More on Mercatus Rankings of the States

The Mercatus Center ranking of the fiscal condition of the states included spreadsheets on unfunded OPEB and pension liabilities (using ‘risk-free’ rates) that approach a total of $6 trillion:

 

Eileen Norcross was on C-Span publicizing the study and got into:

Illinois:
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California:
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Pension Accounting:
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40 responses to this post.

  1. Posted by S Moderation Anonymous on July 14, 2017 at 1:50 pm

    Eileen Norcross…

    “… In the case of California, …In general it’s not because benefits are generous. It’s because these systems have been systematically underfunded due to what I would call accounting mistakes; undervaluing the true size of the benefits and then not putting in enough.

    … and then there’s a lack of discipline in some states in just skipping out on the annual payments.”

    Reply

    • Posted by Anonymous on July 14, 2017 at 3:09 pm

      Re the quote……….Hogwash, and you know it (and I’d bet Norcross doesn’t REALLY believe it either).

      CA, Nevada, and a few others have the MOST GENEROUS of all State pensions.

      And even though you (as a CA Public Sector retiree riding this gravy train) take every opportunity to deny it, the required annual pension contributions to fully fund a pension Plan is A FUNCTION OF (and moves in DIRECT PROPORTION TO) the generosity of the promised pension benefits.

      A VERY “generous” plans is VERY “costly”, and hence VERY difficult to fully fund.

      Norcross’s comment is about PENSIONS.

      Public Sector PENSIONS are routinely 2 to 4 times (4 to 6 times for Safety workers) greater in value upon retirement than those of comparable Private Sector workers retiring at the SAME age, with the SAME years of service, and the SAME wages.

      The lack of “full funding” is not the CAUSE of the pension mess in which most States & Cities now find themselves, but the CONSEQUENCE of the true “ROOT CAUSE”…… grossly excessive Public Sector Pension “generosity”.

      Reply

    • Posted by Anonymous on July 14, 2017 at 3:39 pm

      The following is Eileen’s full quote:

      “Eileen Norcross

      GUEST: IN THE CASE OF CALIFORNIA, IT IS A LITTLE MIX, WE’VE SEEN — I’D LIKE TO BACK UP, IN GENERAL, IT IS NOT BECAUSE BENEFITS AREN’T GENEROUS, THE SYSTEMS HAVE BEEN SYSTEMATICALLY UNDERFUNDED DUE TO ACCOUNTING MISTAKES. UNDER VALUING THE TRUE SIZE OF THE BENEFIT AND NOT PUT NOTHING ENOUGH. EVEN IF YOU MAKE THE FULL PAYMENT, YOU ARE UNDERVALUING WHAT YOU NEED TO PAY. THAT IS ACROSS THE BOARD IN THE STATES N. CALIFORNIA, WE HAVE SEEN PLACES WITH PEOPLE MAXING OUT BENEFITS AND COLLECTING GENEROUS PENSIONS, YOU MIGHT FIND THAT, IN GENERAL AN ACCOUNTING MISTAKE AND LACK OF DISCIPLINE IN SOME STATES SKIPPING OUT ON ANNUAL PAYMENT.” from this source:

      https://www.c-span.org/video/?431111-4/washington-journal-eileen-norcross-discusses-states-fiscal-condition

      Hey SMD…………. how did THAT quote which said in part:

      “IN GENERAL, IT IS NOT BECAUSE BENEFITS AREN’T GENEROUS”

      Become what YOU stated:

      “In general it’s not because benefits are generous.”
      **************************************************************

      Looks like you switched “aren’t” to “are”.

      WOW ………………. You owe the readers an explanation.

      Reply

    • Posted by S Moderation Anonymous on July 14, 2017 at 5:08 pm

      WOW……….

      Yes, I did misunderstand the word… mid-western accents.

      http://www.snopes.com/2016/08/04/hillary-clinton-raise-taxes/

      “…we aren’t going to raise taxes on the middle class!”

      becomes…

      “…we are going to raise taxes on the middle class!”

