Pension reforms about math, not politics

*First appeared in the August 15, 2013, edition of the Laurel Chronicle.

This week, the American Legislative Exchange Council released its new report, “Keeping the Promise: State Solutions for Government Pension Reform.” I’m a bit of a pension nerd, so I combed through the report with great interest.

Pension obligations can wreak havoc on state and local budgets, as we’ve seen with some high-profile examples (Detroit, for instance, which recently filed bankruptcy). The pension crisis cities and states face arose from decades of bad decisions, including not setting aside enough money each year to pay for retirement costs as well as increasing plan benefits without a corresponding increase in plan revenues.

Couple this with the 2008 market crash in which many retirement plans lost 20 percent of their funds…and it’s not hard to see how we got to the point where pension liabilities across the nation total up to $4 trillion. According to ALEC estimates, that’s enough money to cover a $60,000 salary and benefits package for 625,000 to 1.2 million new elementary school teachers for 20 years.

What struck me as especially poignant in the pension study were the following statements: “[The] pension problem need not be a political debate over the size or scope of government; it is a problem of math. The numbers of today’s pension plans do not add up, and observers on the right, on the left, and in the center agree on this point.”

I couldn’t agree more.

A few years ago, Gov. Haley Barbour tasked a group of business leaders, pension experts, lawyers, retirees, and legislators with looking at Mississippi’s state retirement system. The commission reviewed the retirement system with an eye toward ensuring its long-term health and sustainability, making reasonable recommendations to trim costs without jeopardizing retiree benefits.

But to hear Democrats talk about it, you would have thought that mean old Republican governor was trying to take Grandma Suzie’s retirement check and leave her destitute on the street.

Hogwash.

Let’s examine the facts. The state’s retirement system is not on the verge of collapse, but the trends are worrisome. Because the Legislature increased benefits in the late 1990s and early 2000s but failed to pay for these new costs, the plan has become excessively expensive. The system is costing taxpayers close to $900 million this year (that’s more money than it takes to fund Medicaid), and plan actuaries forecast no taxpayer relief in the foreseeable future. The 2008 market crash only compounded the problem, meaning taxpayers are on the hook for skyrocketing pension costs unless changes are made.

That’s not my opinion; that’s just math.

Reining in the costs of a retirement system is one of the most important challenges facing lawmakers today because everyone has a stake in the problem. As the ALEC report notes, “workers and retirees have a stake. People who pay high taxes are affected, as are people who pay nothing at all. The problem touches all Americans…Why? Money that is obligated to pay for pensions cannot be used to reduce tax rates or fund public programs.”

That’s exactly how big-time Democrat and Rhode Island Treasurer Gina Raimondo sees it. She campaigned on pension reform, successfully pushed it through the state’s general assembly, and defended it as a moral imperative. When asked by a disgruntled employee about her views, she responded, “[Is] it morally right to do nothing and not provide services to the state’s most vulnerable citizens? Yes, sir, I think this [reform] is moral.”

(As an aside, I heard Treasurer Raimondo speak about pension reform during a Pew Center conference a few years ago. Her determination to put Rhode Island on solid financial footing was impressive, and I expect she’ll be on the political scene for quite some time.)

If we don’t rein in the costs of our own state retirement system, I fear we’ll be left without options. To paraphrase Mayor Rahm Emanuel, we’ll have to pick between pensions and police officers; pensions or paved streets; or pensions and public health. That’s not fair to taxpayers, and it certainly isn’t fair to retirees.

As the ALEC report indicates, fixing the problem of unfunded pension liabilities is a difficult task. Legislators must overcome both technical and political challenges; they must understand arcane financial concepts and respond to statutory law, case law, and even constitutional limits. But ultimately, the question of pensions is not just an “obscure topic of interest to actuaries and accountants. It is, rather, an issue with widespread consequences.”

I certainly hope Mississippians – legislators, retirees, state employees, businessmen and women, soccer moms, and even high school graduates – recognize the benefits and necessity of reining in the costs of the state’s retirement plan. Pension reform isn’t about cutting benefits, but rather ensuring retirees get the benefits they were promised. At the end of the day, keeping our promises means making tweaks to the existing program to ensure retirees, state employees, and taxpayers are treated fairly.

