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  • "The bill doesn't come due until well after the legislators who wrote the check have left office"

    March 4, 2014 1:24 PM

    Thus describes an Illinois state Senator the challenge states face in reforming their public employee pension systems. Given that reality, it's astounding reform would ever succeed. But succeed it has, in states with very large pension shortfalls that threaten to blow up their budgets.


    Staring into the financial abyss, it seems, can help politicians overcome their strong temptation to offer generous benefits to their supporters -- government employee unions in the case of pensions -- and passing off the bill to future generations. Yet, government unions will defend their benefits even in states in extreme financial distress, as the recent Rhode Island pension settlement shows.


    On February 14, Rhode Island officials reached an agreement to end six legal challenges to the state's 2011 pension reform, the most far-reaching in the nation to date. The agreement scales back some of the savings in the 2011 reform bill, but  preserves most of them. Governor Lincoln Chafee and State Treasurer Gina Raimondo invested considerable effort and political capital in crafting and enacting the 2011 pension reform. So why did they agree to scale back any of it?


    Because they had to. The state was forced into negotiating by a judge, ruling on a union legal challenge to the pension reform legislation. As Drew University political science professor Patrick McGuinn describes the decision in a new Brookings Institution study, "Pension Politics: Public Employee Retirement System Reform in Four States" (which points to Rhode Island's reform as a model):


    In December 2012, a Superior Court judge ordered the unions and the governor/treasurer’s office into mediation to resolve the dispute—an extremely unusual (and perhaps even unconstitutional) move.


    In effect, the judge ordered the Chafee administration to negotiate with the unions to amend a law that had already been passed by the legislature and signed by the governor.


    While legally dubious, the February 2014 agreement may be the least bad option in terms of achieving sound policy -- which in the case of Rhode Island means preventing a budget meltdown. If a judge is willing to order the state government to renegotiate a law already on the books, who knows what might come next in court?


  • Bad Highway Policy Is a Bipartisan Affair

    February 28, 2014 11:18 AM

    Two major pieces of surface transportation policy news dropped this week. President Obama is readying the release of his budget, which will contain over $300 billion in transportation funding. Across the aisle, Rep. David Camp, R-Mich., the powerful chairman of the House Committee on Ways and Means, released a sweeping proposal to overhaul the U.S. tax code, which includes a component that would direct $120 billion in tax savings into the Highway Trust Fund.


    The president's latest budget is far from surprising, as it differs very little from his previous surface transportation proposals. Of the combined highways and transit spending ($278 billion), he proposes to allocate 25 percent ($72 billion) to mass transit -- a mode that makes up about 5 percent of trips.


    Thankfully, neither proposal has any chance of being enacted, at least as standalone comprehensive packages. Unfortunately, most of Congress's "business" is recycling and repackaging previous proposals, which means some aspects might well find their ways rolled into future legislation. With the current highway bill, MAP-21, expiring at the end of September 2014, Congress will begin the reauthorization process in the coming months. It is likely that some of these bad ideas will pop up again.


    First, the president's budget. He wants a $302 billion, four-year transportation bill. Half of that would supposedly come from tax reform, amounting to a massive bailout of the Highway Trust Fund. This is par for the course for President Obama, who has long advocated eliminating the Highway Trust Fund in favor of a slush fund that would enable additional gimmicky projects such as high-speed rail and urban streetcars.


  • No Obamaloans at the Post Office!

    February 12, 2014 11:19 AM

    While Sen. Elizabeth Warren may proudly brand herself a populist, in her latest crusade, she is casting her lot with fat cats. Warren wants to bestow banking privileges upon the United States Postal Service (USPS), an organization with executives living high on the hog even as, by Warren’s own admission, its “financial footing” is in doubt.


    The USPS pleaded poverty last month as it raised the price of a first-class stamp from 46 to 49 cents and promised that more rate increases are on the way. Yet in 2012, it managed to pay Postmaster General Patrick Donahoe $512,000 in total compensation, according to page 67 of the annual report filed by the Postal Regulatory Commission. And in 2008, then-Postmaster General John E. Potter received more than $800,000 in total compensation and retirement benefits. As The Washington Times noted, “that is more than double the salary for President Obama."


    Dozens of other USPS executives also rank among the vaunted “one percent.” According to the Federal Times, “As the U.S. Postal Service was careening toward a record $8.5 billion loss in 2010, it was paying more than three dozen top executives and officers salaries and bonuses exceeding that of Cabinet secretaries.” In fact, in 2012, Rep. Kathy Hochul, D-N.Y., and other House Democrats sponsored legislation to limit USPS executive salaries to those of cabinet secretaries under the president.


