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  #1101  
Old Yesterday, 10:14 AM
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https://www.brookings.edu/blog/up-fr...-ways-forward/

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Present consequences of unfunded pension liabilities and ways forward
Spoiler:
Editor's Note: This paper will be presented at the 2018 Municipal Finance Conference on July 16 & 17, 2018. The conference is a collaboration of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, the Brandeis International Business School’s Rosenberg Institute of Public Finance, Washington University in St. Louis’s Olin Business School, and the University of Chicago’s Harris Institute of Public Policy. It aims to bring together academics, practitioners, issuers, and regulators to discuss recent research on municipal capital markets and state and local fiscal issues.

State governments with large unfunded pension liabilities are paying more to borrow from capital markets than are other states, according to Chuck Boyer of the University of Chicago Booth School of Business.

In the paper, “Public pensions, political economy and state government borrowing costs,” to be presented at the 2018 Municipal Finance Conference at Brookings this week, Boyer argues that markets view states with large pension deficits as riskier investments. His evidence suggests that states are already paying for municipal government’s unfunded pension liabilities in the form of higher borrowing costs. He asks two questions: 1) how are state governments’ borrowing costs affected by unfunded pension obligations? and 2) do states with political constraints face higher borrowing costs?

Boyer constructs a panel dataset using each state’s Comprehensive Annual Financial Reports for the period 2005 to 2016. He focuses on balance sheet variables—revenues, expenses, assets, and liabilities—to capture a state’s financial health and credit default swap (CDS) spreads – the premium paid to protect buyers from an issuer defaulting – to measure borrowing cost. The author reasons that CDS reflects market sentiments better than market yields because CDS are more liquid, and because they are standardized, whereas market yields may be affected by additional features of a particular bond.

“[i]nvestors see pension liabilities and bonded liabilities similarly when assessing state level default risk.”

Boyer’s results suggest that markets believe states with a higher liability-to-GDP ratio are riskier. He finds that states with lower deficits have lower CDS spreads: a one standard deviation change in the ratio is associated with a 0.18 percentage point change in CDS spreads. “This implies investors see pension liabilities and bonded liabilities similarly when assessing state level default risk,” writes the author.

Boyer also proxies a state’s political constraints by examining whether its pensions are protected by constitutional provisions, the degree of union membership, and the state government’s involvement in municipal bankruptcies. The author reasons that, “[i]n a state with more ‘senior’ pension liabilities, the government is likely to default on bonded debt before pensions.” Boyer finds evidence, albeit weak, that investors see political constraints on unfunded pension liabilities as contributing to default risk.

In another paper on pensions to be presented at the same conference—“When needed public pension reforms fail or appear to be legally impossible, what then? Are unbalanced budgets, deficits and government collapse the only answer?”, James Spiotto of Chapman Strategic Advisors LLC describes the ways public pensions have been treated in municipal bankruptcies and efforts, sometimes restrained by the courts, by state legislatures to reform the process. “This is not the case of unwillingness to pay,” writes the author, “which never is an acceptable excuse for not funding public pension obligations. Rather, this is the financial and practical inability to pay and still provide the services that are mandated by the vital mission of government.”

Spiotto proposes four alternatives to current law for balancing the interests of bondholder, taxpayers, citizens, and municipal employees:

Structure a prepackaged Chapter 9 bankruptcy plan with several steps to restructure pension obligations.
Create a special federal bankruptcy court that determines whether the local government employer’s proposed plan for reform adequately balances the interest of all affected parties.
Create a quasi-judicial government commission that has the power to modify proposed recovery plans and bind all parties to the approved plan.
Change state laws to better balance general welfare with pension obligations.

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  #1102  
Old Yesterday, 10:15 AM
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KENTUCKY

https://www.state-journal.com/2018/0...sion-solution/

Quote:
Beshear touts gambling as pension solution in meeting with retirees
Spoiler:
Andy Beshear is continuing to tout gambling as the solution to the gaping hole in Kentucky’s public pension funding.

At a meeting in Frankfort on Monday of retired state employees, the state attorney general and Democratic candidate for governor estimated that expanded gaming — the legalization of casino gambling and online sports betting — could pull in between $400 million and $600 million annually for pensions.

The estimates were based on analyses dating back to 2005, when racetracks seeking a constitutional amendment that would allow them to build casinos said expanded gaming could generate as much as $1.2 billion in wagers. According to a 2008 Legislative Research Commission study, the effective tax rates for Southern Indiana casinos ranged from 25 to 32 percent at the time. Beshear’s estimates do not include potential revenue from sports wagering or fantasy sports wagering, spokeswoman Crystal Staley later clarified.

Monday was not the first time Beshear has pointed to gambling as the solution.

