
benefits received by most state employees.
State House News Service
Tuesday, December 5, 2006
From top of pay ladder, Travaglini goes to bat
for pension fund employees
Chip Ford's CLT Commentary
Aw geez, here we go again, already -- and the
incoming Democrat governor hasn't even been sworn it yet.
The state -- the Legislature -- is already
intent on borrowing almost another billion taxpayers' bucks, just to get
through this fiscal year after its revenue surplus feeding
frenzy.
"It's certainly a yellow flag, and it reflects the
fact that the spending increases in [fiscal year] 2007 were ... larger
than they should have been," said Michael Widmer, president of the
so-called Massachusetts Taxpayers Foundation, before again providing
cover for more increased spending -- and borrowing. "But at the same
time, tax revenues are likely to cover the spending increases in 2007
when the year ends," he concluded, optimistically.
But Widmer and MTF have always opposed our tax
rollback -- because the state can't possibly afford the revenue loss.
Hey, borrow away Beacon Hill -- Widmer and MTF,
"one of the state's leading fiscal watchdogs," just gave you the
green light, as usual. Just make sure that the $12 million
taxpayer dollars in interest payments makes it into the bankers'
coffers. I wonder why nobody mentioned that MTF's fat-cat members
include major banking corporations across the state?
C'mon Michael, tell us when state borrowing is too
much -- is there such a limit at MTF?
Who could possibly imagine? "Voters in
Massachusetts cities and towns have rejected two-thirds of proposed
property tax overrides this year, reflecting widespread distaste for
higher property taxes." Perhaps they've reached their taxation
saturation point -- when they can't feed and house themselves, their
families, and continue paying for government spending sprees at
all levels? The nice thing about Proposition 2½
tax increases is, taxpayers can say no to them.
"Critics, however, say that local officials became
overly accustomed to the economic prosperity of the 1990s and expanded
services too rapidly and signed off on overly generous collective
bargaining agreements during the boom...." Uh huh, gee whiz
what a surprise! [See: "Embarrassment
of Riches" from 1999] It's not like overspending snuck up on
municipal "leaders," or even that they learned anything from past
profligacy since their state taxpayer-funded gravy train slowed down.
Is there any wonder why voters have said no in
record numbers lately?
And there it is again, another "ticking
time bomb" warning about public sector pensions. But nobody
receiving a public pension gives a whit -- it's just "Gimme more, more,
more; I'm special, and protected!"
"States must be honest about their pension
liabilities and the true value of plan underfunding," wrote Thomas J.
Healey, currently a senior fellow at Harvard University's Kennedy School
of Government, with many other credentials as an economist within
government.
Meanwhile, here in Taxachusetts (and please,
nobody tell me again that this term is obsolete), the Senate President's
brother, Michael Travaglini -- as executive director of the state
pension fund, one of the two highest-paid state employees in
Massachusetts ($322,000/year) -- "signed off on an expansion of employee
family and medical leave benefits that fund officials said would bring
those benefits on par with benefits received by most state employees."
"On par"? Lucky them. Your less fortunate grandchildren will be paying for
that and much more by then at this rate -- but they can't
vote yet.
 |
|
Chip Ford |
The Boston Globe
Tuesday, December 5, 2006
Spending by state prompts warnings
Further loan of $600m needed for year's end
By Scott Helman, Globe Staff
The state has to borrow an additional $600 million this month to address
a short-term cash-flow shortage and meet end-of-the-year local aid
payments to cities and towns, prompting warnings from the Romney
administration and the state treasurer that the Commonwealth is spending
at a perilous pace.
Treasurer Timothy P. Cahill and Thomas H. Trimarco, the secretary of
administration and finance, sent a joint letter to lawmakers late
yesterday outlining a plan to borrow the $600 million, which would be in
addition to $300 million the state borrowed last month for the same
purpose.
The $900 million total the state is borrowing to cover its current
obligations is the highest such amount in at least six years and will
cost taxpayers $12 million in borrowing costs. The reason for the
borrowing is that the state has bills due now, but won't receive much of
its revenue until the first six months of 2007.
Still, state officials expect to pay off the debt as tax payments come
in over the next several months, and they anticipate ending the fiscal
year on June 30 with a balanced budget.
