Friday, November 18, 2011

The sky is falling: Not!

Here we go again! Public employee pension systems are supposedly crushing the life out of state finances. Just listen to part of a recent column by Leo Hindery, Jr --former CEO of AT&T Broadband and Liberty Communications--in the Huffington Post. He is referring to the Rhode Island State Pension Fund.

"Rhode Island's state pension fund now consumes 10% of every state tax dollar, and this figure is currently projected to double within just the next few years....And the root problem? Until just this year, Rhode Island calculated its pension number by assuming an average annual rate of return on its investments of 8.25% -- in fact, for the last decade its actual average return on investment was only about 2.40%. And in each of the last 10 years the state's fund paid more money to retirees than the fund collected from state employees and taxpayers combined....Rhode Island is a microcosm of what's wrong with the country's $3 trillion worth of public pensions plans in the aggregate, and it's truly the 'canary in the (national pension crisis) coal mine'. The state -- just like 49 other states -- made promises it didn't sufficiently fund along the way and now can't keep. That bill has come due, so to speak, and...the state is being forced to choose among the state reneging on both past and future promises to workers, undermining its future by cutting back on investing in everything from schools to green energy to health care, or, even though in the midst of an ongoing recession, raising revenues through large tax increases."

It's interesting to compare this with the recent news release by the New York State Teachers' Retirement System:"A robust total fund return of 23.2% net of fees for the fiscal year ended June 30, 2011 was the largest rate of return posted in 25 years by NYSTRS. The figure was nearly double the previous year's return of 12.1%."

"The two consecutive years of double-digit returns helped the System regain much of the loss sustained during the devastating 2008-09 economic crisis. "

"As of June 30, 2011, total net assets were valued at $89.9 billion, an increase of more than $13 billion from a year earlier. NYSTRS has achieved returns well above the 8.0% assumed rate of return in four of the past six years. The System's 25-year annualized rate of return stood at 9.0% — or 100 basis points above the actuarially assumed rate. " 

Remember that part about the Rhode Island system paying out more in benefits than it took in from members and employers? Here's the way the NYSTRS looks at it: "The NYSTRS plan has also proven to be extremely efficient and cost effective. For the 20-year period ended June 30, 2011, NYSTRS collected $15.3 billion in member and employer contributions while paying out $63.5 billion in benefits. Despite distributing nearly $50 billion more than it took in, System assets rose from $31 billion to $89.9 billion."

Are employer contribution rates skyrocketing out of control? Not for NYSTRS: "Due in large part to the System's long-term investment success, the employer contribution rate has remained in single digits over this same 20-year period. In the 1990s the average rate was 5.66% and in the 2000s it was 4.37%. The 11.11% rate applicable to 2011-12 payroll will be the first double-digit rate in 22 years."

It should be noted that the employer contribution rate is based on a rolling 5-year average of investment performance. That means that the losses which occurred in 2008-2009 will work their way out of the calculation in a couple of years. If the stock market doesn't plummet again, it is reasonable to assume that the ECR will actually decrease in the future.

Why is NYSTRS doing so well? The simple answer is that it is fully funded. Other state systems are also supposed to be fully funded, but in New York's case the required contributions by public employers were actually made each year. States such as New Jersey and California took several years off from making contributions as a way of keeping taxes lower.

As i have pointed out before, that's like contracting with someone to paint your house then, when the house is painted telling the painter, "I spent some of the money I was going to use to pay your bill on a big new flatscreen TV, so you'll have to accept less than the contract price." And then, you accuse the painter of being greedy when the painter insists that you pay him the agreed upon price!

Other state public employee pension systems may be in trouble, but it's not because of the "greed" of the public employees. If you hear anyone trying to lump NYSTRS in with those other systems, now you have the facts to set them straight!

Friday, November 11, 2011

And then, a teacher picked up her pen...

I like Fareed Zakaria. He usually has intelligent, informed ideas concerning his specialty, foreign affairs. Last week, he wrote a piece called "When Will We Learn?" for Time magazine and my head nearly exploded.