In a letter analyzing the initial pension reform bill published in February, Beshear urged legislators to instead use legalization of expanded gaming as a “dedicated revenue stream that will begin to address the unfunded liability.” Former Gov. Steve Beshear, the attorney general’s father, was also a proponent of legalized casino gambling but failed to get a constitutional amendment during his tenure.

Asked about other potential revenue streams to fund public pensions, Beshear told The State Journal it is also time for a referendum on medical marijuana, something Frankfort retiree Lyda Phillips says she would support.

“Thirty states have medical marijuana legal now. I hope he will consider that,” Phillips told The State Journal after Beshear’s remarks to the advocacy group Kentucky Government Retirees in Frankfort’s Paul Sawyier Library. “I think it would help suffering people, as well as, it might bring in some income.”

Beshear told retirees to be vigilant to potential “claw backs” of benefits.

“What we are seeing right now is an all-out attack on our public servants and, let me tell you, that’s only the first step because they want to come for retirees after that,” said Beshear, adding later that Gov. Matt Bevin’s pension-reform plan has a “math” problem.

“He basically said we have this huge hole, so let’s cut all of our income,” Beshear said. “I thought he was a businessman.”

The eventual pension reform bill, rushed through at the end of the legislative session when legislators gutted and rewrote a previously heard sewer bill, most significantly moved new teachers, who don’t receive Social Security benefits in Kentucky, into a less generous “hybrid cash balance plan” similar to that already offered to other new state employees.

Beshear recently won a legal challenge in Franklin Circuit Court to that bill, Senate Bill 151, which was later signed by Bevin into law, on grounds that the state legislature did not give it the constitutionally required number of readings or the number of votes for an appropriations bill.

“I believe that the law is very clear that the gutting of a bill, replacing it with an entirely new bill and passing it in the same day is unconstitutional and will be ruled unconstitutional,” Beshear told The State Journal. The gubernatorial candidate added that if elected he would “commit to vetoing any bill the public did not have an opportunity to weigh in on.”

Bevin has 30 days to appeal the July 11 ruling by Franklin Circuit Judge Phillip Shepherd. On Monday, Beshear challenged the governor to do so immediately.

“The governor ought to file it today,” Beshear told the retiree group. “He should have filed it on the 12th. And we’re ready to move to the Supreme Court. We’re ready to ask for a very swift period in which we will brief it and argue it. I mean, I’m ready to get this thing done for you.”

Assuming the Kentucky Supreme Court accepts the case with an expedited briefing schedule, Beshear estimated the case could take about three months.

The governor’s office did not respond to requests for comment by press time.


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  #1103  
Old Yesterday, 10:15 AM
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NEW JERSEY

https://www.northjersey.com/story/ne...phy/775804002/

Quote:
More cuts to NJ pensions and health benefits? Not so fast, says Phil Murphy
Sweeney's cost-cutting crusade puts Murphy in a bind

Spoiler:
Senate President Stephen Sweeney's plan to wring savings out of government is also putting the squeeze on Gov. Phil Murphy.

Emboldened after out-dueling Murphy in last month's budget drama, the Gloucester County Democrat says he wants to enlist the governor as his "partner" in this smaller-, smarter-government enterprise. Murphy, the ex-diplomat, wants no part of it.

And that may be due to a simple reason: Sweeney's cost-cutting ax could fall hard on public employee unions, a die-hard Murphy constituency.

But the post-budget focus on cost cutting now poses a thornier, long-term dilemma for Murphy. Will he be able to effectively govern without inflicting pain on the very people who carried him to victory last November? And can he find a way to collaborate with Sweeney and Assembly Speaker Craig Coughlin, D-Middlesex, who loom as powerful counterweights and impediments to his agenda, or can he go it alone?

The last governor to "partner" with Sweeney was Republican Chris Christie, and that led to sweeping rollbacks in public worker pension and health benefits in 2011. It's a deal that government workers recite with bitterness — many union leaders and workers are still wary of Sweeney.

So it comes as no surprise that Murphy, in a roundabout way, said no when asked if he would team up with Sweeney for the next crusade. Murphy prefers to negotiate savings at the bargaining table.

"The problem I have of re-cutting a deal on the pension side is that we have left the public-sector employees at the altar now for 20 years,'' Murphy said in an interview with The Record and NorthJersey.com, referring to the reckless practice of shortchanging or skipping the state's annual pension payments since the mid-1990s.

Workers "have done what they said they would do. We haven’t as a state. And I think reclaiming the trust factor is a big deal. And that’s a big deal for me,'' he said.

NJ school funding winners and losers: Will you see some tax relief?

NJ sports betting: Sports betting comes to Meadowlands as FanDuel opens to public

Yet the state's mounting costs are looming as a big deal in the next decade. Rising debt, pension, public-worker health care and school costs threaten to gobble up every new dollar coming into the state — those costs alone represented 90 percent of new spending in Murphy's first budget. The state's ability to invest in infrastructure, dispense property tax aid and respond to emergencies will be severely curtailed.

