Posted on July 15, 2015 in Pensions
The Southern Legislative Conference (SLC) has intensely focused on public pensions and the entire retirement architecture of the United States for more than 15 years. An SLC presentation before the Alabama Legislature a few years ago captures some of the important trends and developments on the topic. Even though the presentation is several years old, the essential elements of the presentation remain valid and provide a good synopsis of the topic. This presentation may be viewed here. Some of the strategies adopted by dozens of states to bolster their public pension plans include: increasing employee contributions; limiting COLA increases (a strategy complicated by recent court decisions); increasing age and vesting limits; trimming benefits; and issuing pension obligation bonds.
In the wake of the 2008-09 market decline and Great Recession, nearly every state and many cities have taken steps to improve the financial condition of their retirement plans and to reduce costs. Although some lawmakers have considered closing existing pension plans to new hires, most determined that this would increase — rather than reduce — costs, particularly in the near-term. Based on the most recent information provided by the U.S. Census Bureau, 3.9 percent of all state and local government spending is used to fund pension benefits for employees of state and local government. Pension costs have remained within a narrow range over a 30-year period, declining from a high point of 5 percent to a low of 2.3 percent in FY02, and reaching 3.9 percent in FY12. State and local governments contributed, in aggregate, an estimated $109 billion to pension funds in FY13, a figure equal to 3.9 percent of projected state and local direct general spending for that year. This February 2015 National Association of State Retirement Administrators Issue Brief, entitled 'State and Local Government Spending on Public Employee Retirement Systems,'provides more details on these trends.
After its creation in the 1990s, the annual required contribution (ARC) quickly became recognized as the unofficial measuring stick of the effort states and local governments are making to fund their pension plans. A government that has paid the ARC in full has made an appropriation to the pension trust to cover the benefits accrued that year and to pay down a portion of any liabilities that were not pre-funded in previous years. Failing to meet its ARC is one of the primary reasons for a public pension plan to be in a financially perilous position. This March 2015 NASRA publication, entitled 'The Annual Required Contribution Experience of State Retirement Plans, FY 01 to FY 13,' contains additional information on the topic.
The Center for Retirement Research at Boston College is one of the nation's top research institutes studying state and local government pension plans. In February 2013, the Center issued a report entitled 'State and Local Pension Costs: Pre-Crisis, Post-Crisis, and Post-Reform.' The publication notes that in the aftermath of the Great Recession, states responded to their pension challenges by enacting a mix of revenue increases and benefit cuts. The paper poses a number of salient questions: First, whether plans stick with the reforms, or instead, expand benefits again when the economy improves is an open question. Second, the projections presented in this study assume that plans consistently make their annual required contribution, a degree of fiscal discipline that has been lacking in some jurisdictions. Third, retiree health plans represent an additional and growing claim on state-local budgets, given the rising number of retirees and healthcare cost inflation. Finally, plan finances are sensitive to the performance of the stock market, so lower-than-expected returns going forward could raise costs.
Another June 2015 publication from the Center for Retirement Research is entitled The Funding of State and Local Pensions: 2014-2018 As the publication notes, a strong stock market and the elimination of 2009 from the smoothing process led to a sharp increase in actuarial assets and to the first improvement in the funded status of public sector plans since the financial crisis. What happens from here depends very much on the performance of the stock market. In 2018, assuming plans achieve their expected return, they should be 81 percent funded. If returns are lower, as predicted by many investment firms, funding will stabilize at about 77 percent.
A March 2015 publication prepared by the Municipal Securities Research Division of Wells Fargo Securities, entitled 'State Revenues and Public Pensions,' contains valuable information. This publication reflects on how the states have become much more dependent on the financial markets' performance since 2000. This Wells Fargo publication also concludes that:
Posted on June 26, 2015 in Miscellaneous
Information from selected states on the debate regarding the privatization of alcohol and beverage control (ABC) operations follows. One of the major areas of discussion when states consider privatizing their monopoly of the sale of alcohol is the potential public health and safety implications of the change. A number of studies have been conducted on this topic, including the following:
Virginia is one such state and when then Governor Bob McDonnell floated the proposal after his election in 2009, George Mason University carried out the following study.
The study's conclusions indicate that "government-spirits monopolies do not generate the health benefits that their proponents trumpet. The plain fact seems to be that alcohol-related problems are unrelated to whether or not a state government prevents private, competitive businesses from selling spirits to the general public." Also, in Virginia, in January 2015, Senator Ryan McDougle sponsored SB 1032 in an effort, in his words, to "allow ABC to operate like a business as opposed to a government agency." Similarly, in the Virginia House, Delegate Dave Albo, proposed HB 1776 with the goal of replacing ABC with the authority to operate outside of government authority.
North Carolina is another Southern state that has grappled with the option of privatizing their ABC operations. The North Carolina Institute for Constitutional Law released a detailed report entitled North Carolina's ABC System Needs Modernization. In addition, North Carolina's Alcoholic Beverage Control (ABC) Commission released its 2014 annual report recently. Also, of relevance in this connection is an interview with the chair of the NC ABC Commission, recently appointed by Governor Pat McCrory.
Pennsylvania also considered privatizing their ABC operations and reviewed the following study. An argument often is made for state control as a means of achieving some desired social outcome, i.e., reducing alcohol consumption, underage drinking, and alcohol-related traffic deaths by controlling wholesale and retail alcohol markets. However, this comprehensive, 48-state study concluded that there was no link between market controls and social goals.
Many states follow the three-tiered system of alcohol distribution with the three tiers comprising producers, distributors, and retailers. In its simplest form, the three-tiered system requires that producers sell their products to only wholesale distributors who, in turn, can then sell to retailers, and only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers. Details of this three-tiered system from around the United States follow: