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Archive for the ‘State Budgets’ Category

And Here It Comes: State Pension Systems

Posted by Karl Denninger

The Growing Gap between Govt and Private Sector Benefits

by Mike Mandel

When I was out in Kansas City at the Kauffman Foundation’s Economic Bloggers Forum,  Mish Shedlock of  the blog Global Economic Trend Analysis made a persuasive case that state and local finances were completely broken because gov’t workers were overpaid compared to the private sector. ( See here for one of his posts on the subject).

Mish got me thinking…So I decided to assemble some BLS data on the subject.

Not to mince words, here’s the payoff chart,  that compares the benefits of state and local workers with private sector workers. (These figures are adjusted for inflation, and indexed to 2001I=100).

Yowza! Somewhere in 2004, the world changed, and we didn’t realize it.  Employers in the private sector put a lid on the cost of benefits (which includes healthcare, retirement, vacation, and supplemental pay of all sorts).  Meanwhile the cost of benefits in state and local govt jobs just kept rising, with barely any break, both before and after the financial bust.  This is not good

To put it another way, the benefits gap between the public and private sectors has widened sharply since 2004.

Let’s do a deep dive on benefits.   First, though, let’s dispose of wages.   While the benefits gap was increasing,  the wage gap stayed roughly the same.  In the chart below, real wages for state and local govts rise at roughly the same rate as the private sector.

Now let’s take a look at the two biggest contributors to the benefits gap, health insurance and retirement/ savings.  This chart shows the per hour cost to employers in the public and private sectors.  For health insurance, state and local governments contribute $4.45 per employee hour, compared to only $2.01 in the private sector. The gap is even bigger for retirement and savings–$3.19 per hour in the public sector, more than triple the $0.92 in the private sector.

It’s possible that these numbers are biased because the occupational mix in state and local government is different than the private sector. So I focused down to managers and professionals.

Not quite as bad, but state and local governments still provide a lot better benefits than the private sector.    A public sector managerial or professional job has retirement benefits about twice that of a private sector managerial or professional position. And to the degree that public pension plans are underfunded, this difference actually understates the gap.

To round out the analysis, let’s look at the pattern of healthcare benefits and retirement benefits over the past five years.

You can’t tell from this chart, but healthcare spending rises at roughly the same rate for both public and private sector.  The story for retirement, though, is completely different.

In the private sector, adjusted for inflation, employer spending on retirement benefits stagnated between 2004 and 2009.  That’s right, just flat, even before the financial bust.

By comparison,  state and local costs for retirement rose by 30% between 2004 and 2009, in real terms.

This cannot continue.

Governor Christie Calls Unions “Crass Bullies of State Street”; Says Unions Have a Choice “Givebacks or Layoffs”

Every time I listen to New Jersey Governor Chris Christie I want to stand up and salute. Today is no different. Here is a series of article by the Star-Ledger for your consideration.

This is the Moment to Fix It

Chris Christie:’This is the moment’ to fix state finances

Blunt and unapologetic about the consequences of his cuts, Gov. Chris Christie hit the road Wednesday to peddle his first state budget.

In a Bayonne firehouse, a series of television interviews and a meeting with The Star-Ledger editorial board, Christie made his case for immediate and dramatic changes to the size and cost of government and the pay and benefits of public employees.

He said an $820 million reduction in aid to school districts will force them to choose between “givebacks or layoffs” for teachers and other employees. He took on their union with relish, saying the “800-pound gorilla” New Jersey Education Association will also face a choice: “Do they want to lose members or do they want to reopen contracts?”

“This is it. We’re in the middle of a crisis, I’ve got everyone’s attention, this is the moment to fix it,” the governor said. “My view is, I’m a Republican who’s been elected in New Jersey. If I play along the margins and don’t try to fix these problems, then I didn’t deserve to be elected in the first place … I’m going to fix it or I’m going down trying.”

A day after proposing a $29.3 billion budget balanced with widespread cuts instead of tax increases, Christie predicted the final budget lawmakers must agree to by July 1 will be “very close” to his plan. But he stressed he will not raise taxes on the wealthy or businesses to offset about $1 billion in other cuts that ruling Democratic legislators say unfairly hit the poor and middle class.

“I don’t care. I don’t care about this rhetoric. They send it to my desk, it’s coming back,” Christie said.

Day of Reckoning

Gov. Chris Christie speaks to Star-Ledger’s editorial board about “day of reckoning” budget cuts

A fired-up Gov. Chris Christie visited The Star-Ledger editorial board today to make his case for a proposed state budget that he believes will be the first step in solving New Jersey’s financial problems.

The governor made no apologies for his plan to slash school aid, property tax rebate checks, municipal aid and dozens of state programs and departments. He said he is prepared to fight to get the budget through the state Legislature, even if it costs him re-election.

Christie saved his biggest criticism for the state teachers unions, including the New Jersey Education Association. Teachers may have to give up pay raises and contribute more to their health care plans if school districts can’t make ends meet after the proposed state aid cuts.

“The teachers union has a choice here: Do they want to lose members? Or do they want to reopen contracts?” Christie said.

Christie said he suspects the leaders of the NJEA are “crass union bosses” who have little interest in compromising with Trenton lawmakers.

“Those people have been the bullies of State Street . . . and they’re not going to bully me,” Christie said.

Please click on the preceding link for 4 video clips.

Excerpts from governor’s visit to Star-Ledger

Gov. Chris Christie’s budget storm: Excerpts from governor’s visit to Star-Ledger editorial board

Reaction to his budget address

I’ve said what I wanted to say, the way I wanted to say it, and I feel like the reaction so far has been good . . . Even for people that are concerned about some of the particular cuts, all of them kind of prefaced their comments with, “We understand what you have to do.” And I think there is a real recognition out there that the state’s a mess, and we have to do this. ….

Negotiating the budget with the Legislature

At the end, a budget’s got to get passed. That’s why I think it will be very close to what I proposed . . . There are very limited choices here. We’ve been very transparent with them. I think we’re the first administration where the treasurer’s been sharing daily cash reports with OLS (Office of Legislative Services). . . . So we all know what the scope of the problem is and with a problem of that scope, there are very limited fixes that you can do. …

Ending surtax on incomes over $400,000

(If Democrats wanted to renew it) they should have done it. It expired Dec. 31 — it didn’t expire on my watch. Jon Corzine said he would sign it . . .
And now, all of a sudden, because I’ve said I don’t want it, now all of a sudden it’s a big issue. Now they want it. They don’t want it. If they wanted it, they would have passed it. So I don’t want to hear from them about this idea of raising the surcharge, because my response to them is going to be “You had your chance. You had your chance.” . . .

Do we really want to have a top 11 percent marginal income tax rate permanently? Because if we do, that’s fine, but we’ll have unemployment that will be crippling in this state going forward. I just don’t buy it.

The prospect of layoffs at public schools

The school boards are going to have to be willing to do something that nobody’s been willing to do, up until yesterday, which is to publicly stand up to the teachers union. Now, the teachers union has a choice to make here — do they want to lose members, or do they want to reopen contracts? Now, this is going to be a key determining factor in telling you whether they’re for their members or for their big building on West State Street. Because the logical thing to do, that other unions have done, has been to reopen contracts, take lesser salary increases, contribute more to health benefits to maintain members and maintain jobs. But when you get $730 dollars a year from your 185,000 full-time members — so you’ve got over $100 million budget every year — what’s the priority then? I could feel when I started talking about the teachers union, you know how they say, y’know, dogs can smell fear? You could feel the air come out of that room. Those people have been the bullies of State Street. They have bullied every administration, Democrat and Republican. And they’re not going to bully me. So now the question’s going to be, what do they want to do?

Are teacher salaries too high?

I think in some respects they are. I think that when you’re looking at 4 percent and 5 percent salary increases, just like they gave out in Marlboro this year, in this economic environment, I think teachers should step up to the plate and say “I’m not taking an increase.” Because I’ll tell you, I don’t know who in the private sector is getting increases. . . .

I don’t think the (salary) base is a big problem. I think the increases, as we continue to go on and on, and continue to pile these increases up on top of each other, without any regard to the economic conditions around us, is the problem. And the benefits is an enormous problem.

