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Many states continue to bamboozle their citizens by obfuscating the true depth of their debt that is occurring in the form of unfunded liabilities. Those liabilities are mainly state public pension plans, and they continue to routinely promise pie-in-the-sky returns, even after years of bleak economic growth and investment.
A group called State Budget Solutions analyzes the problem of underfunding each year. Its annual report “reveals that state public pension plans are underfunded by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans’ funded status has dipped three percentage points to 36%. Split among all Americans, the unfunded liability is over $15,000 per person.”
Many people might think, “I don’t work for my state government, so it doesn’t affect me”. It most certainly does. We are facing a generation of Baby Boomers who are getting ready to retire, and expect to have the pension that has been promised to them. Those promises are the unfunded liabilities which must be paid out. Pension costs come from state budgets — you and me — and in order to cover the costs, adjustments must be made. Expect tax increases and/or reduced government services in the coming years because a greater portion of the state budget will need to be dedicated to meeting these obligations.
How did we get here? The most damning factor is that of generous promises.
Ultimately, negotiators — be it union heads, lawmakers, or other bureaucrats — have had a fiduciary responsibility not to pay more than fair compensation, thereby restricting compensation and benefits to amounts no greater than what those skills would command in the private sector. Unfortunately, there are really no such competitive inhibitions in the public sector and therefore the negotiation routine lacks the incentive for restraint. In most cases, the self-interest of the public sector negotiator is more directly aligned with the leader that can get him elected rather than the taxpayer whom he is representing.
Lofty and mythical promises have been made for years now without a care about how it will be paid for — because the negotiator will likely be long gone when obligations come due. This is a true case of the fox in charge of the hen house. Thus runaway financial promises have deeply accumulated in state governments for which it cannot properly budget, while binding future governments not yet in office.
The Great Recession has made the problem more acute in recent years. “As the economy struggles to get back on track, states’ fiscal health also suffers, making it more difficult for state officials to make up for the shortfalls with greater contributions. As bond yields have suffered due to interest rates being held at historic lows, the fair market valuation of public pension liabilities also took a hit.”
Furthermore, most, if not all states, have hidden the vast problem by using accounting tricks — probably hoping the economy or investment will bounce back, or else just passing the buck year after year so it becomes someone else’s problem.
For instance, “state pension funds use a high discount rate. Discounting liabilities is a necessary part of fund management. Fund managers must assume that the current assets will be worth more in the future due to a number of factors, notably the return on investing those current assets. The problem arises because the discount rate is not based on the nature of the assets held by the pension plan, but is rather based on the assumed rate of return.”
The assumed rate of return — herein lies the problem. By continuing to perpetuate and promise rates of return of 5-8% for pensions, state governments show on paper that their liabilities are much smaller than they are. However, for years now, returns have been much closer to 2-3%. Yet state governments fail to make those realistic adjustments because it sounds neither glamorous nor generous to the employee.
What’s more, some states are facing such enormous financial pressures and shortfalls in all sectors of the state budget that they have reduced or skipped the yearly contribution to the pension funds altogether — thereby making the gulf that much wider. New Jersey balanced its budget (again) this year by reducing (again) the payment by $2.4 billion; Virginia skipped its payment back altogether in 2010 — although it did implement a repayment plan over subsequent 5 years to make up for that choice.
In fact, a cursory glance back at these practices reveal that the games have been ongoing for several years now. A Wall Street Journal article on this subject from Spring of 2010 — nearly 5 years ago — discusses how states were reducing and skipping payments and delaying the “day of reckoning”. New Jersey, California, and Illinois were some of the worse offenders then.
Is it any wonder that these three states are in the top ten for the amount of unfunded liabilities? California has the worst, $754 billion. In terms of funding ratios, Illinois leads the list with only 22% of its obligations funded. You can look at the full and various lists here.
The crisis will only continue to worsen unless changes are made. The outlook is gloomy for state governments and, based on past performance, is not likely to get better anytime soon. For most states, the “kick the can” approach allows them to coast while the liabilities fester, letting it become the problem of other future governments at some undefined point in the future. That is reprehensible.