But that assumes that 2007 revenues will meet or exceed expectations,
Cahill said, and the unusually high amount of borrowing this year should
send a message to the Legislature and Governor-elect Deval L. Patrick
that they need to be cautious in approving new spending.
"I want to prepare the incoming administration and the Legislature for
what could be some tough times," Cahill said in an interview yesterday.
"They need to know the truth, and the truth is we have a cash-flow
crunch, maybe not a crisis, but certainly a cash-flow shortage. It's not
good for a household, and it's not good for government."
News of the borrowing follows Governor Mitt Romney's decision last month
to cut about $425 million in spending, which he cast as a corrective
measure made necessary by overspending by the largely Democratic
Legislature. Romney restored $42 million of the cuts last week after tax
revenues for November came in well above expectations.
The cuts Romney made to the budget last month affect the overall amount
the state will spend this fiscal year. The amount of borrowing outlined
yesterday pertains only to a short-term gap between expenditures and
revenues and does not change the bottom line, beyond the $12 million in
borrowing costs.
Yesterday, Romney's communications director, Eric Fehrnstrom, said
short-term borrowing is a step the state takes annually, but that the
high amount the Commonwealth is borrowing this year "underscores the
wisdom" of Romney's spending reductions last month.
"There is a now-typical pattern of tightening in the Commonwealth's cash
position in the second and third quarters of the fiscal year, but this
year it has been exacerbated by the fact that the Legislature is
spending at a high rate," Fehrnstrom said.
The strain on the state budget usually occurs at this point in the year.
Last fiscal year, according to figures provided by Fehrnstrom, the state
borrowed $200 million at this point in the year. In fiscal year 2005,
the state borrowed $700 million, and in fiscal year 2004 it borrowed
$450 million. In fiscal years 2003 and 2002, the state borrowed $700
million and $800 million, respectively.
A spokesman for House Ways and Means chairman Robert A. DeLeo said
yesterday that the borrowing was standard operating procedure and does
not portend anything ominous.
"In order to make the payments, we do some short-term borrowing, but it
all evens out in the end," said the spokesman, James Eisenberg. "In
short, the fact that we are doing cash-flow management borrowing is not
an indicator of a cash-flow problem."
A spokeswoman for the Senate Ways and Means chairwoman, Therese Murray,
declined to comment.
Cyndi Roy, a spokeswoman for Patrick's transition team, said: "We would
appreciate the treasurer's counsel, but we reserve any comment until we
see a letter and have further discussions about the budget."
Cahill, a Democrat, supported Patrick in the gubernatorial campaign.
In their letter to DeLeo and Murray, Cahill and Trimarco cite as a
reason for the borrowing $935 million in spending that the Legislature
authorized in the prior fiscal year but that was carried forward to this
fiscal year and is projected to be spent by June.
The cash shortage, according to Cahill and Trimarco, also stems in part
from a transfer last month of $354 million to the stabilization fund and
more than $100 million in payments the state has to make on the Big Dig
until the US government releases more federal funds.
At the same time, the state owes cities and towns another $1.2 billion
in quarterly local aid payments by the end of the month.
"It seems to be that we're spending more money than we're bringing in,"
Cahill said in the interview.
Cahill pointed out that during the state's last recession, in 2001, the
state saw a large drop-off in capital gains revenue after the stock
market suffered major losses. While he doesn't expect that to happen
again, a significant reduction in real estate values could produce a
similar result, he said, and it is important to be cautious about
spending.
Michael Widmer of the Massachusetts Taxpayers Foundation, one of the
state's leading fiscal watchdogs, said he thinks the amount of borrowing
should result in a "cautionary note" but is no cause for alarm.
"It's certainly a yellow flag, and it reflects the fact that the
spending increases in [fiscal year] 2007 were ... larger than they
should have been," he said. "But at the same time, tax revenues are
likely to cover the spending increases in 2007 when the year ends."
Patrick is already under pressure from the Massachusetts Municipal
Association, which represents cities and towns, to commit to providing
more local aid. The state boosted local aid about 9 percent overall this
year, said Geoffrey Beckwith, the group's executive director, but
communities are still receiving 13 percent, or about $680 million, less
than they received in 2001-2002, after inflation is taken into account.