Now, it didn't start out that way. I agreed with almost all of his thoughts. You really should click on the link above and read the entire article, it's not long. If you're short on time, here are some of his points:

" is worth noting that [Steve] Jobs got a great secondary education. The school he attended, Homestead High in Cupertino, Calif., was a first-rate public school that gave him a grounding in both the liberal arts and technology. It did the same for Steve Wozniak, the more technically oriented co-founder of Apple Computer, whom Jobs met at that same school. In 1972, the year Jobs graduated, California's public schools were the envy of the world. They were generally rated the finest in the country, well funded and well run, with excellent teachers. These schools were engines of social mobility that took people like Jobs and Wozniak and gave them an educational grounding that helped them rise."

"Today, California's public schools are a disaster, beset by dysfunction and disrepair. They rank at the bottom of the country, just as the U.S. now sits at the bottom of the industrialized world by most measures of educational achievement. The World Economic Forum ranks the U.S.'s educational system 26th in the world, well behind those of countries like Germany, Finland, the Netherlands, Denmark, Canada and Singapore. In science and math, we score even worse."

OK, no surprises here. I'm nodding in agreement. He continues: "....As American education has collapsed, the median wages of the American worker have stagnated, and social mobility—the beating heart of the American dream—has slowed to a standstill. Education is and always has been the fastest way up the socio economic ladder. And the payoff from a good education remains evident even in this weak recovery. The unemployment rate for college graduates is just 4%, but for high school dropouts it is 14%. If you drop out of high school—and the U.S. has a 25% dropout rate—you will have a depressed standard of living for the rest of your life." More nodding from me.

"The need for better education for most Americans has never been more urgent. While we have been sleeping, the rest of the world has been upgrading its skills. Countries in Europe and Asia have worked hard to increase their college-graduation rates, while the U.S.'s — once the world's highest — has flatlined. Other countries have focused on math and science, while in America degrees have proliferated in "fields" like sports exercise and leisure studies." More nodding, and groaning. The groaning is because I watched the Republican debate Wed. night and one of the two things Rick Perry could remember he would do away with as soon as he became president is the Dept. of Education. That'll sure help us catch up with the rest of the world!

Zakaria goes on to say we need to work harder, like they do in South Korea's schools and get better teachers, as in Finland. "Finland has great teachers, who are paid well and treated with the same professional respect that is accorded to doctors and lawyers. They are found and developed through an extremely competitive and rigorous process. All teachers are required to have master's degrees, and only 1 in 10 applicants is accepted to the country's teacher-training programs. The contrast with the U.S. is stark. Half of America's teachers graduated in the bottom third of their college class."

I like that part about being paid and treated well. My head is now bouncing like one of those bobble-head dolls on a dashboard. And then, my head explodes!

"There are many more ideas, many of them worthwhile and worth trying, but you can get lost in the details of the education debate. These two seem simple—work more and get better teachers. Yet implementing them is anything but simple. They bump up against an education system that is deeply resistant to change and teachers' unions that jealously guard their prerogatives. All the specific measures that would allow students to work more and good teachers to be identified and rewarded— more days, longer hours, merit pay—are mostly opposed by the teachers' unions and other guardians of the status quo." [Emphasis mine.]

You almost got it, Fareed, but you bought into the anti-teacher, anti-union BS being spouted by the education "reformers." I've never met a group of people who so desperately want to change the educational system as do teachers. Have a look. Teachers don't control the system! And I will not apologize for my union's position that adding hours, days or weeks to my work load should mean an increase in compensation. 

So I reached for my keyboard. And then I stopped. I knew there would be an inservice teacher somewhere in America who would respond. This week's issue of Time proved me correct. Here's the letter that Laurie Floyd of Howell, NJ sent in response to Zakaria's piece. (Note: If you are unfamiliar with the Khan videos she mentions, please read the Zakaria piece.)

"Perhaps I shouldn't have read Zakaria's article after spending the last hour of my 10-hour teaching day looking for a copier that worked and then hand-stapling over 100 tests. I was probably a bit cranky to start. Then again, maybe I am a little tired of people who have never taught a roomful of 34 high school students telling me I am doing it wrong. I too love the Khan Academy model, but how would I get all my students to watch the Khan videos at home, on their own time, when many do not have a working computer and some do little, if any, homework?" (And, by the way, I do not teach at an inner-city or rural school; I teach in a wealthy suburb.) Instead of blaming us teachers, ask us what would actually improve education. Here's my answer: 1) Deal with childhood poverty, 2) hold students partly responsible for their education so they meet us at least halfway, and 3) give teachers more time to prepare and receive professional development. A working copier would help too."

I couldn't have said it better.