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
With all the discussion swirling with regard to Jonathan Gruber, the stupidity of the American voter, and the funny scoring of Obamacare by the CBO, it’s worth it to note that CBO trickery is still ongoing.
Hats off to The Weekly Standard last month for delving into the question of true Obamacare costs. The Senate Budget Committee (SBC) took the time to analyze the Congressional Budget Office (CBO) projections related to Obamacare and this is what they found:
**”The Congressional Budget Office (CBO) has not actually scored the deficit impact of Obamacare since the summer of 2012″.
Why is this the case? Is it to leave rosier information available to the public so Obamacare backers can continue to peddle positive talking points and obfuscate the financial impact of this legislation?
The most recent CBO scoring was done using the 2013-2022 ten year budget window — and the estimate was that Obamacare would reduce the deficit by $109 billion at that time. So the SBC took the same growth rate used to tabulate that projection and applied it to a new, more relevant 10 year window, 2015-2024.
The SBC found that the surplus would have grown to $180 billion for 2015-2014… ”if nothing had changed in the interim” . And that’s the key. So much has changed in with regard to Obamacare in the last two years that the surplus will now be a deficit — but they don’t want you to know that yet.
What has changed since the summer of 2012? We had the fumbled rollout of the Obamacare exchanges in 2013. We also had Obama declining to enforce the employer and individual mandates on schedule per the law. Both of these significant items affect revenue and costs, and certainly make it clear that the CBO projections on deficit impact from 2012 are no longer meaningful, relevant, or accurate.
Interestingly, the CBO has found the time to make “technical adjustments to its baseline projections for federal health spending, has updated its economic forecasts, and has scored the legislation’s effect on labor markets.” But it just hasn’t gotten around to updating the impact of Obamacare on the deficit. In two years.
How does the CBO go about determining deficit impact? There are three areas that comprise this figure, which, added together, provides the deficit number in its totality. They are:
1) “‘Net changes in the deficit from insurance coverage provisions.’ That’s the spending side of Obamacare (or at least its net spending on insurance coverage provisions).”
2) “‘Net changes in the deficit from other provisions affecting direct spending.’ That’s the money that would have been used to fund Medicare (or, to a lesser extent, other federal health programs) but is now slated to be used to fund Obamacare instead.”
3) “’Net changes in the deficit from other provisions affecting revenues.’ That’s the taxes, fees, and penalties under Obamacare that don’t have much, if any, relation to insurance coverage provisions. (The taxes that do relate to insurance coverage provisions — namely, the tax on “Cadillac plans” and the fines for those who violate the individual or employer mandates — are instead included in the first area.)”
Only the first of those three areas has been updated — the spending side of Obamacare — and that was done in April of 2014. Noting the “lower-than-expected enrollment in the Obamacare exchange, changes in health cost assumptions, and reduced penalties collected from individuals and employers due to the president’s selective enforcement of the law”, the CBO updated its numbers regarding the “net spending on insurance coverage provisions”, from $1.171 trillion in 2012, to $1.383 trillion in 2014.
But what of the revenue side of the deficit numbers? That’s the part that has not been updated since 2012. This includes the revenue from Medicare, as well as “non-coverage-related taxes, fees, or penalties”.
By not updating these important revenue figures, the Senate Budget Committee (SBC) found that the CBO therefore “hasn’t incorporated the technical adjustments it has made to its baseline projections for federal health spending as they pertain to Medicare, its updated economic forecasts, or its scoring of Obamacare’s effects on labor markets”. That’s a huge problem. Essentially, they are still hanging onto pre-Obamacare roll-out projections and assumptions in these areas as it relates to revenue.
The Senate Budget Committee (SBC), therefore, has taking the time to calculate the revenue side of the deficit tally, specifically using the technical adjustments the CBO made to its baseline projections when it updated the federal health spending numbers earlier in 2014. Here’s the results of the analysis:
For the area related to Medicare and other federal health programs, (#2 above), the SBC found that the
“baseline changes reduce the amount of projected federal health care savings from the other provisions affecting direct spending in the legislation by a total of $132 billion over the 10-year period, from $979 billion under the CBO 2012 extrapolation to $847 billion based on the SBC staff calculation.”.