Cahill said he believes it's important for state officials to tread
carefully.
"I don't want to sound like an alarmist, but at the same time I don't
want to paper over it," Cahill said. "I'm here as the state's chief
financial officer to make sure that both the Legislature and incoming
administration understand that we're not out of the woods yet."
The Salem News
Wednesday, December 6, 2006
A Salem News editorial
Now's not time to take lid off state spending
Two documents released this week ought to temper the urge towards
irrational exuberance exhibited by those looking forward to the new era
of Democratic hegemony on Beacon Hill.
The governor-elect, Deval Patrick, continues to keep
his own counsel regarding the budget. But some of those who were in his
camp, along with certain members of the Legislature, seem poised to
embark on a spending spree the likes of which has not been seen since
William Weld took office in 1991.
But Monday the outgoing Republican administration and Democratic State
Treasurer Timothy Cahill warned in an unusual joint letter to lawmakers
that the amount of short-term borrowing required in order for the state
to meet its obligations so far this year is reason for concern. In
contrast to the $200 million the state had borrowed to this point in
2005, it's already had to go to the short-term market for $900 million
in order to pay its bills through December.
Now most, if not all, of that money will be repaid as tax payments flow
into state coffers after the first of the year. But that's the most the
state has had to borrow in six years which, even if it does not result
in a deficit, adds to the cost of doing business. (Interest on those
short-term loans is expected to total about $12 million.)
Healthy tax revenues are a function of a robust economy, and on that
score the Associated Industries of Massachusetts had some sobering news
in a report also issued Monday. Its Business Confidence Index was down
four-tenths of a point from the previous month -- not terribly ominous,
but disappointing after having gone up significantly in three of the
previous five months.
More encouraging was some of the narrative accompanying the latest A.I.M.
report in which members of its board of economists predicted a fairly
smooth ride for the regional and national economy over the next six
months.
"Survey respondents expected Massachusetts conditions to improve
slightly in the six months ahead," noted John Bitner, chief economist
for Eastern Bank.
Richard Lord, A.I.M.'s president and CEO, said the outcome of last
month's election appeared to have had little impact on business
confidence, adding, "The Index's performance over the past two months
suggests that the state's employer community is not alarmed by the
prospect of a Democratic governor and one-party government. In his
campaign, Governor-elect Patrick accurately identified the key economic
issues facing the commonwealth and pledged to address them cooperatively
-- a challenge that is now before him."
It appears that in the wake of Patrick's victory, talk of an income-tax
rollback has gone by the wayside. But we don't sense any appetite for a
tax increase. On the other hand, there are those clamoring for the state
to spend more on everything from local aid to park maintenance. And
certainly the new governor will face some difficult decisions come
January such as whether to restore the $380 million worth of spending
cuts imposed the Romney administration last month.
With the state's economy still in a precarious state, this is a
difficult balancing act on which Patrick is about to embark.
The Telegram & Gazette
Wednesday, December 6, 2006
A Telegram & Gazette editorial
Cash crunch
State’s short-term borrowing hits $900 million mark
Over-exuberant spending on Beacon Hill hasn’t yet put Massachusetts on
the brink of fiscal disaster, but the extraordinary level of borrowing
this year to keep the government afloat should be a wake-up call.
While short-term loans in anticipation of tax collections are not
unusual, the amount of borrowing this year is the biggest this decade.
In a letter to the Legislature on Monday, Treasurer Timothy P. Cahill
and Thomas H. Trimarco, secretary of administration and finance,
outlined a plan to borrow $600 million — in addition to the $300 million
the state had to borrow last month.
Mr. Cahill told the Boston Globe the joint letter was intended to
prepare lawmakers and the new administration for a period of
belt-tightening. "They need to know the truth, and the truth is we have
a cash-flow crunch," he said. "That's not good for a household and it’s
not good for government."
The warning is warranted.
Moderate economic growth in recent years has resulted in billions of
dollars in revenue surpluses, but the unanticipated collections largely
have evaporated in a series of "supplementary spending" sprees.
The budgetary brinksmanship continued this fiscal year. Lawmakers
balanced the budget, but only by reneging on the income tax rollback and
drawing deeply on "rainy-day" funds — while overriding Gov. Mitt
Romney’s efforts to rein in spending.
