Posts Tagged ‘Keegan’

State Lawmakers Get Warning About Muni Bond Bind

Tuesday, August 7th, 2012

By Frank Keegan | State Budget Solutions

Frank Keegan

CHICAGO — National Conference of State Legislatures members meeting here ended their first day with even more bad news about municipal bonds, debt interest that takes more than 20 cents of every dollar they spend each year and that pays for essential public works, among other things.

Some of the other things could be a problem.

Frank Shafroth, of the Municipal Securities Rulemaking Board, warned legislators at NCSL’s “The Future of Tax-Exempt Financing” that federal deficit reduction efforts could threaten the traditional tax exemption for municipal bonds even though that exemption is based on original, fundamental constitutional principles.

“This year they’re (Congress) caught in a vice. They need to reduce rates and reduce expenditures,” Shafroth said. “Their position is tax exempt bonds are a gift to the wealthy.”

But he pointed out that 38 percent are held by “households,” 32 percent by mutual funds and the rest by insurance companies, banks and only 7 percent by “other.”

The majority of municipal bonds traditionally have been used to finance long-life capital projects, such as public utilities, roads, bridges, schools and other essential government structures.

However in recent years, bonds have been used for other things and by agencies other than state and local governments. That raises questions about their tax exempt status.

Some of the other things have lead to criminal charges and prompted new and proposed laws and regulations.


SEC Report Reveals House of Bonds Turned Into Den of Thieves

Thursday, August 2nd, 2012

Frank Keegan

The word “taxpayer” appears only 14 times in 165 pages of the Securities and Exchange Commission’s Report on the Municipal Securities Market released Tuesday. Only two of those mentions refer to looking out for our interests.

In her statement introducing the report, SEC Chairman Mary Schapiro made it clear that bond buyers are primary beneficiaries of the recommendations: “While we have put in place measures to help investors make more knowledgeable decisions about municipal securities, we could do more for investors with statutory authority to improve disclosure and muni market practices.”

She initiated the study and hearings around the country two years ago, after egregious scams revealed systemic and pervasive failure of current regulations and standards for municipal bonds and related derivatives.

About 75 percent of the estimated $3.7 trillion in municipal bonds are owned by individuals, 50 percent directly and another 25 percent through mutual and money market funds, according to SEC. The rest are held by institutional investors.

According to Schapiro’s study, “The mission of the SEC is to protect investors — including investors in municipal securities — maintain fair, orderly, and efficient markets, and facilitate capital formation.”

The SEC mission does not explicitly include protecting taxpayers from unscrupulous politicians, bureaucrats, bond dealers, financial advisers, consultants or any other predators who have turned a solid house of prudent public finance into a den of thieves.

From the mass of regulatory and legislative reforms proposed in this report, it looks as if that house is so rotten at the foundation it could fall any time.


KEEGAN: Municipal, state pension reform message gaining momentum

Thursday, May 17th, 2012


COMMENTARY: Public pension ‘best practices’ omit 1 thing: How do we pay benefits?

Friday, May 4th, 2012

By Frank Keegan | State Budget Solutions

Municipal and state pensions are at least $4 trillion in the hole as the National Conference of Public Employee Retirement Systems meets next week. Funds ended 2011 with the first year-over-year decline since 2009 after failing to make up for Great Recession losses. And three studies released last month confirm that without draconian cuts, current employees and retirees in some systems will not receive full benefits.

None of these realities are listed in the NCPERSBest Governance Practices for Public Retirement Systems” to be presented next week at the New York Hilton.

Instead, the report offers a general guideline that “seeks to drive accountability, consistency and transparency, which enables improved performance and risk oversight for the benefit of public pension fund members, taxpayers and other stakeholders.”

Taxpayers are a “stakeholder” only if they consider being impaled on the stake as holding it.

No taxpayers are among “… more than 1,000 trustees, administrators, state and local officials, investment, financial and union officers, pension staff and regulators …” attending the annual conference.

Right now taxpayers are on that stake for more than $4 trillion they must pay on top of all other government expenses and tax increases to receive absolutely no government services of any kind.
No pension reforms to date will have any significant impact on the debt, which continues to grow every day.

These trillions of dollars will put no teachers in classrooms, police on streets, food in mouths of the hungry, homeless in shelters, pavement on streets, garbage in trash trucks or pay for any of the essential services provided by state and municipal workers.

This burden will repress hiring, wages, raises and benefits for public workers for 30 to 50 years.
For decades, politicians made guaranteed pension promises they did not fund, secretly borrowing from pensions — getting rich in the process — and leaving future taxpayers to suffer. The future is now.

So, how do we pay? One idea on the program at 10 a.m. Wednesday is “Retirement Security for All” proposed as a way to drain private-sector workers and businesses of cash now on the false promise to pay later.

Why can we assume that promise is false? Just look at the record to date.

Recent studies and data compilation by the U.S. Census Bureau, Government Accountability Office, Federal Reserve Bank of Cleveland and Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School detail the continued deterioration and ultimate long-term chance of failure of public pension systems within the overall local and state government fiscal crisis:

Underfunded Public Pensions in the United States:
The Size of the Problem, the Obstacles to Reform and the Path Forward
Thomas J. Healey, Harvard Kennedy School; Carl HessTowers Watson Investment; Kevin Nicholson, Harvard Kennedy School; M-RCBG Faculty Working Paper No. 2012-08
Mossavar-Rahmani Center for Business & Government
State and Local Governments’ Fiscal Outlook
April 2012 Update
GAO-12-523 SP

Public Finances: Shining Light on a Dark Corner
Forefront, Spring 2012
The Federal Reserve Bank of Cleveland
Public Pensions Under Stress
John B. Carlson, Vice President, Research Department
Monitoring the Risks of State and Local Finance
Jean Burson, Policy Advisor, Office of Policy Analysis
Navigating the Legal Landscape for Public Pension Reform: Travel at Your Own Risk
Moira Kearney-Marks, Research Analyst, Research Department
Quarterly Summary of the Finances of Selected State and Local Government Employee Retirement System 2011 Quarter 4:
United States Census Bureau

These studies are not on the NCPERS program. So every American must read them and weep. Then demand that governors and legislators impose real pension reforms now.

Frank Keegan is editor of a project of The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.

COMMENTARY: Municipal, State Workers Should Take Their Pension Money and Run, Fast

Thursday, May 3rd, 2012

By Frank Keegan | State Budget Solutions

Public employees should take their pension money now and run to avoid the risk of getting reduced benefits or nothing in the future. It’s the best deal for them and for taxpayers. A growing chorus of credible voices including the Government Accountability Office, a Federal Reserve bank and now the Harvard Kennedy School Mossavar-Rahmani Center for Business and Government confirm state and local government finances are “spiraling out of control” and even draconian reforms make it “more likely” that future benefits will be paid in full.

The just-released Harvard study bluntly states: “Across the United States, state and local government-sponsored pension plans are in trouble. They are dangerously underfunded to the extent that their assets are unable to meet future liabilities without either outsize investment returns or huge cash infusions.”

Guess what? Those outsize investment returns are not going to happen, and there is no cash for huge infusions.

GAO, the Fed and this latest study confirm that state and municipal pension funds are actually increasing risk in desperate efforts to make up for the sucker punch Wall Street hit them — and the rest of the world — with in 2008. Increased risk means bigger losses next time. The one thing we can count on is there will be a next time.

As for “cash infusions,” whose cash? Taxpayers are tapped out and angry. And unfunded pensions are not the only catastrophe state and local politicians have inflicted on us.

Eventually, all public pensioners are going to have to get in a long line of people and projects — ranging from bondholders and Medicaid recipients to current workers and bridges — clamoring for more from the dwindling number of private-sector workers who pay for everybody else. Adding it all up, about $18 trillion is coming due.

Somebody has to lose. The Harvard study authors point out that “estimates of the total size of the public pension problem in the U.S. have ranged from $730 billion in unfunded liabilities to $4.4 trillion,” depending on whether you accept official government assumptions or those of economists who “believe that the true size of the total unfunded liability lies closer to the larger estimates than it does to the smaller.”

They point out that $4.4 trillion equals 33 percent of the 2011 gross domestic product and is three quarters the size of Social Security obligations, even though state and municipal workers are only one twentieth of the population.

“The sooner plan sponsors (states and, in many cases, local governments) implement meaningful reforms, the less likely the problem will continue to spin out of control. However, many states and municipalities face an uphill climb in implementing reforms, with legal and political obstacles impeding progress. In the case of pension reform, time is money, and any delay in implementing needed changes will likely cost taxpayers — and public pension beneficiaries — significant resources.”

The authors propose specific reforms “potentially reducing the cost to taxpayers by as much as 85 percent.”

And they stress, “Most notably, sound reform makes it all the more likely that public pension plans will still exist and be in a position to pay out benefits well into the future.” More likely? Pension benefits are supposed to be guaranteed in perpetuity.

Adding realistic estimates of local pension plan shortfalls, the authors conclude an additional tax increase of at least 12 percent a year every year for 30 years will be required to fund pensions but provide no public services of any kind.

Absent major additional reforms, the authors state (emphasis theirs): “In the face of such overbearing financial burdens, there are no easy answers. To fully fund both state and local public pension plans … every household in the United States would have to be assessed an additional tax of $1,398 a year for 30 years. This tax would have to be levied on top of any additional tax revenue generated through economic growth ….

“This means that regardless of the inclinations of state elected officials, it will be extremely challenging to institute tax increases to properly fund state pension plans (and nearly as difficult to cut other state expenditures to accomplish the same goal). This scenario points to a looming showdown between taxpayers, elected state officials and many public sector unions.”

That showdown could get ugly because, “public employees at the state and local level have seen an increase in their compensation that outpaces the increase in private sector employee compensation since 1998.”

The report summarizes many of the abuses that increase the drain on public pensions, but fail to note the cost of such abuses now are not included in even the worst funding shortfall estimates because nobody knows how massive they are.

One thing the authors do make clear: “With greater burdens of cost being shifted to smaller populations of public employees and taxpayers, the already growing costs of public pension plans can become unsustainable.”

Even though at least 43 states have passed various pension reforms that could prevent costs from continuing to rise decades from now, they have little impact on the existing unfunded liabilities.

Even those limited changes have run into stiff opposition, “… the road to substantive pension reform is a difficult one, fraught with legal, political and financial obstacles.”

As a result, “Nearly all states are facing a major financial challenge when it comes to funding their pension promises.”

As for what happens when the money runs out, the authors cite recent examples and conclude, “Clearly, once-safe assumptions regarding the permanence and financial stability of governments are worth reconsidering in light of such occurrences. Arguably, no group should be more concerned about this reality than the beneficiaries of unsustainable public pension plans.”

The report summarizes the most effective state reform efforts to date, including Utah, which was in better shape and imposed the most radical reforms. But even there, pensions are only “in less danger of becoming insolvent, and its public workers’ retirement benefits are more secure. Granted, there still exists an element of intergenerational risk ….”

If the most radical pension reforms in the country still cannot guarantee benefits, what is going to happen in states and municipalities that fail to reform?

The authors conclude, “The financial outlook for many public pension plans is bleak, but solutions do exist.” However, time is running out. “Clearly, every day that reform is delayed, liabilities mount and the journey toward meaningful change becomes that much harder.”

And the big problem is, “…public pension reforms are often most strongly opposed by those who stand to benefit most from their implementation: public sector workers.”

Public sector workers should see the inexorable catastrophe coming and demand their money now before politicians and union leaders can skim any more of it.

For every dollar public workers contributed to their pensions between 2007 and 2010, fund managers lost $4.33. Their money is gone forever. If they expect taxpayers to make up the difference, they ultimately either will trigger fiscal revolt or plunge their states and cities into permanent economic decline.

Right now, the best thing they can do is demand their money back, plus government contributions, at the official discount rate, with future government contributions paid in every check.

That puts the workers in control. They can invest any way they choose.

But the most important fact is: If politicians try to short them again, they will know immediately instead of finding out the hard way when they are old and it’s too late.

Frank Keegan is editor of a project of The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.

COMMENTARY: This plan could save municipal, state workers’ pension checks

Friday, April 27th, 2012

State Budget Solutions

Hey, young public employees, what are you going to do when your pension checks bounce after you paid in for decades? That is what will happen in many — maybe all — states and municipalities sooner or later if they do not reform right now. If you want to see the future, just look at Illinois. One citizen there did, and came up with a real reform plan that might work.

Bill Zettler owns a small business that — like all others — must make sure income is more than expenses or it goes under and he and all the employees lose their jobs.

One of the biggest — and getting bigger — challenges he faces is paying taxes. They are expenses that create no new jobs and provide zero benefits to buy equipment, expand markets, develop resources or produce anything for him, employees or customers.

About 10 years ago when a neighbor told him he retired from teaching at 58 with $120,000 a year income, cost-of-living increases and health insurance, Zettler thought that was great and might be good for his employees.

He found out it would quickly bankrupt his company. “I got interested in it and became self-taught” on the complicated issue of retirement benefits. He would have to come up with millions of dollars to provide equivalent benefits to even a handful of employees.

He wondered how the state, counties, cities and towns could afford it. He found out they cannot and began to warn taxpayers and public workers of the inevitable crash.

On Monday he put forward a pension reform plan, “Taxpayer Costs Must Be Fixed, Not Unlimited,” that gives a detailed outline for stanching the pension hemorrhage in Illinois that other governments should study.

Basically, “it fixes taxpayer pension cost at 15 percent of payroll and all pension cost in excess of that must come out of departmental budgets and employee compensation costs.”

He writes that, “The very best private sector pension system costs about 14 percent of employee payroll …” so the plan still would be better than the best that taxpayers get.

“Currently state pension costs are about 33.3 percent of payroll (including interest on pension bonds) and change every year according to multiple assumptions used by state actuaries. Health care costs are about 20 percent of payroll,” he wrote.


