pensions

For the sake of completeness -- Cuomo and pensions

If you only read the increasingly paltry print version of the Ithaca Journal, you'll have missed the paragraphs that appear at the end of the original AP story on today's front page, "Cuomo to propose cost-cutting for pensions."  With respect to Cuomo's Tier VI plan for public workers outside New York City (which appears in the "Pension Plan" box in the print version on p. 5A), these paragraphs were cut from the print version although they do appear in the online version at the Journal:

The proposal doesn't replace the traditional public pension with a 401(k) retirement plan common in the private sector, where employees pay far more or all of the contributions.

The Cuomo administration said government contributions to pensions rose as many as 20 times since 2001 for teachers, government workers, police and firefighters.

Suffolk County Executive Steven Levy, who has led the fight for pension reform among counties, recently said now is the time for governments to trade in pensions for 401(k) plans. He has said generous public pensions are unaffordable to taxpayers.

As always, read the comments, too—one commenter is a member of that supposedly nonexistent group of New Yorkers leaving the state for greener, less tax-burdened, pastures.  Just sayin'.

AAFCPS

One of my calculus professors seldom actually worked a proof on the board; he would simply write the property to be proven and below it, in the space normally reserved for the proof, he'd write, "AAFCPS"—"as any fool can plainly see."

That's how it often seems in the ongoing debate on public pensions—that assertions are offered without proof.  Case in point: one of the commonly cited defenses of the size of public sector employee pensions is that those employees earn less than their private sector counterparts during their working lives and relatively generous pensions are intended to compensate for the discrepancy.  It's become a generally accepted meme—people tend to nod their heads in response to it, if not in agreement, then at least in acknowledgment of the difficulty of actually refuting (or, for that matter, supporting) the claim.  As Daniel Borenstein writes in the Contra Costa Times, "The salary-comparison analysis is tricky. That's why there has been little reliable information to support or refute the unions' claim of lower salaries."

But a California study released last week sheds some light (the pdf of the report appears at the bottom of Borenstein's column and is downloadable).

Borenstein describes the problem:

Taxpayer groups often point to federal data showing that government employees have larger average paychecks than other workers. But that doesn't account for the greater proportion of high-skilled jobs in the public sector.

Labor unions often cite studies showing that workers with similar education make less in government jobs. But that approach doesn't account for possible differences of job demands for similarly educated people in the private and public sectors.

So the authors of the study came up with a design to try to compare apple to apples as far as possible. 

What did they find?

When compared to all full time private sector workers, wages of state and local workers are similar to, or slightly higher than, than wages for comparable workers in the private sector.

When compared to just workers of larger private sector firms, state and local government jobs pay levels appear to be a little less than the private sector.

State and local government sector pay is considerably higher in many less-skilled occupations, and is lower in some high-skilled and specialized occupations (top level management and computer specialists).

There is a significant pay gap between state government and local government, with local government paying more in many occupational categories.

Within occupations there is much more wage variation in the private sector (or alternatively, there is more wage compression in the state and local government sector). Thus, for occupations with similar average wages, those at the top end of the occupation’s pay range are likely to be paid higher in the private sector, while those at the bottom of the range are likely to be paid more in the state and local government sector (Chap. 2, p.11)

But even with an improved design, there were still some difficulties:

The statistical approach to making standardized wage comparisons is subject to two main criticisms. The first is that it uses inputs (such as educational levels and experience) rather than outputs for determining whether there is a wage gap between the public and private sector employees. The premise of this methodology is that two individuals — one in the state and local government sector and one in the private sector, with the same general educational and related attributes -- ought to be making the same amount of money, without regard for whether the two individuals are, in reality, working in equivalent jobs. The approach does not take into account substantial differences that can exist between public sector and private sector occupations in terms of job security, responsibilities, expectations, productivity, and other factors.