Wednesday, November 9, 2011

Some thoughts on the day after elections.

Let's begin with the one that feels the best: Ohio. Voters there overwhelmingly repealed the law taking collective bargaining rights away from teachers, police, firefighters and other public employees.

The typical voter doesn't pay a lot of attention to politics, except close to election day. But they're not stupid. They're smart enough to get downright cranky when the folks who had just won an election with a promise of "Jobs, jobs, jobs" deliver, instead,  an anti-union law which had never been mentioned during the election campaign.

Several states allow voters to overturn laws enacted by their state governments. It seems to be a good check on the power of the state, without going as far as the "voters make laws" ballot initiatives in states like California.

Maine also has the ability of voters to repeal state legislation, and it was used last night to overturn the new ban on same-day registration and voting. Maine had had same-day registration for almost 40 years, and they seemed to have liked it.

Maine voters apparently agree with Andrew Rosenthal's column in Monday's NY Times titled "Voter fraud: Does it happen?" Rosenthal went in search of the voter fraud that Republicans claim is serious enough to justify new "photo ID" requirements for voting. He looked at some of the deepest "red" websites, such as "Red State," to see what the fuss was about. His conclusion: "...from what I can tell every one of the Red State incidents revolved around corrupt poll workers or local officials or some other functionary messing with absentee ballots. That’s an age old problem but one that voter ID laws will not fix. I’m still not seeing evidence of large numbers of individuals impersonating someone else to cast a ballot or voting despite the fact that they don’t meet eligibility requirements. "

In Mississippi, 55% of that state's very conservative electorate refused to change the state constitution to define a fertilized egg as a person. This would have, of course, outlawed abortion in the state, but would also have outlawed forms of birth control--such as the pill--that prevent implantation of that fertilized egg in the uterus, and also prevent pregnancies that might lead to abortion.

It was interesting to see an interview with outgoing Mississippi governor Haley Barbour yesterday in which he gave thoughtful consideration to some of the downsides of the proposed change. He brought up one that I had not considered: ectopic pregnancy. A fertilized egg implanted somewhere other than the uterus--usually the fallopian tube--is a life-threatening situation for the mother. Under the proposal, the doctor could be charged with murder for removing the "person" from the mother. After explaining this, Barbour went on to say that he had voted "yes." It must be the water.

Closer to WNY, the Buffalo News reports that Erie County Comptroller Mark Poloncarz soundly defeated incumbent Chris Collins for the post of Erie County Executive. If you're not familiar with Erie County politics, Collins is a well-to-do businessman whose platform four years ago was to "run government like a business." Well, he did and that's part of the problem.

Donn Esmonde, in his column this morning in the Buffalo News, quotes UB political science professor Jim Campbell: "I think that's the downside of [Collins'] business experience. CEOs can do what they want, and people have to suck it up. But this is politics. People can answer back in the voting booth."

Governments are like business in that the guy in the corner office needs to be able to handle budgets, manage people, etc. Unlike business, however, the man at the top is not the ruler of all he surveys. There are those other pesky branches of government with equal powers in a checks-and-balances arrangement designed to prevent the head man from acting like a king.

Esmonde points out that this was the problem with Collins: "At times, Collins acted more like a king than a county executive. He denied the Justice Department full access to investigate mistreatment at county jails. He refused to release funds OK'd by the County Legislature, only loosening his grip after getting sued. Collins seemed not to comprehend, or at least not to respect, the Legislature's role as a check on an executive's absolute rule. All of it painted an image of the stereotypical hardhearted CEO, whom voters Tuesday decided they no longer wanted as county executive."

On balance, last night's elections results went a long way toward restoring my faith in the American electorate.

Monday, November 7, 2011

Young vs old wealth gap growing? Not so fast!

There's a new report out today from the Pew Research Center which is sure to get a lot of attention in the days leading up to the congressional supercommittee report deadline of Nov. 23. Here are the first two paragraphs of the story from the AP as posted at the Huffington Post:

"The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday."

"While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation."

Here it is in graphical form from a story at CNN/Money:

According to the CNN/Money story: "Net worth includes the sum of a household's assets (like equity in a home, car and savings and retirement accounts) minus its debts (like mortgage, car and student loans and credit card debt)"

Why the big disparity? CNN says that: "Perhaps the biggest factor leading to the wealth gap between the ages though, is the housing market....Most of today's older homeowners got into the housing market long ago, at 'pre-bubble' prices," the report said. "Along with everyone else, they've been hurt by the housing market collapse of recent years, but over the long haul, most have seen their home equities rise."

