Friday, June 28, 2013

The rush to privatize.

Before we get to today's main subject, let's take a moment to revisit Gov. Scott Walker and the state of Wisconsin.

If you recall, Walker ran on a platform of "Jobs, jobs, jobs." Once elected, he seemed to forget about jobs and instead decided that his first priority was to take away the collective bargaining rights of most public employees. I say most because he did not find collective bargaining by police and fire unions to be a problem. The fact that police and fire unions supported him in the election probably didn't hurt either.

Wisconsin was no. 11 nationally in job creation when Walker took office. I understand that they are now no. 44 and projected to be no. 49 next year. So much for "Jobs, jobs, jobs." Now for privatization.

People seem to feel that moving government jobs to the private sector will be a more efficient use of resources. They tend to see government employees as the gang that can't shoot straight while private enterprise is a lean, mean fighting machine.

Our embassies used to be guarded by marines. Now they are guarded by "private contractors" who often make three times the pay of a marine. That's more "efficient?"

A huge number of our prisons are now run by private contractors. That's worked so well that 3 states recently cancelled their contracts with one of the giant private prison contractors. Instead of making things more efficient, the contractor apparently made them more profitable by doctoring staffing records to make it seem that the facility was fully staffed when it wasn't. Scandals have occurred in which judges have been bribed to send prisoners to one profit-making facility or another.

And now it seems that the Edward Snowden story has added another layer of privatization. We already knew that Snowden was employed by a private contractor--Booz Allen--instead of being a government employee. Now it turns out that Snowden's top-secret security clearance was issued based on a background check by a private contractor, USIS.

Turns out that USIS is supposed to do two checks. The second makes sure that nothing was missed in the first check. It seems that between 2008 and 2011 USIS claimed to do these second checks but actually did only half of them. This allowed them to clear more people in less time, thus qualifying for incentive awards!

Is it any wonder why the final goal of the school "reform" movement seems to be the privatization of what once was public education?

Sunday, June 16, 2013

A few things to remember about your pension.

It's school budget time of year and griping about pensions earned by teachers is in the air. Here are a few things to remember about your pension:

1) There are states and municipalities which are having great financial difficulties paying for the pensions they promised their retirees. In virtually all of these situations, the problem is that the governmental unit granted the pension benefits but did not also begin to set funds aside to pay for those benefits. In the case of states such as New Jersey, Illinois, Rhode Island, California, etc. several years worth of funding were skipped in order to keep taxes low. Is this the fault of the retirees? No way! Thankfully, New York is not in this situation. Every contribution needed to fund our pensions has been made in a timely manner.

2) When I began my teaching career in 1967, schools were required to contribute about 23% of salary to the NYS retirement system. By the early 2000's that figure had dropped to less than 1%. Then came the financial collapse of 2008. The NYSTRS assumes--and has produced over 25 years-a return on its investments of 8%. When the stock market tanked, that return disappeared and schools needed to increase their contributions. Next year, the employer contribution rate will be around 14%. While that is almost half the rate from the 1960's, it represents a big jump from the less than 1% a few years ago, allowing the anti-teacher forces to yell that "pension costs have increased by over 1400% and are unsustainable." The employer contribution rate is based on a rolling 5-year average investment return.The stock market has performed well in the last few years and the losses of 2008-2009 will soon drop out of that 5-year average.

3) The average NYS teacher's pension is $39,000/year. Certainly not a huge amount. In fact, 76% of NYSTRS pensions are less than $30,000/year.

4) Unlike private-sector 401(k) plans, teacher contributions to their pension system are taxed.

5) Although public employee pensions are exempt from NY income tax, no one--private or public--is taxed on their Social Security benefits. In addition, private pension benefits are exempt from NY taxes for the first $20,000. This means that a couple with two private-sector pensions has a $40,000 exemption from NY income tax.

6) We often hear that politicians "buy" the votes of teachers and other public employees by "sweetening" pension benefits. From the 1960's through today we have seen our pensions modified from Tier 1 through today's Tier 6. Each modification has seen a decrease in benefits. Some "sweetening!"

7) Yes, we do have a COLA. But, you must be at least 62 and have been retired for 5 years before you can begin receiving a cost-of-living adjustment. In addition, the COLA--which applies to only the first $18,000 in pension benefits--is 1% or half the increase in the consumer price index, whichever is LESS. No matter how high the CPI spikes, the COLA cannot be larger than 3% of the first $18,000 of pension benefits. Hardly a kingly amount!

