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.

Budget surplus: Old “problem” in new economy

*First appeared in the Laurel Chronicle on June 27, 2013

About the same time the economy collapsed, I began working in earnest on the state’s budget as part of Gov. Barbour’s budget policy team. (Note: There was no correlation between my working on the budget & dwindling tax revenues.)

In 2007, Mississippi’s fiscal situation was beginning to crumble: After enjoying years of healthy revenue growth, Mississippi’s collections tanked alongside the rest of the states’.

To get a sense of the impending financial doom, read from Gov. Barbour’s executive budget recommendation for Fiscal Year 2009: “We have to recognize the national economy has been softening. Serious troubles in the financial markets have not only generated pessimism but also have caused a real credit crunch…This will require considerable budget discipline. It means we’ll have to tell some people ‘No;’ it means some good things won’t get funded or won’t get as much funding as some people would like.”

The week before the FY 2009 budget recommendation was published, the front page of the Wall Street Journal had proclaimed, “States prepare to tighten belts as growth in revenue slows.” And the State Economist at the time warned lawmakers that sales tax receipts for July through December 2007 (the first half of the FY 2008 fiscal year) had increased only one-tenth of one percent.

For comparison purposes, consider the following: Gov. Barbour had proposed to increase spending in FY 2008 (the year before the downturn) by 7.5 percent; in FY 2009, he proposed a cautionary 0.4 percent increase.

Although the Legislature and Governor approved a modest budget to prepare for the downturn, it wasn’t enough. Lower-than-expected revenues forced Gov. Barbour to trim spending by $200 million in FY 2009. The sluggish economy required the Governor to cut the following year’s budget five times, or a reduction of $466 million in FY 2010.

Since that time, budgetary caution has been the name of the spending game…until now, perhaps. Earlier this month, we learned the state was on its way to a budget surplus for the current fiscal year, which ends this weekend (June 30). The House Appropriations chairman told another newspaper the surplus would likely be a “substantial” amount around $300 million.

As a friend of mine would say, that’s a lot of skrilla (translation: money).

Just think – Gov. Barbour’s first round of cuts in FY 2010 was roughly $171.9 million. Fast-forward to FY 2013 when the state’s tax collections for May exceeded the estimate by the same amount.

We must remember that for the last five or so years, lawmakers have rightly weighed spending against anemic revenue growth to determine budgeting priorities. A budget surplus? Well, that’s a new one on the current class at the State Capitol.

Already, groups are laying claim to the money. The Parents’ Campaign, which lobbies for education funding, sent an email blast to its members asking them to contact their legislators: “Ask them to commit to using the surplus to fully fund the MAEP before it is spent on other things.” (MAEP is the formula used to determine how much money goes to schools.)

At their annual meeting two weeks ago, Mississippi supervisors talked about the need to find additional money for programs like healthcare implementation and homestead exemption. There’s a legislative task force aimed at finding additional revenue for our state’s highway infrastructure. No one can ignore the rising costs of programs like Medicaid and the state retirement system, both of which will gobble up additional revenue.

For a few years, the Capitol-types (lobbyists, state agencies, etc.) recognized they simply weren’t going to get as much money as they wanted – if they got any at all. Policymakers were open to considering cost-cutting reform measures because they had to be. Now, with a budget surplus on the horizon, that mindset will likely vanish. Legislators, especially those on the money committees, can expect a little extra attention during the coming session.

Legislators can use the surplus in three ways: 1) increase funding for priority areas, like education; 2) reduce taxes to spur growth; and 3) set aside money for a “rainy day.” A likely scenario includes some combination of these options.

Until a final budget is adopted, legislators should be prepared for an onslaught of new spending options. Emboldened by a revenue surplus, state agencies and lobbyists will fight tooth and nail for a larger piece of the budgetary pie. While some of the longer-serving lawmakers remember the pre-recessionary days when revenue wasn’t as tight, a large part of the current class isn’t used to this much money – or the pressures that come with it.

It’s an old problem, for sure, but the reality is that Mississippi isn’t in the clear yet. While our revenues may be higher than expected, our economic picture is still slow to brighten. According to the latest stats, the state’s unemployment rate was tied for the second-highest in the nation with close to 120,000 Mississippians unemployed. Getting people back to work will take time, and revenues won’t fully catch back up until the employment situation bounces back.

Teen pregnancy rates dip, but out-of-wedlock births lead to larger economic challenges

*First appeared in the Laurel Chronicle on June 6, 2013.

About two weeks ago, the Centers for Disease Control released another of its reports full of charts, numbers, and phrases like “data sources and methodology.” Got your attention? I didn’t think so, but stay with me.

This CDC report (“Declines in State Teen Birth Rates by Race and Hispanic Origin”) focused on teenage pregnancy, a topic all-too-familiar in this state. But the findings aren’t what you might think: Nationally, teenage births have seen a dramatic decline, with Mississippi following the trend. Over the five-year period (2007-2011), Mississippi’s teenage birth rate dropped from a whopping 70 percent (wow!) to 50 percent, or a decline of 28 percent. While 50 percent is still too high, the downward trend is encouraging. That’s the good news.

Although the 2011 data hasn’t been released yet, I thought it prudent to check on the trend of another measure: nonmarital, or out-of-wedlock, births. Over the past five years of available CDC data (2006-2010), out-of-wedlock births in this state have risen slightly, with more than one-half (54.8 percent) of all births falling in this category. That’s the bad news.

Why? Because the shift in the American family structure – specifically, the increase in out-of-wedlock births – has a dramatic and lasting impact on our economic growth. While I am most interested in monetary issues, I have come to realize it’s impossible (and impractical) to isolate economic policies from the over-arching issue of family structure. The two are inevitably linked. To put it simply: Families matter.