Fiscal prudence should always be the watchword. The fact that the full
budgetary impact of the state’s new health insurance law is yet unknown
makes restraint especially important now.
Moreover, there will be little progress on Gov.-elect Deval L. Patrick’s
ambitious agenda — such as the aid boost he envisions to reduce local
property tax bills — if his administration arrives on Beacon Hill only
to find the state coffers have been drained.
The Boston Globe
Saturday, December 2, 2006
Voters saying enough to Proposition 2½ overrides
More localities now reject efforts
By Matt Viser, Globe Staff
Voters in Massachusetts cities and towns have rejected two-thirds of
proposed property tax overrides this year, reflecting widespread
distaste for higher property taxes, according to a Globe review of state
property tax records.
The rejections marked the first time this decade that more proposed
Proposition 2½ overrides failed than passed. In previous years, the
votes had been far more successful, with residents agreeing to increase
their property taxes in order to avoid cutting positions for teachers,
police officers, and firefighters or to pay for renovating
municipal-owned buildings.
This year, one-third of the Proposition 2½ overrides passed.
Approximately 59 override votes have been rejected, while 30 have been
approved, the lowest rate since at least 1999. In 2005, 94 proposals
passed, and 79 failed. In 2001, two-thirds of the proposed overrides
were approved. Some muncipalities put more than one question before
voters.
"In times of fiscal distress, where communities are making cuts and
increasing their reliance on property tax, you do hit a point of voter
fatigue, where the voter passage rates start to decline," said Geoffrey
Beckwith, executive director of the Massachusetts Municipal Association.
Twice -- once in May and later in September -- voters in Granby, in
Western Massachusetts, were asked to provide $19,390 to pay for a town
dog officer. Both times they rejected it.
In Northfield, a rural community in central Massachusetts, a request for
$3,540 for emergency medical technician salaries failed by five votes.
And in Lexington, an affluent community with a prized school system that
rarely votes against overrides, two overrides worth $3.2 million that
would have gone toward education failed this year. As a result, 31
teaching positions were cut, along with several other programs.
"This is a community that's had it up to its eyeballs with residential
property taxes," said Jed Snyder, chairman of the "No -- The Best For
Lexington 2006" committee in Lexington. "When you've had these huge
increases in recent years, something has to give." A town official in
Newbury -- where a number of overrides have been struck down in recent
years, including two this year -- said tax increases are a tough sell,
politically.
"I've been approached on the street by citizens saying, 'How many times
do we have to tell you no? Stop asking us to raise our taxes,'" said
Vincent J. Russo, chairman of the Board of Selectmen. "We are at the end
of our ropes here as far as overrides."
Governor-elect Deval L. Patrick made the state's tax situation one of
his campaign themes, arguing that a cut in the state income tax proposed
by Republicans would increase pressure on cities and towns to increase
property taxes. His running mate, Timothy P. Murray, also argued that
because he was the mayor of Worcester, he would be a better advocate for
cash-strapped municipalities.
Patrick has said that he would look to reap savings for communities by
taking a more regional approach to municipal services.
Property tax specialists say cities and towns are still recovering from
the state's fiscal crisis four years ago, when the annual money that the
state provides to municipalities was cut, causing them to become more
reliant on property taxes. The state has since increased aid, but not
enough to offset the years of cutbacks.
Critics, however, say that local officials became overly accustomed to
the economic prosperity of the 1990s and expanded services too rapidly
and signed off on overly generous collective bargaining agreements
during the boom.
Property taxes, which vary widely and range from about $1,000 to
$13,000, go toward paying for all types of municipal services, from
teacher salaries to trash pickup. The state's Proposition 2½ law, which
was approved by voters in 1980, restricts cities and towns from raising
the overall tax levy by more than 2 percent in one year unless voters
approve a local override.
Municipalities have also used the Community Preservation Act, another
way to put a surcharge on tax bills and use the money for certain local
projects. Voters can also consider another type of override called a
debt exclusion, which usually goes to a specific project, such as a new
school or renovations of town hall, and does not permanently affect the
tax levy.
