,

As the Clock Ticks, Senate Stalls on State-Run Retirement Plans

,
Congress could overturn a rule that allows states to create private-sector retirement programs. But it only has a limited time to do it.
BY  | APRIL 19, 2017

The U.S. Capitol (FlickrCC/Geoff Livingston)

Late last month, Congress voted to overturn an Obama-era rule that cleared the way for cities to create retirement programs for private-sector workers that didn't have one through their employer. But a similar resolution targeting the rule as it applies to states is stuck.

For the past three weeks, that resolution has lingered in uncertainty as the Senate stalls on taking an up or down vote. Many believe that signals an opportunity. "Based on the conversations we've had with staff and colleagues working on this," says Cristina Martin Firvida of AARP, which supports the Obama-era regulation, "I think there are a number of senators who still have a lot of questions about the state rule."

The rule, which was issued by the Department of Labor, reaffirmed cities' and states' legal right to help support private-sector savings programs for small businesses. Seven states are implementing such programs, while another dozen states and cities are considering them.

, , ,

The Week in Public Finance: Pay to Play, High Investment Fees and the Small Business Credit Crunch

, , ,
BY  | APRIL 14, 2017

Pay to Play? Hardly.

Pennsylvania is going with passive funds. That was the message this week from State Treasurer Joe Torsella, who says he plans to move the state’s $1 billion in actively managed public equity (stock) funds over to index funds within six months.

Index, or passive, funds are known for their lower fees and lower volatility. Rather than managed by a trader, these funds are built using computer models that are designed to mimic the performance of stock indexes like the S&P 500. Torsella expects the shift to save at least $5 million a year in fees.

The treasurer’s announcement is part of an effort to return faith in the office after his predecessor left in disgrace amid a pay-to-play scandal. Former Treasurer Rob McCord pleaded guilty in 2015 to federal charges that he used his office to influence future investment deals and other contracts as a way raise cash for a failed gubernatorial bid.

, ,

The Week in Public Finance: States Warned of 'Profound Shift' in Finances, Hurting in Illinois and More

, ,
BY  | APRIL 7, 2017

State Finances to Experience a 'Profound Shift'

Some states might soon be facing a come to Jesus moment. That was the sobering message this week from a senior analyst at S&P Global Ratings, who warned that a “profound shift” is occurring in state finances pressured by pension debt, slow revenue growth and demographic changes.

Gabe Petek noted Illinois, Kentucky and New Jersey are particularly vulnerable as they have persistently struggled to balance budgets during one of the longest economic expansion periods in modern U.S. history. But they’re not the only ones who should be put on notice. "This long period of relative calm may have lulled some people into complacency when it comes to state finances," he wrote in an editorial for The Hill. "It shouldn’t have."

In addition to slower revenue growth, declining worker-to-beneficiary ratios in state retirement systems and rising Medicaid enrollments "have meant that fiscal stress is no longer confined to recessionary times," he wrote.

, ,

This Infrastructure Program Ended Up Costing Governments Millions. Trump Might Bring It Back.

, ,
States and localities are wary of the president's support for the Build America Bonds program.
BY  | APRIL 6, 2017

A popular Obama-era infrastructure financing program may get revived this year as President Trump moves forward on his pledge to invest $1 trillion in infrastructure. But this time around, state and local governments might not be as excited about it.

The program, Build America Bonds (BABs), was created in 2009 as one of many recession-era initiatives aimed at jump-starting the economy. Unlike tax-exempt municipal bonds, BABs are taxable, and, as a result, open up the municipal market to new investors, such as pension funds or those living abroad. But BABs are also more expensive for governments. So to defray the added cost, the federal government offered a direct subsidy of 35 percent of state and local governments' interest payments on BABs.

But the program became a casualty of sequestration: cutbacks in federal subsidies promised under the program left state and local governments scrambling to fill the void. A recent estimate by the Institute of Government and Public Affairs at the University of Illinois found that so far Illinois and its localities have had to pay out a collective $70 million to offset the higher costs of BABs.

,

How to Beat Teacher Burnout: With More Education

,
A continuing education program for teachers has the power to reduce attrition rates, but it's having trouble catching on.
BY  | APRIL 3, 2017

When mathematician John Ewing started lobbying state governments to adopt a new model for keeping top teachers in the classroom, he anticipated all the usual pushback over funding and resources. One thing he didn’t anticipate was a resistance to the idea in general.