8) "I don't have a pension, why should teachers have something that I don't?" Private-sector employers saw the 401(k) as a way to drop their defined-benefit pension plans and lower their pension costs. The problem is that it costs twice as many dollars to produce the same retirement benefit in a defined-contribution (401k) plan compared with a traditional (defined benefit) pension. If employers are saving money, that can only mean that the expected benefit at retirement has to be reduced. As time goes on, people have been discovering that they have been hoodwinked by this switch. Could private-sector employers afford traditional pensions? You may recall that they are sitting on almost $2 trillion at the moment. Corporate profits are at record high levels. What do you think? Or we could all join hands and race to the bottom! (For a full discussion of the problems with 401(k) plans, see "What's so bad about 401(k)-type plans?")

Saturday, June 8, 2013

Are your property taxes too high?

Let's talk property taxes. You know, the ones that pay for schools, roads, police and fire protection, the county health department and stuff like that. While you may not know how much income tax you paid last year, you probably would come close to the right amount of your property taxes. Everyone gripes about them.

Are your property taxes too high? On what do you base your answer? Really, what's the benchmark? What if your property taxes could be cut in half? Would they seem more reasonable then?

It just so happens that I'm living in the middle of an interesting experiment in tax relativity. As you may know from reading previous posts, my wife and I have built a new home in Ocala, Florida. We moved in at the end of last October. We're back in WNY this summer to try to sell our home in Fredonia. As such, we're living in two different places at pretty much the same time.

Through the magic of the internet, and the fact that both Dunkirk and Ocala newspapers are available online, we have been able to stay in touch with what's happening in both "homes."

The Ocala Star Banner reports that last Friday a "bombshell" was dropped in the schools of Marion County. We'll get to that in a minute.

First, you should know that while many in WNY are trying to get some of the smaller school districts to merge for the sake of efficiency and the ability to offer a complete educational program, Florida is years ahead of NY in this regard. All schools in each Florida county are controlled by a single countywide school board and administration. Can you imagine the hassle that would be involved in doing this in our WNY counties?

Ocala, located in Marion County, is in central Florida about 90 minutes northwest of Orlando. In population, it's about twice the size of Jameston, NY. Ocala's largest industries are agriculture, race horses and old people. Most of the horses you see in the Derby, Preakness, etc. were born and bred in the Ocala area. There are lots of "55+" communities--you must be 55 or older to live there--in the Ocala area. Part of the most famous such community--"The Villages"--is located in Marion County.

No, we didn't build in The Villages. We looked but went elsewhere. But that's a different story.

The home we built in Florida has about the same full value as the one we have in Fredonia. Our property taxes in NY are about $3900. In Florida, they will be a bit less than $1600. We're in the Forestville school district, so our NY property taxes might be considerably higher if we lived in the Village of Fredonia and the Fredonia Central School District.

We think that this big drop in property taxes is wonderful. But the people in Florida don't have the advantage of living in two places at the same time and they believe that their property taxes are oppressive.

Let's understand that it's tough to see Florida as a high-tax state. There is no state income tax. There used to be a tax on investments, etc. but that was abolished several years ago. Sales tax pays a large portion of the tax load in Florida, and we thank you for visiting Florida and leaving your sales taxes with us. Are sales tax rates high? We pay a 6% sales tax in Ocala, considerably less that WNY.

As I said, my Florida neighbors believe that they are being taxed to death. In the last year efforts to raise  funds for the local nonprofit hospital--to keep it from being sold to a for-profit hospital chain--were voted down. As was an effort to raise the needed funds for maintenance of the Marion County school buildings. Combined, these two tax increases would have meant about $130/year for the average homeowner. Voters said no.

Florida is no different from NY in that times have been tough for schools in the last few years. State aid has shrunk, but buildings still need to be maintained, busses run, staff paid, etc. The schools in both states have made valiant attempts to control costs. In order to keep tax increases low or nonexistent they have spent down their "rainy day" savings to a point at which they are mostly gone.

Then, last Friday, the Marion County School Superintendent dropped a bombshell. He announced that there was a $29-million deficit in the 2013-2014 school budget. To begin to address that shortfall, there will be 261 layoffs including firing all 160 first-year teachers and 72 teacher aides. There will also be 58 positions cut in art, music and phys. ed.

Now here's the icing on this cake. The fired first-year teachers will be replaced by certified substitutes paid $18,000/year with no benefits.

Read that last paragraph again because Ocala, Florida just may be the canary in the coal mines of NY public education. Most upstate districts have been using their reserves to keep the wolf from the door and it won't be long before those reserves are exhausted. If Florida residents paying half the taxes that NY folks pay won't vote to support their schools, it's unlikely that local NY taxpayers will step up.

But there's a bit more to the Florida story, besides the fact that school board members are paid $36,000/year in Marion county. Last year the state effectively reduced teacher salaries by 3%. This year, the state is giving teachers a $2500 raise.

The head of the Marion County School Board has said that the 160 first-year teachers can keep their jobs if all the Marion County teachers donate their raises to the school district.