    The USPS and its defenders respond that this compensation isn’t as high as that of executives at competitors Federal Express and United Parcel Service, and Warren might argue that it’s not as high as the that of the CEOs of the nation’s biggest banks. But it’s certainly higher than the average compensation of the top folks at community banks and credit unions, as well as other lenders that will be hurt if the USPS expands into banking. And it is certainly more that that made by the average taxpayer, who will almost certainly be even further on the hook for the USPS’s woes.


  • CEI Experts on the State of the Union

    January 28, 2014 11:10 AM

    ECONOMIC MOBILITY
    Iain Murray, Vice President for Strategy:
    “The fact is: Today’s America is divided between those who work for government and those who don’t. Those who work for government have a job for life, guaranteed retirement and other benefits, and financial security,” said Murray. “Those who don’t, have uncertain prospects. They are at the mercy of an administration that is making their benefits more expensive and restricting their access to credit with more and more regulations. That is the true inequality in President Obama’s America.”


    Ryan Young, Fellow:
    “Given what reports suggest will appear in the president’s State of the Union address, we need to keep in mind three things. First: A higher minimum wage is not a free lunch, and will force some employers to reduce hours or fire workers. And, second, extending unemployment benefits will keep unemployment unnaturally high,” said Young. “The third thing is: If the president is truly concerned about the poor, he should support policies that would make the poor better off instead of focusing on income inequality. One of these policies could be a deregulatory stimulus that would make it easier to start a business and hire workers.”

  • CEI Podcast for January 23, 2014: CEI Appeals Affordable Care Act Lawsuit Verdict

    January 23, 2014 11:26 AM

    General Counsel Sam Kazman explains the case's importance not just for health care, but for the rule of law.


  • The Great Italian Auto Bailout -- Courtesy of U.S. Taxpayers

    January 1, 2014 7:09 PM

    At the beginning of 2014, Detroit may be bankrupt, but they're cheering the five-year-old U.S. auto bailout in Italy. That's because after being the beneficiary of billions in U.S. taxpayer largesse, Fiat, the leading Italian auto company, is going to buy its final stake in Chrysler from that other big bailout recipient, the United Auto Workers (UAW).


    "Chrysler's Now Fully an Italian Auto Company," reads the Time magazine online headline. But wait a minute! Wasn't the bailout supposed to be about saving the American auto industry?


    As Mark Beatty and wrote in The Daily Caller in November 2012, after presidential candidate Mitt Romney made the controversial claim that Fiat would be expanding production of Chrysler's Jeep in China (a claim that turned out to be correct),


    The real outrage arising from the 2009 Chrysler bailout is not that its parent company, Fiat, is planning to build plants in China. It’s that the politicized bankruptcy process limited Chrysler’s growth potential by tying it to an Italian dinosaur in the midst of the European fiscal crisis. The Obama administration literally gave away ownership of one of the Big Three American auto manufacturers to an Italian car maker struggling with labor and productivity issues worse than those that drove Chrysler to near-liquidation.


    As we noted in the piece, much of Chrysler’s profits from its overhauled line are going to prop up Fiat’s failing, money-losing Italian business, rather than to expanding production and jobs in the U.S. Moody’s had downgraded Fiat’s credit rating to “junk” even before the Obama administration arranged for it to acquire a Chrysler stake, and in Autumn 2012, Moody’s gave Fiat another downgrade that the Financial Times described as even “further into ‘junk’ territory.”


    Around this time, Barron’s put it like this in a headline, “This time, Chrysler could bail out Fiat.” Actually, the Barron’s headline is slightly misleading in one respect — Fiat didn’t contribute much of anything to the Chrysler’s bailout.


  • The Volcker Winter Storm -- Bad Rule, Worse Implementation

    December 11, 2013 9:35 AM

    On a snowy day in Washington, several federal agencies packed some mean regulatory snowballs that will most likely overshoot their supposed destination of Wall Street and crash-land with a thud on the businesses and investors of Main Street. Rather than postpone the planned vote on Tuesday, when the federal government was officially closed, agencies sheltered themselves from public view and pushed through the rules.


    According to USA Today, "CFTC spokesman Steven Adamske said his agency will not hold a public meeting, but commissioners will approve the rules in writing." This lack of transparency on voting on the rule was symptomatic of a series of last-minute changes from the rule the agencies had initially proposed two years ago. The agencies never submitted these changes for public comment, and thus according to a Reuters analysis, may be vulnerable to lawsuits for violation of the Administrative Procedure Act.