Read the full stories to get a better picture of what's happening, but this certainly doesn't help those who are trying to defend Social Security, Medicare and Medicaid from cuts by the supercommittee. On the surface, it looks like the geezers are making out like bandits while the young are getting screwed.

Let's go under the surface a bit. Suppose your net worth is $170,494. Are you rolling in clover? Maybe, until you consider healthcare costs.

Wait a minute! Old folks get free medical care through Medicare! No way. Take a minute and refer to one of my previous posts: Hey Washington, we've already got plenty of skin in the game! You will see that it is reasonable to assume that a retired couple on Medicare--and fully insured with medigap and prescription drug insurance--will have out-of-pocket medical costs approaching $10,000/year.

Actually, according to the Money page at US News, the picture is worse: " In the past, I've written that retired couples will need between $205,932 (Boston College Center for Retirement Research estimate) and $225,000 (Fidelity Investments estimate) to coverhealthcare costs in retirement."

"A new analysis by the nonpartisan EBRI puts the number for a couple currently age 65 at a staggeringly high $635,000, and that doesn't include long-term-care costs. This ultraconservative calculation is higher than the other estimates because it is designed to give the retired couple a 90 percent chance of having enough money to cover all health bills beyond what Medicare covers."

"However, if you are willing to accept a fifty-fifty chance of being able to pay your out-of-pocket expenses, $212,000 would be sufficient for a couple (right smack in the middle of the other two estimates)."

"EBRI also calculated that a 65-year-old single man will need $331,000 and a single woman $390,000 to be almost completely certain of covering all out-of-pocket retiree health costs. If you're willing to accept a fifty-fifty chance, those numbers can be halved, EBRI says."

How's that $170,494 net worth looking now? And isn't it wonderful that we old folks in the USA don't have to put up with one of those French or German health care plans that cover everything--including longterm care--at about half the per capita cost of the American system. We Americans are just so bright and--what's the word?--exceptional.

Oh, I know they're paying higher taxes, but take a look at those numbers I just quoted and tell me who's getting the better deal.

Thursday, November 3, 2011

Is Social Security broke?

OK, stop hyperventilating. The short answer is "not even close." But first, a couple of updates on my last post.

It now appears that the supercommittee is not looking at "clawing back" any Social Security benefits already in place. Instead, they are talking about reducing future benefit growth in a way that will result in about a 9% benefit decrease compared with the current system for someone who is now 65 by the time they reach age 90.

As I said in the last post, they want to use a different way of calculating the cost-of-living figure on which any increase in benefits is calculated each year. They claim that the current system is overly generous.

Right. That would be the overly generous system that resulted in ZERO cost of living increase for 2010 and ZERO cost of living increase for 2011. There will be a 3.6% increase in benefits for 2012, so that averages out to 1.2%/year for the last 3 years. Don't spend it all in one place! Oh, and don't forget that some of that increase will be eaten up by an increase in your Medicare Part B premium.

By the way, it turns out that the Bureau of Labor Statistics did a little experiment. They actually came up with a cost of living index based on what seniors buy. Turns out that the current figure used by Social Security is under-generous, instead of over-generous. Whoops!

Now, some idiots on the editorial page of the Washington Post are claiming that Social Security is broke because it's "cash negative" for the year. William Greider has a nice piece in The Nation called "Smearing Social Security," in which he addresses some of the more ridiculous claims. For example, the Post claims: "Adding billions to US budget woes,” the headline read. Instead of piling up surpluses, as the Social Security trust fund has done for nearly thirty years, this year the system became “cash negative.” Social Security, the Post warned, “is sucking money out of the Treasury.”

Greider goes on to say that "Last night, I heard a TV anchor remark in passing, “We just read that Social Security is in the red.” He answers: "Baloney. The truth—if truth is still relevant to Washington politics—is that Social Security has never contributed a dime to the federal budget deficits. Therefore, cutting Social Security for the elderly will do nothing to relieve the deficit problem....In fact, Social Security has piled up enormous surpluses—now $2.7 trillion—which the federal government has borrowed and spent on other things, wars or highways or corporate tax breaks."