The second criticism is that the analyses inappropriately limit the direct private sector comparison group to employees of large companies, thereby biasing the comparisons in favor of the private sector. As noted earlier, this limitation is significant since large private sector companies pay higher salaries than their smaller counterparts...(Chap. 2, p.9)

Long story short: If we are only talking about wages and salaries, there's not a lot of difference between public and private-sector employees—contrary to the assertions of those trying to justify public-sector pensions as compensation for low pay while working.  But even if we assume lower wages in the public sector, once we're talking about total compensation (and without factoring in additional influences that are difficult to quantify such as job security), we're not simply leveling the playing field:

Bottom line:

...the key question is not who has the higher compensation levels but rather what is an appropriate pay and benefit package for attracting and retaining a qualified workforce in each sector. An equally important question is whether the compensation systems have enough flexibility built in to respond to rapidly changing economic and budgetary circumstances. A key rationale for pension reform is that this flexibility is lacking in the state and local government sector. The current public compensation systems are overcommitted to large vested pension rights, which do not provide state and local governments with adequate flexibility to manage their budgets (Chap. 2, p. 14)

QED?  Perhaps. In any case, better than AAFCPS.

If the shoe fits

  • Amount of NYS pension fund invested in shale gas and fracking companies: more than $1B
  • Percentage increase in value of the fund's 4.2 million Schlumberger shares over the years: 104
  • Watching anti-fracking, tax-the-rich Barbara Lifton squirm when faced with the embarrassment of the state's public sector employee pensions earning big bucks off fracking investments: priceless

The Ithaca Journal story is here.

Assemblywoman Barbara Lifton, D-Ithaca, has been one of the fiercest critics of hydrofracking in the Legislature, but said she trusts the work of the Comptroller's Office.

"I assume they look at these decisions strictly as investments and keep the politics out of it," Lifton said.

And

While the companies' practices continue to come under intense scrutiny from environmental groups, telling the comptroller not to invest in an industry would be setting a dangerous precedent, said Sen. Thomas Libous, R-Binghamton.

"This issue has come up on a number of occasions, and not just as it pertains to fracking, but as it pertains to a whole host of things over the years," Libous said. "If the comptroller started separating things out into what people agreed or disagreed with, there would be nothing to invest in."

No! I'm shocked—shocked!—that anyone could draw such a conclusion.

The lone commenter as of this writing says that the state pension fund has less than one percent of its assets invested in gas companies.  True.  But can you imagine the outcry if the shoe were on the other foot and a Republican comptroller were investing state funds in fracking?

Pull up a Pew

Via Heritage: The Pew Center on the States has published a report entitled "The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs." The paper is pretty brief and you're certainly capable of reading it for yourself, but here's a couple of points with respect to NYS specifically:

NYS looks great, right? State pensions101% funded?  Well, as we've mentioned in an earlier post public employee union (PEU) pensions are guaranteed by the state constitution, so NYS isn't quite as fiscally virtuous as it might appear—just constitutionally enabled (and disposed) to pick taxpayers' pockets for the purpose of pensions.

It's this map that's the kicker:

NYS doesn't look quite so good in that one.

And as the Washington Post reports

...Pew officials said the growing shortfall was driven by inadequate state contributions, an aging population and market losses that accompanied the recession.

Although investment markets have recovered substantially since the period covered by the report, its authors warn that states still face an increasing burden from retiree costs that are beginning to crowd out critical services.

“In many states, the bill for public-sector retirement benefits already threatens strained budgets and is competing for resources with other critical needs, including education, infrastructure and health care,” said Susan Urahn, managing director of the Pew Center on the States.

There's that dastardly opportunity cost—in the short run, you don't get to have things all ways.  Funny how that works.

[....] Even as they face increasing liabilities, the report said, many states are not making pension contributions in amounts recommended by their actuaries as they juggle retiree and other costs against a backdrop of weak revenue.