In education right now, “the focus is on everything that’s not working," he says. By contrast, his model "invests in teachers that are doing a really good job.”

In 2009, fellow mathematician and philanthropist Jim Simons called and asked Ewing to help him take over his fledgling nonprofit to provide continuing education for K-12 math teachers in New York City. But the organization, called Math for America (MfA), eventually evolved into a larger fellowship program aimed at cultivating and keeping top science, technology, engineering and math (STEM) teachers in public schools.

It’s an appealing concept at a time when keeping good teachers is becoming harder and harder.

On average, one-third of teachers leave the profession within five years. Burnout is blamed for the short tenure. A recent report from the Robert Wood Johnson Foundation found that 46 percent of teachers say they feel daily stress on a level that’s shared by doctors and lawyers.

When teachers are that stressed, the report notes, it not only compromises their health and quality of life but also adversely impacts their teaching performance. That, in turn, can harm students' academic performance and behavior. The report recommends mentoring programs, social emotional learning and mindfulness as proven ways to improve teacher well-being and student outcomes.

That's where MfA comes in.

,

The Week in Public Finance: Bad Balancing Acts, Best Taxpayer ROI and Double Taxation

,

BY  | MARCH 31, 2017

Race to the Bottom?

New Jersey’s pension problems and Illinois’ lack of a budget continue to dog their reputation in the eyes of creditors.

In New Jersey, Moody's downgraded the Garden State one-notch this week to A3, citing the state’s “significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance and weak fund balances.”

It’s the 11th downgrade by a credit rating agency during Gov. Chris Christie’s more than seven years in office. Overall, New Jersey’s credit rating has fallen four notches under Christie’s watch, from what’s considered high investment grade to borderline medium grade. Meanwhile, the state's unfunded pension liability has climbed to $136 billion, which mean it has less than half of what it needs to pay its retirees down the road.

For its part, Illinois is the only state rated lower than New Jersey.

,

The Week in Public Finance: Detroit's Big Pension Plan, Debating the Pension Crisis and Counties Under the Gun

,
BY  | MARCH 24, 2017

Detroit Hops on Pension Bandwagon

Detroit is joining Oklahoma and Kentucky in establishing a pension reserve fund. The fund essentially acts like a savings account; it's a place for governments to set aside money to help with increasing pension costs. In Detroit’s case, the fund will help the city plan for 2024, when pension costs are expected to skyrocket from $20 million annually to $200 million a year.

Thanks to Detroit's exit plan from bankruptcy in 2014, the city isn't paying the full cost of its pensions right now. A charitable foundation and the city's water and sewer system are shouldering much of those costs until 2023.

The Takeaway:  Pension reserve funds are still largely experimental. The idea is that they will help buffer a pension system from reduced government payments during times of fiscal stress. Of course, a lot depends on how these reserve funds are cultivated. To be truly effective, they must grow to total much more than the government’s annual pension payment.

States Go Old School to Fight Tax Fraud

D.C. and more than a dozen states are shunning paperless refunds to avoid being conned out of hundreds of millions of dollars.
BY  | MARCH 22, 2017

As fraudsters go high-tech to scam governments for tax refunds, some states are employing decidedly low-tech ways of stopping them.

In 15 states and the District of Columbia, tax returns that are flagged as unusual are issued as a paper refund check. The old-school method comes as tax filers are more susceptible to having their identity stolen. "When there's a suspicious situation, we send paper checks because that has to go to a physical person," says D.C. CFO Jeff DeWitt.

Things that could flag a return include the filer having a new mailing address or using a bank account from previous years.

,

The Week in Public Finance: Trump's Budget, the CBO on Health Care and Accounting for Higher Ed

,
BY  | MARCH 17, 2017

Trump’s Budget Cuts

This week, President Trump proposed his budget and, as expected, it focused federal spending cuts on a narrow area that impacts state and local governments the most: discretionary spending. The cuts come by way of diverting more than $54 billion from various federal agencies to defense spending.