In other words, the expected revenue from Medicare and other federal health programs over the newest 10 year period is estimated to be $132 billion less than what was projected in 2012 before Obamacare started.
In the final area which deals “other provisions related to revenue”, such as taxes, fees, and penalties, the lack of expected revenue is even more substantial. (Interestingly, a recent TIGTA report analyzing the just the medical excise tax in this regard corroborates the finding that they are not meeting Obamacare revenue estimates).
Ultimately, the provisions “related to revenue” all concern the labor market — and not in a good way. As noted above, the CBO did score the affect of the labor market’s effect on Obamacare in order to update its federal health spending numbers. That was done in Feb 2014, and the CBO found that “by 2024 the equivalent of 2.5 million full-time workers will exit the labor force as a result of the law. The CBO estimates the law will reduce the total number of hours worked by 1.5 to 2 percent during the FY 2017–2024 period and will reduce aggregate labor compensation by 1 percent over the same period.”
Therefore, the Senate Budget Committee (SBC) took this updated labor analysis and applied it to the third area, specifically looking at how that reduction in aggregate labor compensation would affect taxable income. The SBC found that “based on these assumptions, Obamacare is now projected to get $262 billion less in (non-coverage-related) revenue because of its detrimental effect on job growth, a notion that wasn’t registered in the CBO’s July 2012 scoring.”
And what was the final tabulation of Obamacare’s impact on the deficit?
“So, compared to the deficit surplus of $180 billion for 2015-24 that a straight extrapolation from the CBO’s 2012 scoring would yield, current projections now indicate that Obamacare’s decreased spending (in relation to prior expectations) will reduce deficits by another $83 billion (bringing the estimated surplus to $263 billion), but those projected surpluses will be more than offset by the projected $132 billion decrease in Medicare revenue and $262 billion decrease in tax revenue due to lower job growth.
In all, therefore, CBO projections indicate that Obamacare will increase deficit spending by $131 billion from 2015-24. That’s a $311 billion swing from the extrapolated 2012 numbers, a $240 billion swing from the actual 2012 numbers, and a $255 billion swing from what we were told when Obamacare was passed.“
That’s a mighty big change in only 2 years. How will Obamacare make up the revenue? Will it be an increase in premiums? We still don’t know. Unlike last year, when Obamacare enrollment began on October 1, this year, Obamacare enrollment was held off until November 15 — 11 days after midterm elections.
As recently as this past Monday, the NYT reported that, the Administration lowered its estimate of enrollees by about 30%, “projecting that “9.1 million people would have such coverage at the end of next year. By contrast, the Congressional Budget Office had estimated that 13 million people would be enrolled next year, with the total rising to 24 million in 2016. In the past, the White House has used the budget office numbers as a benchmark for success under the Affordable Care Act.”
4 million fewer enrollees is a large difference in target numbers. So when will the CBO update its data so that the public can accurately ascertain Obamacare’s impact on the deficit?
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Mitch Romney’s appearance on Fox News Sunday the weekend before Election Day confirmed that he should not be a candidate for President in 2016. Indeed, his inability to answer any of Chris Wallace’s questions made it painfully clear why he lost his election bid in 2012.
The first question had to do with the old “outsourcing jobs” bit, which has been an omnipresent theme in several races, such as Quinn for Governor in Illinois, and Perdue for Senate in Georgia. The way Chris Wallace asked about it gave Romney the perfect chance to explain how the outsourcing attack is utter nonsense, but instead, he ignored the question and derided the Democrats for making ad hominem attacks.
Even though the aforementioned candidates won their bid, much of America still honestly believes the “exporting jobs” claim against Republicans — which is why the Democrats tried so hard with it. Had it been a different election cycle, it may very well have stuck better in those race. And Romney missed the opportunity to explain how “outsourcing” those relocated jobs can and do strengthen American business. But he didn’t.
He said nothing about how when the U.S. economy can’t compete in the world market with these lower level jobs here in the US, moving the jobs abroad increases global sales which grow the higher level (administrative, executive, engineering, research and development) jobs remaining here. And nothing about how, in some scenarios, not exporting jobs to stay globally competitive often means, as a result, firing people and closing the business outright. But Romney — the businessman, mind you — ignored all of this and acted as if the other side was right…but just mean.