This isn’t about some conservative philosophy, nor is it aligned with Democrat principles. This is about protecting the financial security of our retirees, our taxpayers, and our state.

NOTE: Here is a link to the full ALEC report.

Experts Agree: Reforming government no easy task

*First appeared in the August 8, 2013 edition of the Laurel Chronicle.

A few weeks ago, I set out on a mission to Jackson’s rare and used bookstore (for reference, google “Choctaw Books”) to find something truly unique. While I found something pretty special, I don’t know that I’d call it “unique.”

My purchase was the Report on a Survey of the Organization and Administration of State and County Government in Mississippi, a nearly 1,000-page bound report conducted by the Brookings Institution way back in 1932. (You may recognize this name, as Brookings was the first private organization devoted to the fact-based study of national public policy issues. Today, the organization is heralded as one of the foremost advocates for effective and efficient public service and government operations.)

In the early 30s, the Mississippi Legislature created a citizen-led Research Commission (which included Laurel-native Wallace B. Rogers) to conduct “expert investigation into, and study and analysis of all conditions of the state.” In turn, the Research Commission asked the Brookings Institution to study the state’s processes and make recommendations on reform.

I was reminded of all this last week when I read an editorial calling for state government to increase accountability, efficiency, and transparency. It’s a novel idea, but certainly not a new - nor a unique - one.

The editorial gave a few examples of areas that need reform, including the more than 200 agencies, boards, and commissions that are part of Mississippi's government largesse. Similarly, Brookings opined in 1932 that one of the chief defects in Mississippi's structure was the “scattering of related functions among many offices due to the creation of numerous independent boards and departments with little references to previously established offices...Mississippi finds itself possessed of a large number of more or less independent and uncorrelated agencies.”

Instead of consolidating boards and commissions, as Brookings recommended, eight decades later we’ve seen our boards and commissions grow by 150 percent than at the time the Brookings report was published.

Other recommendations from the 1932 report include converting elected positions, such as State Treasurer and Highway Commissioners, to gubernatorially-appointed positions requiring consent of the Senate.

Another novel, yet historically doomed, idea. Candidates, legislators, and lobbyists have been resistant to this concept.

Mississippians are used to voting on, well, everything. We may not know what the Treasurer does, but we sure as heck want to cast our vote for him or her. It gives us the feeling that "we're in control" but also drives up government costs. For example, our highway system is governed by three commissioners elected from their respective districts. This process can result in fragmented oversight and an apparent lack of accountability (which is likely why most every other state has transitioned to an appointed, not elected, highway commissioner system).

Of course, others have recommended major reforms as well. Especially with the onslaught of the recession, Gov. Barbour proposed major structural changes to the way government operates in order to reduce costs while increasing efficiencies. While some cost-cutting measures were adopted, most of these bold changes met great resistance in the Legislature.

They say the definition of insanity is doing the same thing over and over, yet expecting a different outcome. With that in mind, it seems those of us who believe government can be reformed have a touch of insanity.

But, I think there’s good reason to keep the reform mindset. Unlike when Gov. Barbour was in office, Republicans now have control of the Legislature and have promised real change. Lt. Gov. Tate Reeves appointed Sen. Nancy Collins to head up a newly-created Accountability, Efficiency, and Transparency committee to review creative reform ideas. The House of Representatives created a similar committee, and Gov. Bryant has voiced his support for government reforms.

So far, the Republican-led Legislature has made good on its promise, passing landmark legislation to consolidate certain struggling school districts and reduce the amount of vehicles owned by the state by prohibiting unnecessary car purchases. Together, these laws have saved taxpayer dollars while promoting efficiency.

Let’s hope our policymakers – legislators, agency heads, and government employees – heed the 1932 warning issued by the Brookings Institution that still applies today: “Mississippi can poorly afford to sanction worn-out methods, cumbersome organization, and diffusion of responsibility in its government simply because these conditions have prevailed for years.”