      Mea culpa.
      …………………………………………..

      NOW………

      Taken in context, that word notwithstanding, it is clear that she is saying the problem is accounting, not overly generous pensions. Do you actually disagree that that was her meaning?
      …………………………………………….
      What you pasted was not actually Eileen’s full quote. From your link…

      *This transcript was compiled from uncorrected Closed Captioning.

      The latter part of her quote (as near as I could understand)…

      “In California we have seen some cities and cases with people maxing out benefits and collecting very generous pensions. So you might find that in discrete situations in some cities, but I would say in general it’s an accounting mistake. And there’s a lack of discipline in some states of just skipping out on the annual payment.”

      “But I would say in general it’s an accounting mistake.”
      “And then there’s a lack of discipline…”

      Reply

      • Posted by Anonymous on July 14, 2017 at 8:18 pm

        SMD, Glad to see that you are owning up to your incorrect statement (the changing of “aren’t generous” to “are generous”).

        Quoting SMD ….

        “Taken in context, that word notwithstanding, it is clear that she is saying the problem is accounting, not overly generous pensions. Do you actually disagree that that was her meaning?”

        Sure, one (yes ONE) “problem” is accounting and as Ms Norcross indicates ….. the undervaluing of the promised pensions …. even when you make the full payment

        But now that we’re adding some honesty to the discussion, how about admitting that all of the stakeholders (the Unions, the Public Sector workers, the Elected Officials) LIKE IT THAT WAY. The Unions/workers like the lower-than-adequate contribution so-calculated because it hides just how extraordinarily generous their pensions really are, and likly staves off taxpayer-demand that they be lowered if the real costs were truly understood. They also like that the lower contributions (resulting from that “undervaluing of the promised pensions”) leave more money in the annual budget for raises. The Elected Officials like it because it leaves more money in the budget to fund their pet projects. They also like it because by NOT challenging this “undervaluing of the promised pensions, they make the Union/workers happy which helps them garner worker-votes and Union campaign contributions in their re-election.

        Yea, and even some Taxpayers like it because they intend to move away before the full impact (and tax increases) hit, leaving the bill to those who stay and to future taxpayers (who received no services form those whose pensions they will be told to pay for).

        *******************
        Above I said ………………

        “Sure, one (yes ONE) “problem” is accounting and as Ms Norcross indicates ….. the undervaluing of the promised pensions …. even when you make the full payment”

        But the ROOT CAUSE is indeed the grossly excessive PENSION (and benefit) promises themselves………. in the absence of which the phony accounting (and undervaluing) would not be necessary.

        Reply

  2. Posted by dentss dunnigan on July 14, 2017 at 4:03 pm

    Where reality meets math ….best bar graph is additions and deductions .it really shows what the funds must make in investment income to keep taxes in check with zero rates destroying any possibility of not running out of cash in the future ..http://www.zerohedge.com/news/2017-07-14/illinois-budget-deal-likely-death-knell-states-130-billion-underfunded-pensions

    Reply

  3. Posted by S Moderation Anonymous on July 14, 2017 at 6:03 pm

    Quoting T-nonymous…

    “Wrong question. The correct question is …”

    Even though, like many other economists, Eileen Norcross does not say excessive benefits are the root problem, what does she recommend as a solution?

    Eileen Norcross…

    “For State pensions, I have two recommendations, first, transparent and accurate accounting. Governments must stress test their pension systems and model the cash-flows to determine what will be needed to set aside to pay these promises. These scenarios should include the risk free discount rate as recommended by economists. The data, method and assumptions should be made available to the public. Second, stabilize public sector pension systems, to pay what has been promised by minimizing the burden on taxpayers, States should consider freezing and reducing the cost of living adjustment in current defined benefit plans, increasing the retirement age, increasing contributions from workers and importantly close the defined benefit plan and move workers to defined contribution plan. The last reform will allow workers more flexibility, shift risk away from taxpayers and end the political and fiscal manipulation of worker benefits which has turned what was supposed to be a safe investment for public sector workers into a gamble for both employees and taxpayers. Accurate accounting will enable States to know the tradeoffs necessary today and delay will only ensure what is a big problem turns into a crisis by decade’s end.”

    https://www.gpo.gov/fdsys/pkg/CHRG-112hhrg68362/html/CHRG-112hhrg68362.htm
    ………………………….

    What if I told you, you could actually identify a problem without ranting and insulting people based on your own biases and assumptions, and instead of just knee-jerk pension reductions, actually propose true pension reform, which will benefit both employer and employee???

    Reply

    • Posted by Anonymous on July 14, 2017 at 8:26 pm

      Indeed, right in the middle of your quote from Ms. Norcross, she stated……..

      “Second, stabilize public sector pension systems, to pay what has been promised by minimizing the burden on taxpayers, States should consider freezing and reducing the cost of living adjustment in current defined benefit plans, increasing the retirement age, increasing contributions from workers and importantly close the defined benefit plan and move workers to defined contribution plan.”

      Now THAT is right on the money (although “force” would be better than “consider”)…..especially if she means that those changes should apply the future service of all CURRENT workers.

      Reply

  4. Posted by Anonymous on July 15, 2017 at 8:16 am

    Time for the Fed govt to stop the presses and cut their P&B like the rest of us!

    https://www.vox.com/platform/amp/policy-and-politics/2017/7/13/15966034/senate-republicans-exemption

    Reply

    • Posted by Anonymous on July 15, 2017 at 10:35 am

      That applies to healthcare..

      The DB component of Federal pensions is 1% per year of service.

      State & Local Plans should be NO GREATER, now ranging from 1.8% to 3% in some State’s Plans.

      Reply

      • Posted by Anonymous on July 15, 2017 at 3:17 pm

        ABSOLUTELY!!

        Reply

      • Posted by Anonymous on July 15, 2017 at 8:01 pm

        And what about;

        The first 3% is matched dollar-for-dollar by your agency; the next 2% is matched at 50 cents on the dollar. This means that when you contribute 5% of your basic pay, your agency contributes another 4% of your basic pay to your TSP account.

        Quoting; State & Local Plans should be NO GREATER

        Reply

        • Posted by Anonymous on July 15, 2017 at 10:40 pm

          Any NJ (or ANY other place) Taxpayer with even half a brain should JUMP at the change to replace their State & Local Public pension Plan for the FED plan………. which in totality (both it’s DB & DC components) is no more than HALF as generous, and in many case MUCH less..

          Reply

          • Posted by Anonymous on July 16, 2017 at 12:06 am

            Of course THAT first step should be followed by halving the pensions AGAIN to brinbg them ALL THE WAY down to the level that Private Sector workers typically get from their employers.

            EQUAL, but NOT better ……. on the Taxpayers’ dime.

          • Posted by Anonymous on July 16, 2017 at 7:28 am

            I can’t speak for law enforcement but others would be agreeable to a 1% DBP accrual rate and up to a 5% employer match into a DCP just like the Feds!

          • Posted by Anonymous on July 16, 2017 at 8:31 am

            I wonder what the numbers would be based on 5% of total covered payroll (TPAF & State PERS), although only a small % of workers would maximize DCP amounts and future ARC based on 1% service accrual? Basically an ~44.4 % reduction of ARC for future service accruals compared to a maximum 5% employer match.

  5. Posted by S Moderation Anonymous on July 16, 2017 at 11:58 am

    One more time…

    Comparing pensions outside the context of total compensation is not valid. Biggs and Richwine in 2011 calculated federal employees had a much better total compensation than either Private sector workers or state/local workers…

    “Compared to similar private sector workers, we estimate that federal workers receive a
    salary premium of 14 percent, a benefits premium of 63 percent, and extra job security worth 17 percent of pay. Together, these generate an overall federal compensation premium of approximately 61 percent.”