The second question Romney messed up was in regard to immigration reform. Wallace suggested that the Senate passed a comprehensive plan but that the House GOP refused to pass it. Here, Romney ignored this point again, saying that well, if the GOP gets control of the Senate, they can make immigration laws too. That’s not the point He totally failed to discuss at all how the comprehensive immigration bill was a Democrat style bill which contained provisions unacceptable to the GOP regarding spending and border control. That is the entire reason why it has been rejected soundly by the Republicans.
The last question was in regard to Reince Priebus’ recently published “11 points”. Wallace asked Romney if he thought it was a mistake for the GOP to have made these points. Romney basically ignored it. He could have talked about how, once the elections are over and Republicans victorious, the GOP can move forward. He had the opportunity to build up the Republican brand, to wax poetic about why Republicans are better and use even some of the 11 points to discuss it. But he didn’t. He said nothing.
To use a baseball analogy, it was strike three. Romney is not a good contender. In an arena as easy as Chris Wallace and Fox News Sunday, it was extremely disappointing We need someone that knows how to answer the damn question. To articulate the positions of the GOP on their feet. To prepare the points that need to be made. To get the sentences out swiftly and succinctly. The nominee for 2016 needs to be able to think on his feet, defend liberty, promote prosperity, and speak the principles that we hold dear. Romney has proven, once and for all, that he is unable to do such a thing.
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During the ongoing court case between Judicial Watch and the IRS, the IRS recently filed a “Defendant’s Opposition to the Plaintiff’s Motion Seeking Recovery”, protesting the continued FOIA requests regarding Lerner’s tapes.
Some remarkable information emerged. In the document, the IRS wrote that they have not searched IRS servers because “the servers would not result in the recovery of any information.”
The IRS further claimed no search was performed on the back-up tapes, because there was “no reason to believe that the tapes are a potential source of recovering” any lost emails.
What’s more, the IRS stated no there had not been a search on the government-wide back-up system because they had “no reason to believe such a system … even exists.” (contrary to earlier statements), and that the IRS didn’t submit “declarations about any of the foregoing items because it had no reason to believe that they were sources from which to recover information lost as a result of Lerner’s hard drive failure.”
So what did the IRS do? The IRS described how it collected information from IRS employees likely to be involved, “loaded that information onto an electronic server, processed it, and searched it”, creating what it calls “the Congressional database” for the purposes of the investigation. It is from there, and only there, that the IRS “is reviewing all documents in the Congressional database to determine whether they are responsive to Judical Watch’s FOIA requests”. Not email servers. Not back-up tapes. Not back-up systems.
So the IRS made a separate database, created from information it selected to go into the database, and searches that — hoping that database and search is satisfactory enough for the courts.
The IRS also protested Judicial Watch’s Motion Seeking Recovery on these grounds:
I. Judicial Watch is not Entitled to Discovery
II. Judicial Watch’s Motion is Premature
III. Judicial Watch’s Request for Discover is Inappropriately Broad and Vague|
The IRS specifically argued in its document that “the discovery is the rare exception in FOIA cases and should only be allowed under extraordinary circumstances, such as agency bad faith or conflicting declarations. No extraordinary circumstances are present here, and Judicial Watch cannot manufacture extraordinary circumstances through hearsay, innuendo, and bald assertions.”
In case anyone was wondering whether or not extraordinary circumstances, agency bad faith, or conflicting declarations applies, here’s a quick summary timeline produced by IJReview.
August 2013 – Congress issues the first subpoena for Lois Lerner’s emails from 1/1/2009 through 8/2/2013
September 2013 – Lerner resigns from the IRS.
October 2013 – House Oversight Committee issues second subpoena for the emails.
February 2014 – President Obama asserts to Bill O’Reilly that there was “not even a smidgen of corruption” at the IRS.
March 2014 – The IRS states the the emails from Lerner’s computers were removed, put in storage, but that they “are in fact searching” for them.