COMMENTARY: Probe of 1 state shows why agencies worry about muni minefield

Thursday, April 5th, 2012

By Frank Keegan | State Budget Solutions

How deep into debt have state and local politicians plunged taxpayers? Nobody really knows. The U.S. Securities and Exchange Commission is trying to find out, but a probe of just one state, Arizona, by investigative reporter Mark Flatten of the Goldwater Institute found at least $66.5 billion.

That’s more than $10,000 for every child, woman and man in a state running chronic deficits and additional billions in other hidden unfunded liabilities.

Flatten details how politicians got around legal limits on public debt and enriched a clique of insiders who do the deals. Now taxpayers are stuck with the bill.
Exactly how citizens and businesses nationwide blighted by economic catastrophe are going to pay government pensions, bondholders and health-care costs as well as feed the insatiable spending of politicians is, according to a report released Thursday by the Government Accountability Office, a “challenge.”
The GAO “State and Local Governments’ Fiscal Outlook” update shows that “The fiscal position of the (state and local government) sector will steadily decline through 2060 absent any policy changes.”
How steep is that decline? Slippery slope to bankruptcy and getting steeper every year despite massive tax hikes and revenue increases.

COMMENTARY: Latest municipal, state pension data show crash continues

Thursday, March 29th, 2012

By Frank Keegan | State Budget Solutions

WASHINGTON, D.C. — Even as actuaries argued at their annual meeting here about the exact speed of our public pension crash, how to slow it with the least economic damage and who is going to take the hit, U.S. Census finished compiling numbers on the top 100 municipal and state plans. Those numbers add up to catastrophe.

Enrolled Actuaries wrapped up here Wednesday after three days of presentations, discussion and debate kicked off by an opening session titled “Pension Funding to Avoid Ruin.”

That was appropriate because Thursday morning Census released 2011 results for public pensions representing 89.4 percent of the national total. A quick look shows those funds fell another $1.4 trillion short of politicians’ promises.

Worse, in 2011 the trend from the 2008 financial crash turned downward again toward a certain collision with reality that will cost the United States at least $39 trillion — that’s TRILLION with a T — over the next three decades even if there never is another market crash and pension fund investments grow at rates never seen in history.

If any investments fall even a little short, this hidden extra tax must grow to more than $100 trillion, putting working Americans in debt to public employees forever.

No wonder the actuaries were nervous. They know the numbers, and they know the odds better than anybody.

Actuaries are true geniuses who calculate the incomprehensible for pension funds, insurance companies and anybody else who merely wants to foretell the future.

The only problem is, the future ain’t what it used to be.


COMMENTARY: Arendt Center raises question of ‘Pension Ponzis,’ public interest

Friday, March 23rd, 2012

By Frank Keegan | State Budget Solutions
Finally, somebody who never could be accused of vast right-wing conspiring has stared into the fiscal abyss of our municipal and state pension crisis. The Hannah Arendt Center this week acknowledged the ruthless reality of arithmetic.
In “Pension Ponzis: Questions About the Public Interest,” Center Director Roger Berkowitz succinctly sums up this catastrophe:
“The public pension crisis is eroding the American social contract. While many are up in arms against Governor Scott Walker’s heavy-handed attack on public unions, the fact is that Democratic governors in NY and California are also struggling with the inevitable need to reduce public pensions.
“Governor Jerry Brown in California admitted recently that public pensions were a Ponzi scheme. That is obvious. What is now sinking in as reality is that the Ponzi scheme is out of money and falling apart.”
Many of us who sounded this alarm for years have said it is not a matter of left or right, Republican or Democrat, but merely a matter of mathematics — extremely complicated mathematics for sure, but none the less inexorable.
In fact, Republican governors are among the worst offenders.

COMMENTARY: GAO pension survey reveals endemic corruption hiding in the hedges

Thursday, March 22nd, 2012

By Frank Keegan | State Budget Solutions

Anybody who ever questioned how many layers of corruption are woven into state and municipal pension systems, should take a look at the latest Government Accountability Office report on “Challenges of Hedge Fund and Private Equity Investing.”

“Challenges?” That’s a genteel way of putting it. Why not put it in English: Ripping off taxpayers and public workers?

While GAO surveyed private and public pension systems on these alternative “risky investments that seek exceptional returns,” the report notes that “Public sector plans, such as those at the state, county and municipal levels, are not subject to funding, vesting, and most other requirements applicable to private sector defined benefit pension plans ….”

Another big difference GAO fails to mention is that private pensioners can lose benefits, while public pensioners cannot. No matter how much politicians, fund managers, brokers, placement agents and other insider pension parasites loot and pillage public plans, taxpayers are on the hook for it.

If politicians can’t extort enough from residents and businesses to pay pension benefits, next on the hit list are children, the poor, elderly, ill and helpless.