    (Comparing Federal and Private Sector Compensation Biggs, Richwine, 2011)

    In a statement before the U.S. House of Representatives, Biggs was (maybe) more wishy, washy…

    ” I find an average federal salary premium of not 2 percent but of about 14 percent. My point is not that 2 percent is “wrong” and 14 percent is “right,” but rather that there is a range of reasonable answers found in studies of federal salaries and the CBO’s result is likely toward the lower end of that range.”*

    https://www.google.com/url?sa=t&source=web&rct=j&url=https://oversight.house.gov/wp-content/uploads/2017/05/Biggs-AEI-Statement-Federal-Compensation-5-18.pdf&ved=0ahUKEwiZg_rojI7VAhWQw4MKHZ6pBAsQFggpMAM&usg=AFQjCNHF4ai7YHMT_gFRTrUKMKImXRDGwQ

    * “there is a range of reasonable answers found in studies of federal salaries and the CBO’s result is likely toward the lower end of that range.”… implies that Biggs is toward the higher end.

    Reply

    • Posted by Anonymous on July 16, 2017 at 12:07 pm

      And one more time…………

      Discussing pension Plan “ffull unding” or the lack thereof without a concurrent discussion of the “generosity” of the underlying pensions …… upon which the annual required contribution (to achieve “ull funding is based…. “is not valid” (in SMD terminology”).

      Reply

      • Posted by Anonymous on July 16, 2017 at 12:10 pm

        ooophs …………….s/b “full funding”.

        Reply

      • Posted by S Moderation Anonymous on July 16, 2017 at 1:36 pm

        And…
        One more time…………

        “Generosity” of the underlying pensions is a given. Public pensions are almost universally agreed to be higher than in the private sector. On average, one could safely say “much higher”.

        “Generosity” of total compensation is not a given. There is almost total agreement that at the higher levels, public workers earn much less in salary than their private sector peers. The so-called “generous pensions and benefits” are not enough to compensate for lower salaries. By definition then, these pensions are not “excessive”.

        Equally important, in the middle group of public employees, the so-called “generous pensions and benefits” roughly compensate for the lower salaries, so the total compensation is nearly equal. By definition, these pensions are not excessive.

        At the lower educated level, public employees earn salaries nearly equal to their private sector peers, so the greater pensions and benefits mean the total compensation in this group is higher than in the private sector.

        The question is where the “average” lies. The answer is not “reduce all pension formulas by 50% (or more).

        Reply

  6. Posted by S Moderation Anonymous on July 16, 2017 at 12:36 pm

    Biggs statement to the house (*above) is one of the reasons I have and will continue to recommend his 2014 comparison of state compensation. I don’t know how anyone with “half a brain”, as TL says, can read that entire study and not realize how open to error (or bias) these studies are. (#23%bulls hit)

    https://www.washingtonpost.com/news/federal-eye/wp/2015/10/12/expert-we-have-no-idea-how-federal-pay-compares-to-the-private-sector-so-lets-stop-acting-like-we-do/?utm_term=.bbb33debe3fc

    On the federal pensions, it is true

    1) The formula for the DB pension is lower than for most state/local pensions, but…
    A) The last info I have seen indicates Federal workers contribute only 1% of salary, compared to typically 5%-12% for state workers.
    B) Federal workers on average earn higher salaries to compensate for the lower pensions. According to Biggs earlier studies, nationwide, state workers earn 12% less in cash pay than the private sector, while federal workers earn 14% more.
    C) All the while, keeping in mind Biggs quote: “My point is not that 2 percent is “wrong” and 14 percent is “right,” but rather that there is a range of reasonable answers found in studies of federal salaries…
    D) And S Moderation’s quote:. “There is a range of reasonable answers found in the studies of government vs. private sector pensions.”

    Trying to agree on a “real” comparison of public/private compensation is like trying to nail jello to a tree. (Or vice versa.)

    Reply

  7. Posted by Anonymous on July 16, 2017 at 1:12 pm

    Quoting SMD ………,..

    “1) The formula for the DB pension is lower than for most state/local pensions”

    “most” ??????????

    Name one State or Local Final Average Salary DB Pension Plan with a “formula factor” lower then the Fed formula’s 1%.
    **********************************************************************

    Now THIS gets unreal ……..

    In one comment (time-stamped July 16, 2017 at 11:58 am above) SMD is poo-pooing Biggs 14% as reasonable, sayng …………. “… implies that Biggs is toward the higher end.”

    And in his NEXT comment (just above, time-stamped July 16, 2017 at 12:36 pm) he flips 180 degrees and uses that SAME Biggs comment (supposedly now being an accurate one) to SUPPORT his position.

    You can’t make this stuff up.

    ****************************

    Did you learn that flipping burgers, or perhaps changing light bulbs……… flip it on, the flip it off ?

    Reply

  8. Posted by S Moderation Anonymous on July 16, 2017 at 1:56 pm

    T-nonymous says…
    “Name one State or Local Final Average Salary DB Pension Plan with a “formula factor” lower then the Fed formula’s 1%.”

    Moderation is not just a name. It is a way of life. Since I have not researched “all” state (and local) plans, I can not make that positive statement. “Most” is sufficient.
    ……………………………………………….
    T-nonymous says…
    “…uses that SAME Biggs comment (supposedly now being an accurate one) to SUPPORT his position.”

    Which is why Moderation says “According to Biggs”.

    ” According to Biggs earlier studies, nationwide, state workers earn 12% less in cash pay than the private sector, while federal workers earn 14% more.”

    Moderation has consistently been saying that one should take all these studies with a generous dose of salt. Biggs his own self seems to be saying much the same thing.

    ergo… #23%bulls hit

    Reply

    • Posted by Anonymous on July 16, 2017 at 3:48 pm

      Quoting SMD …………..

      “T-nonymous says…
      “Name one State or Local Final Average Salary DB Pension Plan with a “formula factor” lower then the Fed formula’s 1%.”

      Moderation is not just a name. It is a way of life. Since I have not researched “all” state (and local) plans, I can not make that positive statement. “Most” is sufficient.”

      **************************************

      No, “most” isn’t a “sufficient” nor a reasonable statement …….. it an answer expected from someone with an “agenda”, not from someone who truly speaks with HONEST “moderation”.

      With BOTH satisfying the word “most”, are you suggesting:

      (a) perhaps a wee bit over 50% of State & Local Public Sector DB pension Plans have “formula factors” higher than the Federal Plan’s 1% , or

      (b) perhaps 99++% of State & Local Public Sector DB pension Plans have “formula factors” higher than the Federal Plan’s 1%

      Which do you mean ?

      Which do YOU think is more likely ?

      Reply

      • Posted by Anonymous on July 16, 2017 at 4:21 pm

        Or (c) 100% of State and Local benefit levels do not have a hybrid plan with a DBP service accrual rate of 1% AND a DCP maximum employer match of 5% – equal to not less than (or greater than) Federal benefit levels!

        Reply

        • Posted by Anonymous on July 16, 2017 at 6:43 pm

          We know that the Fed Plan includes a (up to 5% of pay) DC component, and no one was trying to hide that.

          But just to address the point that I THINK you are making,,,,,,, the generosity of the Federal pension Plan (including BOTH it’s DB and DC components) is far lower than that of the TYPICAL State and Local Public Sector pension Plan.

          Give this issue some thought ….

          A large part of the LUDICROUSLY excessive generosity now part of most State & Local Plans is because of:

          (a) the VERY young ages at which Plan participants can collect their pensions WITHOUT an actuarial reduction, and
          (b) annual COLA increases (now suspended in NJ)

          ONLY the DB component of the Fed Plan (with it’s 1% formula-factor) benefits from (a) and (b) above. The DC component, functioning just like a 401K Plan does not.

          Reply

          • Posted by Anonymous on July 16, 2017 at 9:41 pm

            I forgot a biggie………………

            The dozens of small, medium, and large RETROACTIVE pension increases that have occurred over the past few decades ………… doesn’t happen under a DC Plan.

        • Posted by Anonymous on July 17, 2017 at 2:32 pm

          AND free parking at any state facility. For life!

          Reply

      • Posted by S Moderation Anonymous on July 16, 2017 at 5:03 pm

        I mean “most”.

        For the same reason I said (1:36 pm) “Public pensions are almost universally agreed to be higher than in the private sector.”

        “Almost”. Any time one makes an absolute statement, there are bound to be exceptions…

        As in…
        “However, the CBO also finds that federal employees with professional degrees (say, doctors or lawyers) or PhDs receive significantly lower pay than they would likely receive outside of government. To be exact, the CBO finds that salaries for the best-educated federal employees are 24 percent lower than the private sector while benefits are 3 percent lower, for a combined pay penalty of 18 percent.”

        public benefits are 3 percent lower than the private sector.*

        Andrew Biggs. Forbes, Apr. 26, 2017

        *3 percent lower, with the caveat, of course, that “there is a range of reasonable answers found in studies of federal salaries…”

        As I said, comparisons are as tricky as nailing a tree to jello. (or vice versa)

        Reply

        • Posted by Anonymous on July 16, 2017 at 5:45 pm

          Yes, comparisons can be tricky, but (as has been stated here before) ……. anyone with half a brain……………. knows that in the context of of your above statement re Federal pension Plans (quoting you):

          “The formula for the DB pension is lower than for most state/local pensions”

          MOST isn’t anywhere near the north side of 50%, but likely just a tad below 100%.

          Got a problem with being more forthright and honest in your commentary ?

          Reply

          • Posted by S Moderation Anonymous on July 16, 2017 at 7:59 pm

            Posted by S Moderation Anonymous on July 16, 2017 at 12:36 pm…

            “1) The formula for the DB pension is lower than for most state/local pensions,…”

            The Federal formula is NOT lower than Washington, Georgia, or Ohio, (and who knows how many others?) which also have hybrid systems.

            The point being, it would not be unusual for a system with lower average salaries to have higher pension formulas, and vice versa. That is why anyone with half a brain knows you cannot compare pensions outside the context of total compensation.

            Don’t be shocked if, as pension formulas are decreased, salaries are increased. 70% of $50,000 is the same as 50% of $70,000.

            The horse is dead.

          • Posted by Anonymous on July 16, 2017 at 8:08 pm

            I can’t wait to see Public Sector pensions MATERIALLY decreased for the future service of all CURRENT workers.

            If salaries “need” to be increased, so be it, but THEN, Public Sector workers will experience the “real world” where revenue limitations DICTATE how much you ca/will be paid, and how many workers will be employed ….. all to the benefit of the Taxpayers.

          • Posted by Anonymous on July 17, 2017 at 2:34 pm

            “I can’t wait to see Public Sector pensions MATERIALLY decreased for the future service of all CURRENT workers.”

            Hold your breath.

          • Posted by Anonymous on July 17, 2017 at 6:05 pm

            It’s a “when”, not an if.

          • Posted by Anonymous on July 17, 2017 at 6:31 pm

            It’s a train wreck, in slow motion. Some will be hurt sooner than others. Some will be hurt more than others. Bondholders and taxpayers may be hurt as much, or more, than public sector workers. And, since life is not fair, the rich will keep getting richer, and the poor will get whatever, if any, is left over.

            “when”

  9. Posted by Anonymous on July 16, 2017 at 2:57 pm

    Regardless of the varying facts depending on the source IF (and that’s a BIG IF) the Feds are going to get (the taxpayers) financially involved in this pension mess their going to have a say in establishing benefit guidelines. And one thing for sure it won’t be GREATER THAN current or future Federal pension benefit levels.

    Reply

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