On capping sick-leave payouts for public workers at $15,000

Well listen, my preference would be go to zero. I come from the federal system, where we can’t cash out sick leave. Now, why is one class of public employees different than another? . . .

On restraining local spending and capping property taxes

We can’t afford to pay for the over-excesses of the locals anymore. Look at what the state budget is all about. It’s about aid to school districts, and aid to municipalities. And Medicaid. You take those three, and that’s a huge percentage of the budget. . . . What we’ve been doing at the state level is papering over the excess of the locals. And I put it out there in the speech yesterday: In 2009, when we lose 121,000 private sector jobs, we add 11,300 jobs at the municipal and school board level. It’s unconscionable.

The future of the state pension funds

The end game is to do two things: to bend the benefit curve . . . (and) we’ve got to look at how much employees contribute to it. . . . Remember this: if the state made every dollar of its contributions over the last ten years, we would be funded today at 74 percent. We’re funded today at 64 percent. So, with all this talk about the state’s contribution, it would only raise us 10 percentage points. So where’s the 26 percent gone? Well, some of it’s because of the stock market decline, and some of the bad decisions that were made by the investment council. But some of it is about benefits being too rich, and employees not making the correct level of contribution . .

This is not radical, it’s common sense

You’re talking about real change. There’s nothing radical about it — what’s radical is what we’ve done. It’s not even real conservative change — it’s real common sense change. I mean, how are we going to pay for this? We’ve got the highest property taxes in America, we’ve got the second-highest income tax rate in America, the second-highest sales tax rate in America, and the sixth-highest corporate tax rate in America. Where are we going?

There are many more clips in the link. Every one of them is worth reading, believing, acting.

Governor calls for ‘real change’ at the local level
Here’s a video clip for the road.

Uncommon Sense

If that does not make you want to stand up and salute, you are either a union clown or lacking in common sense.

Governor Christie says “This is not radical, it’s common sense.” The sad state of affairs is that in a world of union and government termites and pestilence, Common Sense Is Radical.

Indeed Governor Christie is a paragon of leadership and “Uncommon Sense”. If only Congress and the other governors would listen.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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The Chicago Tribune

A highly unusual closed-door meeting of the state Senate lasted about an hour and a half today, and participants said many of the chamber’s 59 Democrats and Republicans attended to hear a presentation on budgeting and the economy from national experts.

Lawmakers barred reporters from the meeting, saying it was a joint gathering of the Democratic and Republican caucuses that was not required to be public under the state Constitution or open meetings law. Reporters were offered the opportunity to get the information from the budget experts at a post-meeting news conference, but Democratic and Republican leaders said they wanted the meeting private to encourage a frank exchange between public officials.

Donald Craven, a longtime attorney for the Illinois Press Association who also has represented the Chicago Tribune on open government issues, said the meeting should have been open no matter how big or small the topic.

“The topic is not important,” Craven said. “If the Senate can go into a joint caucus to talk about this topic, what’s the logical extreme?

 ”Can they also go into a joint caucus to debate the budget bill? Can they go into a joint caucus to debate the hundreds of other bills that go before the state Senate?” Craven asked.

State Senate President John Cullerton did not answer questions when he left the meeting, noting a news conference would follow, but he did not attend it.

So, what’d they see?

Slideshow #1:  http://thecapitolfaxblog.com/StateBudgetUpdate.pdf

Slideshow #2:  http://thecapitolfaxblog.com/FederalFunds.pdf

As you can see from the slideshows, Illinois is not alone.  I expect other state legislators to get the same presentation some point soon.  States are not only ill prepared for what is about to crash down on them, they have woefully underestimated revenue shortfalls.  This also extends to small municipalities, one of which I reside in.  Our city government has estimated a 12% revenue decrease for 2010.   One can only imagine the gaping hole that will be the budget gap that little mathematical error will result in. 

Note to states and municipalities:  wake up and smell the coffee and don’t think for one minute your citizens, after having been asked to foot the bill for a myriad of insolvent banks, two auto companies, a giant stimulus that hasn’t created one darn job (but according to the Administration, hypothetically ‘saved jobs,’) all the while losing their 401ks, jobs and housing values, will be pleased you were so stupid and short-sighted as to miss this freight train coming.  No, you’re going to have to do what the American citizens have been doing, tighten your belt, trim the fat and man up; stop the spending, root out and expose any fraud, cronyism and collusion and then put those who perpatrated it in jail.  ENOUGH is ENOUGH!  And citizens, YOU have a duty to force them to do these things.  The power resides with you.