Might New Yorkers go Galt?  A related note here from Crain's New York Business: with respect to the federal debt, "It is painfully inevitable that any effort to attack the debt problem will be disproportionately paid for by New Yorkers. The city's relative wealth means that higher taxes will come in large part from people who live here..." The author is referring to NYC; but as we know, what goes on there will affect the rest of the state whether we upstaters like it or not. 

In making its calculations, Pew used the states’ assumptions for what their pension funds would earn in annual investment returns, typically 8 percent — a figure that states have mostly met in recent decades but that some analysts think is now overly optimistic.

Another Captain Renault moment....and while the Post article opened with "The state funds that pay pension and health-care benefits to retired teachers, corrections officers and millions of other public workers faced a cumulative shortfall of at least $1.26 trillion at the end of fiscal 2009, according to a new report," it later states that

If states calculated their investment returns the same way that private firms are required to for their pensions, their obligations would balloon to $1.8 trillion, the report said. If states pegged their returns to 30-year Treasury bonds, an even more conservative standard, the liability would be $2.4 trillion...

Read the rest.

Who's going to pay for all this?

Cognitive dissonance

From yesterday's Ithaca Journal article, "Municipalities brainstorm money-saving ideas":

"Martha Robertson, chairwoman of the county legislature, said if pension costs, which can't be controlled by local governments and school districts, could be carved out of the property tax cap, it would take a huge burden off local taxing entities."

Let me see if I can figure out what this means. "...pension costs, which can't be controlled by local governments and school districts,..."  Public employee union (PEU) pensions are guaranteed by the state constitution. But the state comptroller has the authority in the constitution to restructure the state’s finances as needed. Maybe the towns, counties, and school districts need to gang up on Comptroller DiNapoli (I know, I know—there's that reprehensible far-right violent rhetoric again)...oh, wait.  That probably wouldn't do any good.

               Pepe LePEU

Then, if those "uncontrollable" pensions "could be carved out of the property tax cap..." Translation: PEU pensions would be exempt from the 2% (or CPI, whichever is lower) proposed property tax cap.

Lastly, if that exemption existed, "...it would take a huge burden off local taxing entities."  So towns, counties, and school districts wouldn't have to figure out how to live within their means; they could just pass the "price increases" on to the "consumers." This is better?

At its root, what Martha is saying is that "local taxing entities" are being crushed under the weight of unaffordable and structurally unsustainable PEU pension costs. True. So what do you do about that?  Here's the cognitive dissonance part: she doesn't seem to notice that if you carry what she's saying to its logical conclusion, you end up saying essentially the same thing as Wisconsin Governor Scott Walker.  

After all, how are those budget-busting pensions arrived at? Through collective bargaining on benefits with powerful unions who use their closed-shop union dues (taken from paychecks funded with money from taxpayers) to help elect the politicians they're bargaining with. And then those pension costs are enshrined, in NYS anyway, in the state constitution making them really difficult to do anything about.

If I were to say that Martha Robertson and Scott Walker weren't really saying anything all that different, the left (and maybe the right, too) would be apoplectic. But as lots of people have pointed out, the laws of economics don't stop at the state line.  You can pretend that isn't true or you can deal with reality.  Your choice.

(h/t Jim)

Speaking of sustainability...

Tags:

"That's not only insane, but it's also unsustainable,"

said Westchester County Executive Robert Astorino, after a panel discussion in Albany about the pension situation in New York State.  The panel was discussing a report from the Empire Center for New York State Policy which predicts that school districts' contributions to the New York State Teachers Retirement System could more than quadruple over the next five years.

These increases are just not realistic.  What will we do when (not if) the pension plans and school districts are insolvent?  We need to get ahead of this problem and move to realistic defined contribution public pensions (paid out of current income) instead of the current defined benefit plans.  We also need to eliminate unfunded state mandates on our school systems.

Read the article on the Ithaca Journal site, or click over to www.empirecenter.org to  read the whole report.

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