And the ability to raise new money is also limited. Tax hikes are politically unlikely in the next couple of years, and Murphy's hope that an economic turnaround will avert the need for tough-love cuts strikes many Trenton veterans as pie-in-the-sky dreaming.

"The road that we've got to be absolutely laser-focused on is to grow our way to a better tomorrow,'' Murphy said.

But tomorrow is already here for Sweeney, a fiscally conservative Democrat who has been clashing with public-employee unions over cost-containment issues for more than a decade.

"We really have to have a conversation or we'll not be able to fund anything but government pretty soon,'' Sweeney said in an interview. "We're at a place where we can't continue to raise taxes. We need to start fixing things."

In February, Sweeney rolled out a team of analysts, economists, lawmakers and veteran Trenton hands to explore ways — both unpopular and potentially painful — to rein in government costs, stabilize the pension system and revise local and state tax structure. The findings of the Economic and Fiscal Policy Work Group should be released later this month.

Some of the ideas being explored are potentially explosive — like installing tolls on interstate highways near the state border.

Many of them are old standbys that have been kicking around for years, like merging small municipalities and smaller school districts into regional ones. But many ideas also fall hard on public employees, Murphy's core supporters.

They include raising the retirement age from 65 to 67; capping the pensionable salary for all government workers except state judges; and moving collective bargaining from the local to the state level to "foster leverage" with state unions, according to a summary of the panel's topics for consideration.

The impact on public employees raises questions about Sweeney's motives.

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Assembly Majority Leader, Louis Greenwald, Assembly Speaker Craig Coughlin, Governor Phil Murphy and Senator Loretta Weinberg at the announcement of a budget deal. Chris Pedota/NorthJersey.com
Sweeney, an ironworkers' union official, has had rocky relations with the government employee unions, especially after he backed out of a 2016 promise to post a constitutional amendment requiring the state to make its annual pension payments. Sweeney has tried to repair relations, but the New Jersey Education Association, the powerful teachers' union, retaliated by spending $5 million to defeat Sweeney in last fall's election. Sweeney won easily but spent heavily to defend his seat.

That campaign also soured his relations with Murphy, who was endorsed by the NJEA. Murphy refused to urge the union to curtail its take-out effort, leading Sweeney and his allies to suspect that Murphy hoped the union would prevail.

Sweeney denies that his cost-cutting push is spurred by payback, an attempt to make Murphy and his allies squirm.

"We're not beating up or picking on anyone,'' Sweeney said, noting that one possibility would be to dedicate any savings to the pension fund. "We need to have a conversation. They don't have to be hostile. There are some structural problems that have to be corrected. We want to work with them, not attack them, not fight with them."

Sweeney also argues that Murphy is ideally suited to work with him, given that he authored a 2005 report that outlined a series of reforms for health and pension benefits.

"Phil Murphy is the guy who can fix this,'' Sweeney argued. "I don't agree that we wait five years to fix it."

Yet Murphy, who created his own panel last February to advise him on ways to grow jobs and expand the economy, has his own plans. He is moving forward with a minimize-the-pain approach to unionized public workers. And he's in no rush to link arms with the leader who just outfoxed him on the budget.

Last week, for example, state Treasurer Elizabeth Muoio announced several administrative steps that could save $100 million in health benefits without cutting packages for state workers — what Murphy has called the "holy grail combo."

But there was also a subtext to the announcement. It was Murphy saying: "We can rein in costs without harming our base supporters or signing on to Sweeney's crusade."

Murphy was asked if he felt that Sweeney was determined to undermine him from the outset of the bitter budget negotiations. Not at all, Murphy replied. "It was a constructive process,'' he said.

That "process" forced Murphy to accept a humbling setback. He settled for a dramatically reduced version of his proposed tax on millionaires, and agreed to accept the short-term revenue-raising gimmicks he had vowed to end.

Now Murphy is confronting another fiscal "process" with the legislative leadership standing in the way.


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  #1104  
Old Yesterday, 10:23 AM
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Originally Posted by campbell View Post
KENTUCKY

https://www.state-journal.com/2018/0...sion-solution/
Quote:
Beshear touts gambling as pension solution in meeting with retirees
Lots of states / municipalities are trying gambling to solve pension problems, usually with alternative investments.
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  #1105  
Old Yesterday, 10:30 AM
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Originally Posted by Gandalf View Post
Lots of states / municipalities are trying gambling to solve pension problems, usually with alternative investments.
New Jersey has dedicated lottery profits to the pensions... I think they're trying to value it as an asset on the balance sheet.