    Beyond that, nothing good ever comes when the government utilizes an opaque process to force "transparency" on the private sector. For all the supposed "toughness" of the new rule, there is nothing specific that would prevent something like J.P. Morgan's much-despised "London whale" trade.


  • Volcker Rule Curbs Useful, Profitable Proprietary Trading, Not Risky Lending

    December 11, 2013 9:00 AM

    The government just approved a regulation called the Volcker Rule to curb proprietary trading by banks -- even though such trading did not cause the financial crisis, or lead to massive financial losses by banks and taxpayers the way other, much riskier practices by banks did (like risky mortgage loans, which the Obama administration has pressured banks to once again engage in, in the name of fair lending and affordable housing).


    The Wall Street Journal reports:


    All five regulatory agencies put to a vote and approved the Volcker rule on Tuesday, ushering in a new era of tough oversight that drills to the core of Wall Street's profitable markets and trading businesses.


    The rule will put in place new hurdles for banks that buy and sell securities on behalf of clients, known as market making . . . The Federal Reserve also approved an extension to give banks until July 2015 to comply with the rule.


    (The above report is from the Journal's liberal-leaning news staff, not its conservative editorial page, which has questioned the Volcker Rule.)


  • Mel Watt Fails Taxpayer, Privacy, and Transparency Tests

    October 31, 2013 3:31 PM

    Former Rep. Mel Watt, D-N.C., failed his procedural confirmation vote today to head the Federal Housing Finance Agency, which oversees the government housing entities Fannie Mae and Freddie Mac. His defeat -- so far -- is a victory not just for fiscal integrity, but for privacy and transparency as well.


    As a congressman, Watt egged on the reckless policies of Fannie Mae and Freddie Mac that got us into the mortgage crisis from which the economy is still recovering. But just as bad, he was on the wrong side of both liberals and conservative reformers on two crucial issues. Watt was a co-sponsor and vocal supporter of the Stop Online Piracy Act (SOPA), which collapsed in 2012 after a transpartisan coalition made the public aware of its threat to privacy and innovation. And Watt was the chief Democratic opponent of a bipartisan proposal to audit the Federal Reserve and helped gut the provision from what would become the Dodd-Frank "financial reform" law of 2010.


    On Fannie and Freddie, as reporter Charles Johnson detailed at The Daily Caller, Watt "teamed up with Freddie Mac and Fannie Mae [and some banks]to announce Pathways to Homeownership, a pilot initiative designed to give home loans to welfare recipients" with minimal down payments. A press release from Watt said the loans would require “as little as $1,000 of the down payment to come from their own funds."


    Then, as Johnson pointed out, "In 2007, a full year after the real estate market peaked and began to plummet  under the weight of millions of mortgage defaults, Watt and Frank co-sponsored a  bill forcing Fannie and Freddie to meet even higher quotas for affordable  lending and investing  in an “Affordable Housing Fund” for inner city communities."


  • Public Pensions Are Not Property

    October 21, 2013 3:13 PM

    Across the nation, state and local governments in dire financial straits face great difficulty in their efforts to bring their budgets under control. Pensions are one of the biggest drivers of deficits, and therein lies the problem. Many states treat pensions not as a form of compensation, but as a contractual obligation to the employee. As a result, states and cities that have tried to bring pension obligations under control have seen roadblock thrown up in court by government employee unions. As the Manhattan Institute's Steven Malanga explains:


    In the private sector, pensions are governed by the federal Employee Retirement Income Security Act. Although a private employer may not cut benefits that a worker has already earned, ERISA allows a business to change the rate at which a worker accrues future benefits.


    ERISA, however, doesn’t apply to government employee pensions. Instead, in the states, local laws and court decisions govern how public-worker retirement systems are treated, and in many cases the states depart, sometimes radically, from the standard set by the law.


    In many states, that means that pension promises are treated as sacrosanct.


    Many legal protections given to public-sector pensions arise from court decisions that treat laws governing public retirement systems as a contract between the state and a worker. That puts pensions under the jurisdiction of the contract clause of the U.S. Constitution, or under state contract law.


    In California, a state teetering on the fiscal precipice due in large part to pension liabilities, San Jose Mayor Chuck Reed is leading an effort to amend the Golden State's constitution to give governments there greater flexibility to make changes to employee retirement benefits. Reed faces a tough fight -- Malanga describes his effort as "an uphill campaign" -- but he already deserves plaudits for bringing needed attention to this issue.


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