States to Senate: Send More Federal Aid

NEW YORK (CNNMoney.com) — States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call.

Federal aid to the states was among the top priorities in an early Senate job creation bill, as well as in a $154 billion measure passed by the House in December. But it has fallen off the list as Senate Democrats look to craft legislation that will attract bipartisan support.

Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a jobs bill that does not contain state aid. A Senate Democratic aide said Reid hopes to back a state aid measure in the future. Republican support, however, remains questionable.

Experts and state officials say they need to know now whether they’ll get more funds. Governors are currently crafting their budgets and, for many, it will be their third year of contending with massive deficits due to declining tax revenues.

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them begins July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody’s Economy.com.

“State and local government spending is a very important driver of the national economy, especially when the private sector is faltering,” said Jon Shure, deputy director of the Center on Budget and Policy Priorities’ State Fiscal Project.

To close this gap, governors and lawmakers will be forced to lay off state employees, cut services and postpone capital projects, said Michael Bird, federal affairs counsel for the National Conference of State Legislators.

The cutbacks will all work against an economic recovery.

Already, states laid off 44,000 workers in the 12 months ending in January, according to federal labor statistics.

In California, for instance, Gov. Arnold Schwarzenegger is proposing deep cuts to health care, education, the state workforce and social services programs. The governor is looking to Washington D.C. for $6.9 billion for its fiscal 2011 budget, on top of the $6 billion in stimulus funds it is using.

“We believe that providing funds to states will provide the flexibility critical to jumpstart our economy and create jobs,” said Eric Alborg, communications director of the California Recovery Task Force.

Oh really, Mr. Schwarzenegger?  The only places you can find to cut are the ones that will hurt people the most?  Perhaps you could explain justification for this list of city employees?  Keep in mind, that this list is from 2008 and the salaries of these workers have gone up nearly 50%.   Unfortunately, this is not limited to just California; they are merely one example.  This is going on in all states to one degree or another and within local municipalities.  These municipalities are all using the same scare tactics in order to make excuses and justification for raising taxes on citizens.  The REAL truth of the matter is that they merely want to line their own pockets with exorbitant salaries.  Why do you think the unions are always supporting the so-called ‘budget cuts’?  Because they don’t apply to them. 

Massachusetts, meanwhile, is counting on $600 million in federal Medicaid funds that have yet to be approved by the Senate. The state needs the money to close a $3 billion budget gap for fiscal 2011, which comes on top of the $9 billion deficit it has closed over the past two years.

Without that money, “everything has to be on the table,” said Cyndi Roy, budget spokeswoman for Gov. Deval Patrick.

While many Democratic lawmakers on Capitol Hill back another federal bailout of the states, Republicans have said they don’t think it’s the best way to create jobs.

A recent Congressional Budget Office report showed that sending money to the states for needs other than infrastructure does spur hiring, but not as much as increasing aid to the unemployed or cutting employers’ payroll taxes.

Still, CBO Director Douglas Elmendorf said in testimony Friday that providing aid promptly would probably have a significant effect on employment and economic output.

“Without further aid from the federal government, many states would have to raise taxes or cut spending by more than they would if aid was provided,” Elmendorf said. “Such actions would dampen spending by those government and by households in those states, and more state and private jobs would be lost.”

Not only would state workers be impacted, but government contractors and suppliers would be too, Shure said. If the states curtain their spending, the companies that do business with them will likely downsize too.

Though the most recent version of the Senate jobs bill does not contain state aid, House Speaker Nancy Pelosi, D-Calif., on Friday urged her peers on Capitol Hill to take up the issue.

“We will work to ensure that critical pieces of the House-passed Jobs for Main Street Act are enacted into law — including investments in our roads, bridges, and public transit systems, support for job training initiatives, and funding to keep police and firefighters on the streets and teachers in the classroom,” Pelosi said.