Thing is, NJ lottery profits have been volatile....
http://stump.marypat.org/article/894...ey-and-options

Spoiler:

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  #1106  
Old Yesterday, 10:32 AM
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this is a better one on lottery proceeds:
http://stump.marypat.org/article/733...t-data-sources
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  #1107  
Old Yesterday, 05:50 PM
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New Jersey has dedicated lottery profits to the pensions... I think they're trying to value it as an asset on the balance sheet.
NJ controls how this "asset" is counted for the purpose of figuring out when and if COLA payments can resume. But in real financial reporting, whether GASB or GAAP (if NJ ever files GAAP financials), I understand that this contribution just wouldn't count as an asset. I believe that NJ conceded this point in the legislation.

COLA payments are halted until the plans meet the Targeted Funded Ratio, which if memory serves is 80%. When that happens, a Committee can be assembled to think and propose something about COLA. (And then maybe the actual funded ratio will take a major dip, etc.)

It is anyone's guess whether this contribution of Lottery money, plus some funding goals in the law, will actually increase the money flowing to the pension plans. If in some future year NJ would have contributed even less than it got from the Lottery, then the pension plans will be somewhat less worse off by getting at least the Lottery money.
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  #1108  
Old Today, 11:40 AM
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INSOLVENCY

https://fixedincome.fidelity.com/ftg..._110.1#new_tab

Quote:
Panelists argue about need to deal with insolvent public pension plans
Spoiler:
WASHINGTON — Participants at the Brookings Municipal Finance Conference on Tuesday disagreed on the need for a program to be put in place to deal with insolvent public pension plans.

During a session on pensions, municipal bankruptcy expert James Spiotto, managing director of Chapman Strategic Advisors LLC, called for a four-pronged approach that includes congressional legislation to create a new federal bankruptcy court that would handle only insolvent public pension systems.

Spiotto’s plan assumes that a state or municipality has raised its taxes to the limit and all efforts at a consensual agreement with labor unions have been exhausted.

He also warns that communities face potential population loss if they raise taxes too high and are not able to maintain public service levels.

Spiotto warned that pension underfunding needs to be dealt with before another recession arrives in the next two to five years.

“I am not convinced that the scope is terrifying at this point,” Carol O’Cleireacain, former deputy mayor of Detroit for economic policy and planning, said, critiquing Spiotto’s latest paper presenting the proposal.

O’Cleireacain said budgeting tools and economic development options that can improve a municipality or state’s fiscal picture.

“Since 2009 every state has made meaningful changes to their pension plan benefit structures, financing arrangements or both,” she said. “The costs are now reported on balance sheets and continue to be lowered.”

Spiotto agreed that widespread efforts at pension reform have been undertaken, but he pointed out that some state courts have blocked reform efforts. And sovereignty issues prevent states from filing for federal bankruptcy protection, he said.

Deficits in state pension plans grew by $295 billion in fiscal 2016 to $1.4 trillion, Pew Charitable Trusts reported in April.

Five state retirement systems — in Colorado, Connecticut, Illinois, Kentucky and New Jersey — were under 50% funded, Pew reported.

On the other hand, states generally are in better fiscal condition than a year ago, the National Association of State Budget Officers recently reported in its spring edition of the Fiscal Survey of the States.

Both Spiotto and O’Cleireacain make good observations, said Kim Rueben, director of the state and local finance initiative at the Urban Institute.

The fiscal picture has improved, Rueben agreed, but she expressed concern that some states have not put their financial houses in order this far along in the economic expansion.

“I think right now with the stock market booming it feels less urgent, but we want to get our fiscal houses in order broadly,” Rueben said.

In 1990 average public sector pension plans were 80% funded based on Governmental Accounting Standards Board standards, compared with about 70% now, according to Laura Quinby, a research economist at the Center for Retirement Research at Boston College.

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  #1109  
Old Today, 11:42 AM
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Originally Posted by msydlaske View Post
NJ controls how this "asset" is counted for the purpose of figuring out when and if COLA payments can resume. But in real financial reporting, whether GASB or GAAP (if NJ ever files GAAP financials), I understand that this contribution just wouldn't count as an asset. I believe that NJ conceded this point in the legislation.

COLA payments are halted until the plans meet the Targeted Funded Ratio, which if memory serves is 80%. When that happens, a Committee can be assembled to think and propose something about COLA. (And then maybe the actual funded ratio will take a major dip, etc.)

It is anyone's guess whether this contribution of Lottery money, plus some funding goals in the law, will actually increase the money flowing to the pension plans. If in some future year NJ would have contributed even less than it got from the Lottery, then the pension plans will be somewhat less worse off by getting at least the Lottery money.
ok, so they're using it for some non-GASB funded ratio measure, then



Yeah, I think they're going to run into some deep doo-doo before they ever get to a fake 80% funded ratio.
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