And here's where another big lie about Social Security comes in. I'll bet you've heard someone say that there really isn't any Social Security trust fund, it's just a "bunch of worthless IOU's,"

Let's talk about that for a minute. Those "worthless IOU's" are U.S. Treasury Bonds. They're what used to be called the "widows and orphans" investment because the risk was as close to zero as you could imagine. They don't pay a ton of interest, but you're damn sure you'll get your principal back when the bonds come due.

Lots of people hold Treasuries in their portfolios and, trust me, they don't think of them as "worthless IOU's." Nations such as China have lent money to the USA and receive Treasuries in return. Trust me, China does not see these as "worthless IOU's." So why are the Treasuries held by Social Security any different. It's simple: they're not. 

According to Greider: "The nation’s largest creditor is not China. It is the working people of America and their employers who collectively have amassed Social Security’s huge surplus through the weekly FICA contributions required by law. This wealth is the nest egg that will pay for swelling benefits as the baby-boom generation retires. Far from being broke or “sucking” billions from the Treasury, the Social Security trust fund will continue to accumulate larger and larger surpluses during the next ten years, reaching $3.7 trillion by 2022, according to the system’s trustees."

Greider's full piece is well worth the five minutes it will take to read it. Here's the link again:

One last thing: The last post generated some comments at the blog. Remember that comments in the blog are "moderated," which means that they are not posted immediately, Instead, they come to me via email and I approve their posting. I check my email several times each day, but there may be several hours between when you post your comment to the blog and when it actually appears, particularly if you're a night-owl and do it at 2 AM!

I continue to promise that all comments will be posted, whether you agree with my position or not. Moderation is used to avoid the obscene, hate-filled comments which I'm sure you have encountered in other places where comments are allowed without moderation.

Tuesday, November 1, 2011

I'm ticked off, and you will be too!

How would you like to see your monthly Social Security check SHRINK by 3%? If you currently receive $1500/month, that would mean a DECREASE of $45 each month, or $540 each year. Well, get ready because that seems about ready to happen!

According to a piece by Dean Baker in yesterday's Huffington Post: "If anyone still questioned who owns Washington, the Congressional supercommittee charged with reducing projected deficits by $1.2 trillion seems determined to end any doubts. According to press accounts, both the Republicans and Democrats on the committee support a plan to reduce average Social Security benefits by 3 percent."

"This particular cut is especially pernicious since it will hit the oldest and poorest beneficiaries hardest. A person who is in their 90s and has been getting benefits for 30 years would see a reduction in benefits of close to 9 percent under the new cost-of-living adjustment formula apparently supported by members of the committee."

The claim is that the current method used to calculate the "cost of living" increase for Social Security recipients is overly generous. The claim is that when the price of apples, for example, in the "basket of goods" used to figure the consumer price index goes up, we don't continue to buy apples but, instead, purchase a less expensive fruit.

While this may be true, let's think about the things that seniors purchase. Look back over your expenses for the last year and I'll bet you find a large amount of your spending was on medical/dental expenses and prescription drugs. When medical costs go up, do you switch to the less expensive witch doctor? When prescription drug prices rise, do you switch to the less expensive herbal medicines? I didn't think so.

Notice that the 3% reduction is for the folks newest to Social Security. The older folks who have been receiving benefits for the longest time would have their benefits recalculated from the time they began receiving Social Security using the stingier cpi formula, thus the 9% benefit reduction for the 90-year-old mentioned above.

By the way, let's remember that Social Security has not contributed one penny to the deficit! It currently has a surplus which will allow current benefits to be paid for the next 25 years, and at a level of 75% of current benefits beyond that. If we simply remove the cap on earnings subject to Social Security taxes (currently at $109,000) any Social Security funding problem disappears.

Is Social Security an overly generous program? According to Jeff Madrick: " The average payment is $14,000 a year. It is getting less generous. It used to replace 55 percent of retirement income, but benefits were reduced in the 1980s. It now covers on average 41 percent of retirement income. In 2031, it will cover 32 percent of retirement income."

Madrick continues: "What will drive future budget deficits is Medicare and Medicaid, not Social Security, and for the umpteenth time, the reason is that overall health costs are expected to rise quickly. This means we have to reform our uniquely inefficient healthcare system. Congress is, as usual, diverting us from the real issues. No wonder Americans like Occupy Wall Street."

Who's on the "supercommittee?" Click here for a CNN/Money post giving information about the committee members.