The Takeaway: Paying for all these cuts would mean many programs beneficial to states and localities would be targeted. Under the plan, grant funding -- which accounts for 31 percent of state budgets and 22 percent of state and local spending combined -- takes an enormous hit. Specifically, Trump would eliminate the $3 billion Community Development Block Grant program, which was started by President Nixon as a way to provide direct federal assistance to city projects.

In transit, the president calls for a half-billion cut from the wildly popular TIGER grant program. He would also cut $175 million in subsidies for commercial flights to rural airports, eliminate funding for many new transit projects and discontinue support for long-distance Amtrak trains.

, ,

The Week in Public Finance: Paying for Repeal and Replace, SEC's New Disclosure Rule and the Online Sales Tax Fight

, ,
BY  | MARCH 10, 2017

 

The Cost of 'RepubliCare'

Congressional Republicans this week revealed their replacement plan for the Affordable Care Act. Fiscally, the plan does what the GOP promised: If passed, it is expected to make health-care spending less expensive for the federal government (pending the assessment from the Congressional Budget Office.) States, on the other hand, will have some tough decisions to make regarding Medicaid.

Under the proposed plan, Medicaid allotments would be capped based on the program's per-capita enrollment in that state. Currently, Medicaid has an open-ended funding structure based on matching whatever a state spends.

While the plan doesn't repeal the Medicaid expansion, it starts to ramp down that population beginning in 2020 by discontinuing the federal subsidy for any new expansion enrollee. It also works to pare down the population by disqualifying any participant who lets their enrollment lapse and requiring states to redetermine enrollee eligibility every six months.

,

How Refinancing Debt Can Help Pensions

,
North Carolina wants to use existing low rates to shore up retiree pensions and health-care debt.
BY  | MARCH 8, 2017

In the low interest rate environment, states and localities have been saving billions by refinancing old debt. In most cases, the savings have benefited the general fund balance. But in North Carolina, State Treasurer Dale Folwell is making a push to instead use those savings to pay down pension and retiree health-care debt.

Starting this spring, Folwell plans to refinance “every dollar we possibly can.” He'll ask the General Assembly to divert the savings to the treasurer’s office, where he'll then divvy up the extra dollars: 15 percent goes into the pension fund and 85 percent goes toward retiree health-care debt, which has a larger unfunded liability.

The approach has garnered rave reviews, but some question just how big a dent any such savings can make in an unfunded liability that in North Carolina totals nearly $38 billion between retiree pensions and health care.

, ,

The Week in Public Finance: Oil State Woes, Why 401(k)s Might Not Be For All and More

, ,

BY  | MARCH 3, 2017

Oil State Woes

Oklahoma's credit rating was downgraded this week, making it the third oil state in just one month to suffer such a blow. S&P Global Ratings pushed Oklahoma's rating down to AA, citing the state's chronically weak revenue. The downgrade comes as news broke this week that the state is facing a nearly $900 million shortfall.

"Collectively the state's financial position has deteriorated to a point that further precludes the state from building up reserves in subsequent fiscal years,” says S&P credit analyst Oscar Padilla, who adds the state is now more vulnerable to regional or national economic weakness.

This is Oklahoma's third consecutive year with a deficit, and the second straight year of a so-called revenue failure, when collections fall more than 5 percent below estimates.

The action follows downgrades in two other oil states last month: Moody’s Investors Service downgraded West Virginia and Louisiana one notch each. States that rely on oil and energy for significant portions of their economy have had to grapple with revenue shortfalls since the price of oil dropped drastically a year and a half ago.

How Libraries Are Fighting Fake News

Fake news is as old as Bigfoot. But social media and the president have fueled its recent proliferation.
BY  | FEBRUARY 28, 2017

Less than seven miles from the White House, where President Trump has popularized the term "fake news," residents in a suburban Maryland library gathered recently to learn how to not be duped themselves.

“Social media is a common theme here because you see things being shared over and over again,” Ryan O’Grady, media producer and director of the Maryland State Library Resource Center, told the audience. “Just because something is popular doesn’t make it true.”

The program, which O’Grady is running at several libraries in Maryland’s Montgomery County, is in response to the recent explosion of unverified, unsourced and sometimes untrue information that purports itself as news. The program aims to educate residents about how to spot fake news.