Detroit bankruptcy ignites discussions on affordable government pensions

*First appeared in the August 1, 2013 edition of the Laurel Chronicle.

News of Detroit filing for bankruptcy protections shook the financial and political worlds, but I felt their "surprise" at this revelation was hollow. After all, the Wall Street Journal re-affirmed what I had previously assumed: That Detroit's demise has been long-coming.

The Journal recounted that "nearly 70% of parks have been closed since 2008, and four in 10 street lights don't work. The city has cut its police force by 40% in a decade...Detroit residents pay the highest property and income taxes in the state...About 40% of revenues go toward retirement benefits and debt, much of which was issued in the last 10 years to finance pension contributions. Payments on $1.6 billion of pension-related certificates of participation consume nearly every dollar of property tax revenue."

How the Detroit fiasco plays out could have huge implications in how governments deal with unaffordable pension obligations. Forces like unions and creditors have driven governments to a borrow-tax-spend cycle at the expense of taxpayers. As the Journal notes, a Detroit "bankruptcy shows the party is over, as it may also soon be for many other cities."

Oakland, Cali. has the state's highest crime rate yet recently laid off upwards of 100 policemen to fund retirement benefits and pension-obligation bonds. On top of this, the city borrowed another $210 million to finance pensions, putting the municipality in even worse financial straits.

To make up for years of short-changing its retirement fund, Philadelphia, Penn. is currently spending about 20 percent of its budget on pensions. The Journal points out that Philly has raised sales, property, and business taxes, yet the city council is currently discussing using revenues from a one-percentage-point sales tax hike in 2009 intended for schools to finance pensions.

Former Obama White House Chief of Staff turned Chicago Mayor Rahm Emanuel declared recently that "the pension crisis is no longer around the corner; it has arrived at our schools" after the city's public schools announced 2,100 layoffs. Although Chicago (supposedly) is planning to transfer 30,000 retirees on Medicare and the Obamacare exchanges in 2017, all its savings will go toward pension payments which will triple in 2015. The Democrat mayor warned taxpayers that this could mean a 150% spike in property taxes.

According to groups like the Pew Center and Boston College's Center for Retirement Research, pension obligations run into the trillions of dollars (the last estimate I saw was roughly $3 trillion). This means that many governments "have more than likely promised their workers more than they can reasonably expect to deliver," according to the New York Times.

Clearly, pension obligations have the potential to bankrupt cities and states, both large and small. Mississippi, pay attention.

Our state retirement plan is in better condition than these examples, but the trends concern me. Although taxpayers have put significantly more money into the system, its funded status continues to decline. In 2003, the system had a funded status of 79 percent; today that number has dropped to 58 percent. Pension experts consider healthy plans to have a funded status of 80 percent or higher.

These numbers are particularly gloomy, since taxpayers have seen their contributions to the system increase more than 62 percent in the last decade. In Fiscal Year 2013, the state (taxpayers) contributed about $835 million to fund a portion of the retirement system; this level could jump above $900 million in Fiscal Year 2014. That's higher than state financial support for Medicaid!

I don't believe Mississippi's retirement system is on the verge of collapse, but there are warning signs within the system that should be addressed by policymakers, retirement board members, and taxpayers. The current plan is too costly (see above) and puts too large a fiscal burden on taxpayers who are trying to build their own non-government funded nest eggs. Small but important tweaks can be made now to ensure an affordable and sustainable future.

The Economist recently featured an insightful piece on pensions in America, writing that "it may take a financial crisis [like Detroit] for states and cities to face up to the scale of their pension shortfalls. When a crisis occurs, public-sector workers are more likely to accept the need to sacrifice."

In Mississippi, I hope we'd take actions to avoid a crisis rather than let pension obligations escalate to an unsustainable level.

House Democrats eye local positions after Republican take-over

*First appeared in The Laurel Chronicle on May 23, 2013


In November 2011, Republican officials, party leaders, and political hacks celebrated as the GOP gained control of the Mississippi House of Representatives for the first time since Reconstruction. This historic victory was cemented by the subsequent election of Rep. Philip Gunn, R-Clinton, as Speaker of the House – the first Republican Speaker in more than 130 years.

For those of you who don’t follow state political shuffling, the Republican take-over of the House brought with it a sea-change of power and responsibilities. For now, gone are the days when former Speaker Billy McCoy, D-Rienzi, ruled the House chamber with an iron fist, squelching Republican opposition by all means necessary.

Especially during McCoy’s last term as Speaker, Republicans were the red-headed stepchildren: No Republicans were appointed to chair committees nor asked to serve on the Joint Legislative Budget Committee, the bicameral body tasked with developing a plan to spend your taxpayer dollars. The McCoy House provided scarce an opportunity for Republicans to pass legislation important to the GOP.

(While Speaker McCoy ran a tough House, it’s only fair to mention that he was a strong partner to Governor Haley Barbour on issues like economic development.)

With a new Republican Speaker, roles have shifted. No longer can Democrats employ the hardball tactics used during the McCoy era; the numbers simply aren’t there. But in the Republican House, Democrats aren’t entirely boxed out of major committee chairmanships (in fact, several Democrats lead prominent House committees), and the joint budget committee includes two House Democrats.

Despite the (mostly) congenial spirit of the new House majority, Democrats recognize the absolute power they once enjoyed is the process of old. The shift seems to have taken its toll on morale, with Democrat stalwarts like Rep. Steve Holland of Plantersville claiming this term will be his last in the Legislature.

For what it’s worth, I have wondered if this monumental shift is the root cause of legislators looking elsewhere to further their political careers – by throwing their hats into mayoral races across the state.

Rep. George Flaggs, Jr., a Democrat from Vicksburg, recently won a tight race in that city to become its next mayor. An affable man with a knack for making deals, Rep. Flaggs’ new position means the House has lost one of its most well-known Democrat personalities.

Democrat Rep. Kelvin Buck beat out three-term Mayor André DeBerry in his effort to become the leader of Holly Springs. Similarly, Rep. Billy Broomfield defeated incumbent Mayor Aneice Liddell in the Moss Point election. He will face two independent candidates in the June general election.

Despite name recognition and strong family ties, including his dad who is the current mayor of Clarksdale, Rep. Chuck Espy lost his primary battle against former gubernatorial candidate and businessman Bill Luckett. I watched with great interest the mayoral race in Laurel, “the City Beautiful,” in which Democrat Rep. Omeria Scott got enough votes to make it to the primary run-off against sitting Councilman Johnny Magee. But Scott’s momentum wasn’t ultimately enough to edge out Councilman Magee in the May 21st election.

The House stands to lose at least three of its Democrats to mayoral positions – a collective loss of 55 years of experience and a lot of institutional knowledge. After all, a successful mayoral bid means these legislators will hang up their hat at the state capitol and move on to city hall.

It’s not unusual for politicians to seek out the “next big thing.” For some of these legislators, perhaps running for mayor is that logical next step. Perhaps they simply saw a clear path to victory in these races. Or perhaps this renewed interest in municipal politics is an indication that Democrats don’t want to play second fiddle in the Republican majority House.

It’s not surprising legislators, particularly long-serving Democrats, are eyeing other positions. It makes sense, given the mantra “out with the old; in with the new” echoing through the Capitol hallways nowadays. For many old guard Democrats (and even some Republicans), the time has come to step aside as freshmen members – mostly younger with less experience – start anew at the Legislature.

But that’s not a bad thing. Generally speaking, younger generations are open to new ideas. Their inexperience can be an asset, as they’re not entrenched in the idea of doing things “the way they’ve always been done.” Even sensitive issues like race become less divisive as younger generations (both black and white) are further removed from the sins of our past.

In some respects, a new majority in the House is having a domino effect on state politics: The Republican take-over is causing some Democrats to think twice about their continued role in the state legislature. This disenchantment is paving the way for a new class of younger, less experienced legislators – which just might slowly lead to a new kind of thinking in Jackson.

Things aren’t looking so good for the coalition of the status quo.