Illegitimacy typically leads to negative outcomes for both mother and child. This isn’t my opinion; it’s backed up by recent stats from the U.S. Census Bureau (yes, another government report). Out-of-wedlock births have increased since the 1940s, with dramatic upticks seen in recent years. According to the Census Bureau’s “Social and Economic Characteristics of Currently Unmarried Women with a Recent Birth,” individuals who have children outside of marriage are generally younger, have less education, and have lower income levels than married parents. Children born out of wedlock are more likely to be poor; even those kids who live in co-habiting households (where the mom and dad live together but are not married) have negative developmental and behavioral outcomes “due in part to family instability.”

In Mississippi, the out-of-wedlock birth rate is 54.8 percent according to the CDC. Broken down by race, we see that rate at 32.3 percent for whites; 56 percent for Hispanics; and 81.4 percent for blacks. Consider the known outcome of illegitimacy on poverty, income, and educational attainment. The African-American community is particularly hard hit.

Interestingly, the Census Bureau report notes that states with higher illegitimacy rates have, on average, correspondingly low levels of economic success: Lagging median incomes; elevated drop-out rates; low levels of higher educational attainment; and high levels of poverty. Mississippi checks the box in virtually every category.

Other considerations I’ve not mentioned include crime rates, which are closely linked to child rearing, and workforce development, including the readiness of an individual to join the workplace. Believe it or not, many employers today have problems finding workers with so-called “soft skills” – such as knowing what to wear in a work environment or punctuality. It makes sense, though, as these skills have traditionally been taught in the home setting.

So what do we do about it? First, we recognize we cannot legislate our way out of this complex problem. Lawmakers can pass laws that target dropout prevention; they can increase access to contraception or, contrarily, heavily regulate abortion clinics. Taxpayer funds can be used to teach “soft skills” to a modern labor force or to help impoverished communities attract economic development projects.

Given my background as a government policy wonk, I support innovative implementation of most of these ideas. But government is limited in that it can only target symptoms of a greater problem: A dramatically shifting American family structure.

Just as the problem of out-of-wedlock births begins in our communities, so should our response. Churches, civic groups, community organizations, parent-teacher associations, and others should take action. They should proactively target those within their reach, whether it’s high school students or a church youth group. Parents-to-be should be encouraged by their neighbors; honest dialogue should occur between friends who are considering marriage (or not). A special look should be given to those communities who are suffering most – such as the 80 percent of black children born outside of a marriage.

After all, when we fail to take personal responsibility, we fail as a community. In this failure, we create a void that is often filled by a government ill-equipped to impact real change. At the very least, we know the government will embrace its role as societal fixer – but usually through bureaucratic largesse that leads to increased spending and higher taxes…which brings us right back to economics, like I said.

The politics of giving: Legislative charity bad public policy

*First appeared in the Laurel Chronicle on May 30, 2013.


“Contributions to Charity X are tax deductible.” This phrase is often part of a fundraising strategy to bolster donations to charity or non-profit organizations. It’s a good angle, you see, because it plays on something we all want – to pay fewer taxes to the government.

This scenario is the intended result of a tax policy structured to incentivize donations to charities and non-profits. It relies on and rewards individual choice – that is, individuals are free to choose which organizations to financially support and, in return, are given a tax break for their contributions.

Interestingly, a contrary practice is authorized nearly every year at the state Capitol. This practice is one that originates in the oft-overlooked “Local and Private” committees through the rubber-stamping of bills that redirect taxpayer dollars to government-preferred charities or non-profits.

For as long as I have been following legislative politics, legislators have picked winners and losers in the charity and non-profit realm. For example, the 2011 legislative session included passage of House Bill 1452, which authorized Tunica County Supervisors to contract with and/or contribute up to $450,000 of taxpayer dollars to Mid-State Opportunity, Inc., for costs associated with “youth programs, an energy assistance program for the elderly, disabled and low income and other services to the needy citizens of the county.”

I wonder if legislators who voted on this bill requested information on what the organization does, how it operates, or its record of success?

In 2009, the Legislature passed Senate Bill 3283, which authorized the Kemper County Supervisors to donate up to $5,000 to the local Boys and Girls Club. In this same session, legislators approved a bill (Senate Bill 3212) that allowed Pike County Supervisors to make “annual donations for charitable uses” of taxpayer dollars to the Salvation Army and Southwest Mississippi Christian Outreach during the 2009, 2010, and 2011 calendar years.

Aren’t residents of Kemper and Pike Counties able to contribute directly to these groups without a government pass-through?

To be fair, I don’t know a single legislator who really “champions” this type of legislation. In fact, many times legislators simply file bills at the behest of their local supervisors or city councilmen. But during a period when revenues at all levels – city, county, and state – are deflated, does it make financial sense for the government to redirect taxpayer dollars away from its core services?

More important, however, is recognizing the precedent this sets for the government’s role in financial management. Government exists to protect individual rights and freedoms. Bills that repurpose taxpayer dollars to government-preferred charities and non-profits undermine our economic freedom: the freedom to choose just how we want to spend our money.

The argument isn’t whether Mid-State Opportunity, Inc., Boys and Girls Clubs, the Salvation Army, or Southwest Mississippi Christian Outreach deserve financial support. I know many of these groups provide meaningful services in our communities. But individuals, not governments, should be the sole decision-makers when it comes to donating money to such groups. Individual contributions are already encouraged by existing tax policies.

Usurping taxpayer dollars for “charitable” purposes is bad public policy. If it’s going to continue, I propose some tax-filing flexibility. In addition to direct contributions to charities, a portion of the taxes we pay to the government should also become tax deductible since they are often used as “charitable contributions” by virtue of legislative action.

Something tells me that lawmakers would balk at this proposal which necessarily reduces individual taxes and, as a result, state revenues. So much for charity.