While it's not a recent phenomenon -- the Bigfoot myth goes back centuries, and fabricated stories abounded when emailing was new, for example -- fake news played a prominent role in the 2016 presidential election and continues to do so in the new administration. Sites like Facebook and Twitter give fake news outlets a platform to reach more people than they would otherwise be able to. Once the misinformation is out there, it can spread quickly, often before users even read or verify a story

, , , ,

The Week in Public Finance: Pensions Protest Bathroom Bills, a Billion-Dollar Showdown in Kansas and More

, , , ,

BY  | FEBRUARY 24, 2017

Pension Funds Mess With Texas

The country’s largest public pension systems and investors are pressuring Texas officials not to approve a so-called bathroom bill introduced in January. The legislation targets transgender individuals by requiring them to use the public restroom that aligns with the gender on their birth certificate.

Pointing to North Carolina, which lost hundreds of millions in business from canceled sporting events, concerts and conventions after its bathroom bill became law last year, the group warned in a letter that Texas could meet the same fate. Already, the National Football League and the NCAA have said that the siting of future events in Texas would be jeopardized if lawmakers move forward.

The more than 30 signatories on the letter include comptrollers, controllers and treasurers of California, Connecticut, New York, Oregon, Rhode Island and Vermont, as well as major firms such as BlackRock and T. Rowe Price. Collectively, the group represents more than $11 trillion in assets.

The Takeaway: Threats like these aren't new. Called social divesting, stewards of major pensions have increasingly urged corporate boards in recent years to make policy changes, such as pressuring energy companies to move away from fossil fuels.

The Real Price of College

Most states don't keep track of how much they give to students and their families in tax breaks. That could be hurting their ability to make college affordable for all.
BY  | FEBRUARY 23, 2017

How much does higher education cost? Surprisingly, that's a question most states can't answer.

Every state, of course, knows what it plans to spend on higher ed each year, which generally accounts for about 10 percent of a state's budget. But few places track what they give up in tax breaks to help defray the cost of college for taxpayers, according to a new Pew Charitable Trusts report. Since many states default to the federal government's qualifications for these tax breaks, most don't know how vulnerable they are to changes at the federal level.

Phillip Oliff, one of the report's authors, says states should be regularly looking at both sides of the equation -- tax breaks and direct spending -- when considering how they pay for and promote education policy. "Then they can think about whether the full package of support is being used as effectively as possible to promote their policy goals," he says.

In a review of the 41 states and the District of Columbia that tax personal income, just nine states and the district assess their higher education-related tax expenditures. These expenditures include special deductions, tax credits and exemptions that allow tax filers to reduce their declared taxable income. California, for instance, spent $10.8 billion on higher education in 2014, the year for which Pew has comprehensive data. But its estimated foregone revenue from higher education tax expenditures nudges the state's total cost up to $11.2 billion.

,

The Week in Public Finance: Diverging County Economies, Treasurers Talk Trump and Sanctuary City Threats

,

BY  | FEBRUARY 17, 2017

County Recoveries Coincide With Political Shifts

The nation's economic recovery accelerated in 2016, with more than 1 in 4 counties reporting a full recovery to pre-recession levels on four key economic indicators. That portion is a huge jump from last year when 1 in 10 reported fully recovering counties, according to the National Association of Counties (NACo).

The four indicators are: job totals, unemployment rates, economic output (GDP) and median home prices. Two-thirds of the nation’s more than 3,000 counties have recovered on at least three of the economic indicators.

Most of the counties that have fully recovered are in Kentucky, Iowa, Minnesota, Missouri, Nebraska, South Dakota, Texas and Wisconsin. In addition, the mid-Atlantic, the Northeast and the West Coast have many nearly-to-fully recovered counties. Large counties (more than 500,000 residents) had the highest rate of full recovery at 41 percent. In contrast, more than three-quarters of small counties (fewer than 50,000 residents) still had not reached their pre-recession peaks in any of the indicators by the close of 2016.

The Takeaway: Both the acceleration of the economic recovery and the fact that it’s mostly happening in very populated areas is widening the gap between the municipal haves and have nots. It also partly explains shifting political allegiances in some mid-sized counties in 2016.

From $37 to $339,000: Why the Price of Public Records Requests Varies So Much

The laws about public records differ from one government to the next and are further complicated by some technologies, like police body cameras.
BY  | FEBRUARY 14, 2017

 

In 2015, the editor of a newspaper in Florida filed a public records request with the Broward County Sheriff's Office asking for the email of every employee during a five-month period to be searched for specific gay slurs.