June 2014 – The IRS states that it has lost emails of other employees, all of which had been subpoenaed as well.
July 2014 – The IRS admits that it was told that the drives were likely able to be repaired, but opted to destroy them instead.
September 2014 – The IRS states that emails from more than 20 employees, all of which were were subpoenaed, were lost due to drive crashes.
November 2014 – The IRS admits that it never looked for the emails in the first place.
This court case will continue to drag on and on, hoping that enough time will pass that Americans will forget or lose interest in this scandal. Kudos to Judicial Watch for continuing to insist on information and integrity.
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Romney’s appearance on Fox News Sunday this past weekend confirmed that Romney should not be a candidate for President in 2016. Indeed, his inability to answer any of Chris Wallace’s questions at all made it painfully clear why he lost his election bid in 2012.
The first question had to do with the old “outsourcing jobs” bit, which has been an omnipresent theme in several races, such as Quinn for Governor in Illinois, and Purdue for Senate in Georgia. The way Chris Wallace asked about it gave Romney the perfect chance to explain how the outsourcing attack is utter nonsense, but instead, he virtually ignored the opportunity by not answering and addressing Wallace’s question. All he did was basically state that the Democrats make ad hominem attacks…and that’s about it. Nothing about how those relocated jobs can and do strengthen American business. Nothing about how the U.S. economy can’t support many of these businesses anymore, so they have to go elsewhere. Nothing about how, in some scenarios, not exporting jobs to stay globally competitive often means, as a result, firing people and closing the business outright. But Romney — the businessman, mind you — ignored all of this and acted as if the other side was right.
The second question Romney messed up was in regard to immigration reform. Wallace suggested that the Senate passed a comprehensive plan but that the House GOP refused to pass it. Here, Romney ignored this point again, saying that well, if the GOP gets control of the Senate, they can make immigration laws too. He totally failed to point out that the comprehensive immigration bill was a Democrat style bill which contained provisions unacceptable to the GOP regarding spending and border control.
The last question was in regard to Reince Priebus’ 11 points. Wallace asked Romney if he thought it was a mistake for the GOP to have made these points. Romney basically ignored it. He could have talked about once the elections are won, the GOP can move forward. But he didn’t.
To use a baseball analogy, it was strike three. Romney is not a good contender. We need someone that knows how to answer the damn question, to articulate the positions of the GOP on their feet. To prepare the points that need to be made, get the sentence out swiftly and succinctly. The nominee for 2016 needs to be able to think quickly, defend liberty, promote prosperity, and speak the principles that we hold dear. Romney has proven, once and for all, that he is unable to do such a thing.
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Will the Republicans take the Senate? Election Day Links (to be updated periodically)
Republicans sense power shift; Dems rev up damage control
WASH POST: 97% CHANCE GOP TAKES SENATE
CNN 95%
NYT: 70%
PAPER: Where did O go wrong?
NYT: Irate Electorate…
Most ads on Obamacare…
WH Strategist: Dems Running from President ‘Look Like Chickensh*t’…
Guide to What to Watch for on Election Night…
Harry Reid’s fateful evening…
30 year old Republican set to be youngest congresswoman in history…
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The Legatum Institute’s 2014 Prosperity Index scored Norway as the most prosperous country in the world, with the United States ranked as the 10th. 142 countries that are ranked in the Index. Central Africa Republic is the least prosperous
There are eight factors that go into the ranking. They are:
Economy
Entrepreneurship
Governance
Education
Personal freedom
Health
Security
Social capital
The Legatum Institute has released the Prosperity Index for seven years. The top ten this year are:
1 Norway
2 Switzerland
3 New Zealand
4 Denmark
5 Canada
6 Sweden
7 Australia
8 Finland
9 Netherlands
10 United States
In 2008, the first year of the Index, the United States ranked 6th place. 2009 it was 9th place, 2010 and 2011 it was 10th place, 2012 it was 12th place, 2013 it was 11th place, and now in 2014 it’s back to 10th place.
Legatum is a private, United Arab Emirates-based, investment organisation and thinktank. It’s headquarters are in Dubai International Financial Centre. It is interesting to see such a scoring from a perspective on the other side of the world.