But, as a further sign that taxpayers are squeamish about raising taxes,
debt exclusions also failed far more frequently this year. Less than
half of the 219 debt exclusions on the ballot this year were approved,
while 85 percent were approved in 2001, according to the Globe analysis.
"We've seen a broad decline in local services across the Commonwealth
over the last several years, first with cuts to local aid and then
voters' reluctance to approve overrides," said Michael J. Widmer,
president of the Massachusetts Taxpayers Foundation.
In Dover, voters approved a $900,000 Proposition 2½ override last year.
But this year, a request for $800,000 failed by 67 votes, which meant
putting off the purchase of a new fire engine and dipping into reserve
accounts to balance the budget.
Still, in several communities, mostly more affluent ones, voters
continue to approve overrides. Wellesley approved a $3.1 million
override in May after approving a $2.6 million override last year. Two
smaller override requests failed this year.
The average override attempt this year was $630,160, highest in three
years, according to the Globe analysis. The Globe examined figures
submitted to the Department of Revenue. Cities and towns are not
required to provide the data.
The Boston Herald
Tuesday, December 5, 2006
Deval’s grassroots more like AstroTurf:
Silent majority remains silenced
By Virginia Buckingham
My first reaction to Gov.-elect Deval Patrick’s plan to use his
grassroots organization to influence debate on Beacon Hill is akin to my
reaction when I come across a particularly explicit medical documentary
on TV -- equal parts revulsion and fascination.
The idea of all those drivers with the "Together, we can" bumper
stickers still on their cars using their hands-free cellphones to call
the State House operator should be enough to make every taxpayer left
off Patrick’s e-mail list queasy.
For one thing, the Democratic convention delegates, caucus-goers, union
local leaders, town meeting goers and coat-holders of mayors and
selectman aren’t really "grassroots," or the voice of the people, in the
way, say, the 170,000 voters who want a vote on gay marriage or majority
of voters who supported the income tax rollback are grassroots.
The Patrick enthusiasts are activists. And they are just as likely to
influence policy debates for their own purposes as any well-heeled
lobbying group such as the trial lawyers or teachers’ unions.
Under Patrick’s strategy, the silent majority will still be silent. And
since the pulse of this unorganized bloc of voters really only gets
taken in the voting booth on Election Day, the Globe story over the
weekend pointing out that Proposition 2½ overrides are being rejected in
ever-increasing numbers is a much better indicator for lawmakers of the
vox populi on the tax issue, just to pick one, than artificial pressure
generated by the Patrick machine.
This doesn’t diminish that Patrick won the election by a huge margin.
But polls showed that even most voters supporting him disagreed with his
stances on taxes and illegal immigration, for example. Thus, neither the
media nor an inundated legislator should mistake a cascade of calls,
e-mails or postcards generated by Patrick maestro John Walsh as any more
representative of public opinion than a badly constructed poll which
oversamples one segment of voters.
Similarly, the Patrick camp is relying on the perception that its
transition process is all about the "power of the people" rather than
insiders to shape a sense of mission or mandate for the new
administration.
In a conference call with reporters yesterday Walsh and Patrick
transition committee co-chair Gloria Larson touted the "most inclusive
process in modern times" in describing some 43 community meetings around
the state designed not only to "welcome input, but solicit it."
But they overstate their success when hyping the turnout of 100 people
in Worcester or 200 in Boston as indicative that "people are hungry" to
participate. It is surely not the Patrick team’s fault that most voters
are too busy getting flu shots or getting a jump on their Christmas
shopping to show up and give their 2 cents’ worth on the "creative
economy." But neither should they pretend that their efforts, thus far,
have been some kind of breakthrough in civic engagement.
To his credit, Walsh acknowledged that even though he defines
"grassroots" as going "where people are," the Patrick team is still
trying to understand other ways to broaden involvement. He asked for
suggestions, so here’s one: Link Patrick’s grassroots website to other
sites which are not a natural part of the Patrick base, whether that be
taxpayers advocates, free market think tanks, business groups or
conservative bloggers. Prominently post their feedback on various
Patrick initiatives. Invite their participation in community meetings or
State House hearings. Show there’s substance to the statement: "We love
the critics."