In response, the South Florida Gay News received a $339,000 bill.

The office said fulfilling the request would take four years and require hiring a dedicated staffer. The exorbitant charge set off a year-long legal battle that attracted the Associated Press and its lofty resources. To show how arbitrary the number was, the AP and South Florida Gay News filed a similar request to the sheriff's office in other Florida counties. They were quoted fees ranging from as little as $37 to more than $44,000.

Why then is there such a big range of costs for similar information?

, ,

The Week in Public Finance: Battling Over Retirement, Gorsuch on Online Sales Taxes and Fiscal Irresponsiblity

, ,
BY  | FEBRUARY 10, 2017

A Curious Battle Over Retirement Security

Congressional Republicans this week made a move to block states’ efforts to expand access to retirement savings to all citizens. Michigan Rep. Tim Walberg and Florida Rep. Francis Rooney have introduced a resolution that would overturn a Department of Labor (DOL) rule last year that reaffirmed states’ legal right to help support private-sector savings programs for small businesses.

Walberg, chairman of the Subcommittee on Health, Employment, Labor, and Pensions, said the DOL rule created a “loophole” that undermined the retirement security of working families because it could discourage small businesses from setting up their own retirement program. “Our nation faces difficult retirement challenges," he said, "but more government isn’t the solution."

The resolution comes as seven states are in the midst of and more than a dozen states -- and even some cities -- are considering establishing such programs. Called Secure Choice, the programs require most employers that don’t currently offer a pre-tax retirement savings program to automatically enroll employees into one. The programs are run independently from the state and employees can opt out at any time.

The AARP issued a swift and harsh rebuke of the resolution, noting that 529 college savings programs give states precedent for creating independently managed, pre-tax savings accounts. Overturning “this rulemaking will have a significant chilling effect on states, sending the political message that state flexibility is not a priority,” wrote AARP Executive Vice President Nancy A. LeaMond.

The Takeaway: The facts upon which this political gamesmanship are based are, well, weak.

No 401(k)? No Problem. States Have You Covered.

Several states are preparing to offer a retirement plan that helps private-sector workers -- and taxpayers -- save money.
BY  | FEBRUARY 8, 2017

This July, Oregon will become the first state to offer a retirement plan to part- and full-time private-sector workers who don't have access to one through their employer. The program is ultimately expected to cover nearly one million workers in the state.

Six other states -- California, Connecticut, Illinois, Maryland, New Jersey and Washington -- are also planning to roll out similar programs within the next five years. When that happens, the seven states will cover nearly one-quarter of the nation's private-sector workers without an employer-sponsored retirement plan.

Called Secure Choice, these programs have been catching on since California in 2012 decided to study the feasibility of creating one. They aren't pensions but instead independently managed and pooled retirement accounts. The programs pay for themselves through fees, so states aren't liable for the cost. In addition to the seven states that have approved a program, at least eight other states -- including populous New York -- have or are considering legislation to launch their own.

, ,

The Week in Public Finance: States Vulnerable to NAFTA Changes, New Amazon Taxes and a Credit Ratings Spat

, ,
BY  | FEBRUARY 3, 2017

 

Where a Change to NAFTA Could Hurt the Most

When it comes to trade, a handful of states rely heavily on Canada. That relationship could significantly change if President Trump follows through on his intention to renegotiate the North American Free Trade Agreement (NAFTA).

In an analysis, RBC Capital Markets’ Chris Mauro looks at which states are the most exposed to changes. As it turns out, half of Canada’s exports wind up in the U.S., and 35 states have Canada as their top export destination. Michigan and Illinois are the top destinations, absorbing 16 percent and 11 percent, respectively. Meanwhile, more than two-thirds of North Dakota’s goods land in Canada and nearly half of Maine, Michigan and Ohio’s exports are sent there.

The Takeaway: Trump has called NAFTA a bad deal for the U.S. Although no specifics have been outlined, it’s safe to assume that he would promote more protectionist policies. In his analysis, Mauro warns that “the risk that Canada implements countervailing duties or that the U.S dollar appreciates significantly would severely affect the competitiveness of these U.S. states.”