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  • How the "California Rule" Holds Back Pension Reform

    March 5, 2014 12:52 PM

    These days, local governments announcing bankruptcy seems like routine in California. Since the onset of the 2008 financial crisis, many state and local governments have seen their pension funds take huge losses. Yet, many of the underlying problems that have made pension shortfalls difficult to address go back many years -- more than half a century, in fact.

    One major reason public pensions have been so difficult to reform is their having a special legal status above other kinds of employee compensation. A new Federalist Society paper by Emory University law professor (and CEI alumnus) Alexander Volokh explains how this strange situation came to be and offers some ideas for reform.

    One of the most important developments in public pension policy occurred in 1955. That's when the California Supreme Court created what became known as the "California rule" regarding the legal status of public pensions. The case, Allen v. City of Long Beach, concerned a challenge to a 1951 city charter amendment that increased the employee pension contribution and changed the formula for determining payouts.

  • To Enact Pension Reform, Make Good Policy Good Politics

    March 5, 2014 11:34 AM

    broken-piggy-bankIn my previous post, I looked at some basic principles that should guide state policy makers when tackling pension reform. Now, we turn to the politics. And in that regard, Rhode Island's 2011 pension reform offers a useful example for other states to consider.

    In his Brookings study, "Pension Politics: Public Employee Retirement System Reform in Four States," Drew University political science professor Patrick McGuinn looks at recent reform efforts in four states' experience in implementing pension reform.

    Two of these states—Utah and Rhode Island—enacted significant structural changes to their pension systems while the two others—New Jersey and Illinois—enacted more limited changes that were less innovative.

    Drawing lessons from those four states, he then outlines some basic principles for how to implement reform, citing examples.

  • Who Wants to See Their State Go Broke?

    March 5, 2014 11:30 AM

    Few people would raise their hands when asked that question. But actually putting a state's financing on sound footing is difficult in practice. That makes Rhode 's Island's pension reform not only unique, but also a good example for other states to consider.  Rhode Island got not only the policy, but also the politics right, according to Drew University political science professor Patrick McGuinn in a new Brookings Institution study.

    In other words, how pension reform is accomplished is as important as what the reforms entail. In his study, McGuinn offers some sound principles on the politics -- the "how" -- of pension reform. Another new study, commissioned by the Society of Actuaries (SOA), offers some basic principles on the policy -- the "what".

  • Obama FY 2015 Budget: Aviation Funding Recommendation Not Great, But a Step in the Right Direction

    March 4, 2014 3:23 PM

    President Obama released his Fy 2015 budget today. Like his past budgets, as I noted in a previous post discussing the highway and transit budget, continuing congressional gridlock means this package will almost certainly go nowhere. I'll leave more sophisticated and comprehensive commentary to the budget analysts, but I will highlight one additional transportation provision: airport funding. Exactly like the FY 2014 budget from the White House, the FY 2015 budget calls for cutting Airport Improvement Program funding to $2.9 billion and increasing the cap on the Passenger Facility Charge (PFC) from $4.50 to $8.

    AIP currently provides major airport infrastructure grants. These funds come from a variety of taxes and segment fees. However, while user-based to an extent, AIP funding is complex and less transparent, features that are generally undesirable in user fee frameworks -- in addition to relying on some non-user revenue (see page 20 of the AIP Handbook for a breakdown of revenue sources). AIP funds are also not segregated by facility, leading to wasteful grants to low-value airports.

  • "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.

  • Minimum Wage Increase to Wipe Out 500,000 Jobs

    February 19, 2014 5:51 PM

    "Boosting the federal minimum wage as President Barack Obama and congressional Democrats are proposing" would "cut employment by roughly 500,000 jobs, Congress' nonpartisan budget analyst said Tuesday"; the Congressional Budget Office predicts that a minimum wage increase will result in "fewer jobs, especially for low-income workers; higher costs for business owners and higher prices for consumers. The study was unveiled as the Senate prepares for a March debate on a plan by Sen. Tom Harkin, D-Iowa, ramping up the minimum in three steps to $10.10 by 2016." (Source: Associated Press).

    Raising the minimum wage also drives up unemployment among young people and unskilled workers. This CBO report comes on the heels of an earlier CBO report that predicts a fall in employment of about 2 percent over the next decade due to work disincentives contained in the 2010 healthcare law. Obamacare has caused layoffs in the medical device industry, and will wipe out many jobs. It is also replacing full-time jobs with meager part-time jobs in community colleges, restaurants, and other sectors.

  • Growing Support for Road User Charges Will Be Highlighted at March Conference

    February 18, 2014 11:55 AM

    I've written about the importance of charging road users for their road use for some time. Moving toward a truly user-pays system will require significant reform. For U.S. highways, federal and state fuel taxes provide the bulk of the funding. While the idea behind levying an excise tax on gasoline to fund roads was rooted in user-pays, political developments and new technology necessitate the move away from user taxes and toward more direct, and distance-based, user fees.

    Recently, road usage charges became an issue in the Virginia gubernatorial race, with some Republican activists trying and failing to paint the Libertarian candidate as a big-government tool for broadly suggesting that the state investigate the viability of replacing fuel and sales tax road funding with a user charge. Oregon has become the first state in the nation to introduce a user charge pilot program and many others are investigating similar programs. High-tech user charges such as all-electronic tolling and GPS-based charging systems are increasingly being seen as the next logical move for road revenue collection.

  • Ambush Elections Diminish the Understanding They Seek

    February 12, 2014 12:46 PM

    Workers would have less time to study for their huge, life-changing test of whether to unionize, under a new, proposed Obama administration rule that nonsensically claims it would increase understanding of and participation in the unionization process.

    Currently, unionization elections occur an average of 38 days after they are called. The National Labor Relations Board (NLRB) has now proposed to have elections in as few as 10 days. Thus, under the proposal, workers could have only about a quarter of the time to study the unionization material.

    Would a student feel more prepared for pop quizzes or for well-planned tests? Would cutting study time to one-fourth of the previous average improve understanding? Would cutting students’ inquiry and prep time by seventy-five percent increase or diminish participation?

    The labor board’s proposal follows the logic of Nancy Pelosi: “We have to pass the bill so that you can find out what is in it.” As we have seen with the ObamaCare law, perhaps this is not the best way to create policy.

    The NLRB proposal is a purely partisan one, passed on a 3-to-2, party-line vote. Yet, as my colleague Trey Kovacs noted, NLRB Chair Mark Pearce glosses over this pure partisanship, emphasizing that the board is “unanimous” in support for “important,” “effective,” and “constructive” procedures.

  • CEI Podcast for February 12, 2014: Are Cell Phones Coming to an Airplane Near You?

    February 12, 2014 11:26 AM

    CEI Fellow Marc Scribner opposes a bill that would ban in-flight cell phone usage on airplanes. He believes that decision should be left to airlines, who have the technology to disable phones' voice communications allowing data usage for texting, emailing, and web browsing.

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