When asked whether the assembly of an Internet-based grassroots network
was really, essentially, a propaganda tool, Walsh said, "Communication
is a two-way street." And "what people really want is to be heard."
Larson went so far as to say the enthusiasm she senses for participating
in the Patrick transition gives her goose bumps.
Call me a cynic but I have goose bumps, too, for a far different reason.
The incoming administration which said "grassroots is not just a
strategy for winning but a strategy for governing" is in danger of using
the grassroots as a strategy for manipulating.
The Boston Globe
Tuesday, November 28, 2006
The ticking time bomb in state pensions
By Thomas J. Healey
President Bush recently signed into law the Pension Protective Act of
2006 in an effort to strengthen the financial health of corporate
defined benefit pension plans. However, little attention is paid to a
retirement sector in even greater financial straits: state government
pension plans. These plans are facing a $1.3 trillion shortfall that
presents a serious threat to their very survival -- as well as to every
taxpayer in the country.
State pension programs -- which cover 12.8 million Americans and manage
assets worth $2.3 trillion -- are a pillar of the nation's retirement
system. By comparison, corporate defined benefit pension plans cover
44.1 million participants but possess fewer assets -- about $1.7
trillion.
At first glance, state plans seem to be nearly as healthy as their
corporate counterparts: they face a shortfall of $348 billion under
current accounting rules, according to the National Association of State
Retirement Administrators. This implies they are 86 percent funded,
versus 90 percent for corporate plans.
However, these projections are misleading. The real shortfall of
state-defined benefit pension programs is closer to $1.3 trillion, which
translates into the plans being 64 percent funded. This alarming gap
could set off a crisis whose magnitude would dwarf the $200 billion
government bailout of the savings and loan industry in the 1980s. Just
as disturbing, this threat is largely ignored because of opaque
accounting.
Opaque accounting dramatically distorts the liability side of the
pension ledger. The key question is whether pension plan liabilities are
being properly measured. The liabilities of defined benefit pension
plans are measured by using a discount -- or interest -- rate.
Unlike corporate plans, which must use high-quality corporate bond rates
as their discount rate, state pension plans are allowed to use the much
higher expected return on the assets they manage, artificially shrinking
their liabilities.
This practice perniciously disguises the actual health of state-funded
pension programs. As with corporate plans, state plans should be
discounted using long-term corporate bond rates instead of the expected
rate of return on assets, which is the current practice of most state
governments.
Consider how distorting this practice is. Specifically, the average
expected return on assets across state pension plans today is about 7.89
percent, according to the NASRA. Based on this return, their liabilities
are estimated at $2.5 trillion. If, however, the plans use as their
discount rate the more credible 10-year Treasury rate, at about 4.9
percent, their liabilities would weigh in at $3.5 trillion -- a whopping
42 percent increase.
Startling as this finding is, it simply stems from applying to
state-defined benefit pension plans the same accounting principles that
corporate plans must live by.
In New York City, the chief actuary recently released supplemental
financial projections that show that instead of its public pension plan
being 100 percent funded, the level is only 60 percent if the more
realistic accounting principles of corporations are used. This would
leave New York City with a pension deficit of $49 billion.
States must be honest about their pension liabilities and the true value
of plan underfunding. They must then take assertive steps to close the
gap through a combination of benefit reductions, tax increases, and
tapping other sources of non recurring revenues. Issuing bonds to fund
pension liabilities, for example, doesn't solve the problem, but it
makes it more visible by moving the obligation onto the state's balance
sheet, thus encouraging more responsible management.
Longer term, states will probably follow in the footsteps of the
corporate sector and both freeze their defined benefit plans and shift
employees to defined contribution plans.
While not as economically advantageous in the long term, the latter are
often more popular among workers and are more transparent. Under defined
contribution programs, politicians would not have the luxury of granting
employees generous pension allowances that state plans are ill-equipped
to afford, or to consistently defer contributions.
And that would be a relief to taxpayers, once they become aware of the
$1 trillion pension bombshell headed their way.
Thomas J. Healey is a retired partner of Goldman Sachs & Co., and
currently a senior fellow at Harvard University's Kennedy School of
Government. He served as assistant secretary of the Treasury under
President Reagan.
State House News Service
Tuesday, December 5, 2006
From top of pay ladder, Travaglini goes to bat
for pension fund employees
By Michael P. Norton
When Michael Travaglini [brother of Senate President Robert] received a
$42,000 pay raise in August, upping his annual salary to $322,000, it
made for big headlines in The Boston Herald, which alleged that
Travaglini, even without the raise, was already receiving a fatter
annual paycheck than everyone else in state government.
It turns out UMass President Jack Wilson’s base salary of $350,000 is
north of Travaglini’s, but that’s beside the point of today’s
development and, in the eyes of most taxpayers, merely means that both
men make a lot of money.
Travaglini had compensation on his mind again and publicly informed
state Treasurer Timothy Cahill and the other eight members of the state
pension fund board that he plans to weigh their "appetite" and look for
a "consensus" about changes in the compensation packages of 22 other
employees at the $45 billion pension fund.
"There are people I know whose phones have been ringing," said
Travaglini, referring to pension fund employees being enticed by more
lucrative salaries offered by other pension funds or private sector
companies. He mentioned chief investment officer Stanley Mavromates and
senior investment officer Wayne Smith by their first names.
Describing himself as "frustrated," Travaglini said salaries of some
fund employees, compared to their peers, may be artificially low due to
"headline risk" and suggested that comparative salary data would be
helpful to the board.
He recommended comparing salaries to private corporations, large state
pension funds, and some endowments. "The problem here from a recruitment
and retention perspective is making the total compensation more in line
with sort of the industry standard, not so much the public sector per
se," Travaglini said after the meeting.
Travaglini told the News Service he plans to discuss changes in the
fund’s existing bonus program, which permits bonuses of up to 20 percent
of an employee’s salary when pension fund investments exceed policy
benchmarks, something that occurs only through active fund management.
"What I’m going to talk to the board about is revisiting that 20 percent
cap, creating more opportunities for incentives if the fund performs and
meets or exceeds performance expectations," said Travaglini, who also
speculated that UMass President Jack Wilson makes more than him.
At the end of the board meeting, Travaglini broached the salary topic,
which was not on the board’s agenda, by pointing out that fund staffers
had made him aware that the chief investment officer of the South Dakota
pension fund had recently received a $216,000 bonus on top of his
$293,000 annual salary.
He later said he raised the subject in the wake of concerns from two
board members about "sensitivity" to the impact of salary increases on
pensions – state employees may receive pensions equaling 80 percent of
their highest salary over three years, a provision that some would like
to rein in. "I literally sprung this on them today and it’s an offshoot
from my last salary review," Travaglini said after the meeting.
Board member Robert Brousseau raised the idea of hiring an independent
consultant to look at compensation, but Travaglini, and Cahill, batted
down the idea. "I don’t like independent studies," Travaglini said.
Cahill said other boards have used independent consultants primarily to
deflect attention away from their own plans to raise salaries.
Cahill said he was comfortable, both with not hiring an independent
consultant and with Travaglini soliciting input from board members. "I
don’t think we need to pay an outside firm," Cahill told the board.
"It’s us making the decision as a group."
Outgoing board member Peter Schwarzenbach, a Romney appointee,
encouraged the board to make sure any changes in compensation structures
incorporate incentives based on performance. "You don’t want a bonus to
be a slam dunk every year," said Schwarzenbach. "The challenge is to do
it right."
"We’re comfortable with pay for performance," Travaglini said after the
board concluded a meeting where members discussed the likelihood of
double-digit returns for the fourth straight year.
At another point in the meeting, as the board discussed non-monetary
benefits to supplement compensation, Travaglini earned a round of
laughter from staffers who lined the conference room when he said, "We
prefer the compensation compensation."
The board today signed off on an expansion of employee family and
medical leave benefits that fund officials said would bring those
benefits on par with benefits received by most state employees.
After serving as senior vice president at Putnam Investments and before
that as first deputy under Treasurer Shannon O’Brien, Travaglini was
appointed in February 2004 by Cahill as executive director of the state
pension fund. The brother of Senate President Robert Travaglini
graduated from Harvard University in 1985 and Georgetown University Law
Center in 1990. He began his career at the Boston law firm Goodwin,
Procter & Hoar.
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