By the way, if it weren't for tenure I doubt that it would be the first-year teachers being fired to help the budget. The move away from tenure is simply an attempt to make it easier to throw experienced--and more expensive--teachers overboard.

Thousands of NY teachers and their supporters are rallying in Albany to defend public education. Let's support them before our schools are privatized and all teachers earn $18,000/year with no benefits. Imagine the quality of teachers then!

Sunday, June 2, 2013

E pluribus hubris

Well, that was a nice "vacation." We came back to WNY and did a lot of clean-up, fix-up, paint-up stuff and put our Fredonia home on the market. The "open house" was yesterday, so things are a little more calm at this point.

Let's talk about retirement and--along the way--America. We seem to live by several familiar phrases. The first to come to mind is, "We're number one!" Often followed by masses chanting, "USA, USA!"

Welcome to the wonderful world of hubris, defined as "excessive pride or self-confidence." We have the world's largest economy and biggest military so we must be doing everything right. We have nothing to learn from smaller nations. God blesses America and He/She certainly wouldn't bless us with inferior solutions to our problems.

So let's look at retirement in America. Remember the "three-legged stool" of retirement planning? Leg one was Social Security, leg two was your pension and leg three was your savings. If you're a retired NYS teacher, you almost certainly have a nice sturdy three-legged stool and, while you're probably not part of the 1%, you probably are able to pay your bills.

Don Esmonde--while discussing the views of a new member of the Clarence school board in this morning's Buffalo News--referred to that pension leg as "...benefits that disappeared in corporate America with the two-martini lunch."

By the way, if you think that replacing pensions with 401(k) plans is a good thing--or even that it makes financial sense--have a look at a post I did called "What's so bad about 401(k)-type plans?" and have your eyes opened!

On May 14, the NY Times published a special section on retirement which included an article by Steven Greenhouse titled, "How they do it elsewhere." Here's the first paragraph: "The United States can boast that it has the world’s best basketball players, fighter jets and country and western singers. But hardly anyone would ever boast that the United States has the world’s best retirement system."

According to Greenhouse, 58% of American workers have neither a pension plan nor a 401(k). Imagine for a moment what your life would be like should your pension disappear. Could you live on Social Security and your savings? Apparently 58% of today's workers will be doing just that.

USAToday ran an article this morning titled "Will U.S. workers ever be able to retire?" It included the fact that "One-third of America's [current] retirees get at least 90% of their retirement income from the [Social Security] program, with annual benefits averaging a modest $15,000 for an individual."

A new report comparing our retirement system with others around the world is referenced by both the Times and USAToday articles. From the Times: "A new report ranking various countries’ retirement systems gives the United States a C, considerably worse than the A received by Denmark and the B-plus given to the Netherlands and Australia. The study, by the Mercer consulting firm and the Australian Center for Financial Services, weighs adequacy of benefits, breadth of coverage and other factors, and points to numerous weaknesses in the American system."

"Those shortcomings include contribution rates too low to assure adequate retirements for middle-class Americans and many workers withdrawing large sums from their 401(k)’s before they retire."

"The report also cites poverty-level retirement benefits for many low-income workers and pensions that fail to keep up with inflation. It also points to the common practice of retirees withdrawing large sums from their 401(k)’s soon after retiring, leaving many without an adequate income stream if they live past 80."

Oh, did I mention that participation in the 401(k) plan at work--if there even is one--is voluntary?

Certainly, there is room for improvement. We could task our Congress with formulating a system which would provide a reasonable assurance of an adequate retirement for all American workers. If other countries can do it, so can we.

Well, there is one small roadblock and it's another much-used phrase in America: "You're not the boss of me!" And up pops the mandate.

Other industrialized nations have discovered that they can provide medical care at half the cost of the USA, while also producing outcomes that are measurably better than ours. This requires, however, that the government mandate that everyone participates.

Awhile ago, I did a blog post which discussed mandates. It was called "We have laws because "please" doesn't work." I would urge you to take another look at it.

Again, from the NY Times piece: "John A. Turner, director of the Pension Policy Center in Washington, said some foreign features might not fit American culture, like mandated participation in the pension system as in Australia and Chile. He does not advocate such a mandate."

“We’re quite different from many other countries,” he said. “There’s an emphasis on individual freedoms and rights and responsibilities versus collectivism — although I admit we will never have high pension coverage without some form of mandate.”

“In the United States, collective is a four-letter word,” agreed Harry Smorenberg, head of a Netherlands-based consulting firm on pensions and founder of the World Pension Summit."

Now if "collective" is such a four-letter word in America, I wonder why the business community spends so much time and money in "team-building" activities. Working together toward a common goal is good for the corporation, but not for individuals?

I remember a world in which conservatives actually brought forth a healthcare plan with a mandate for individuals to purchase insurance because it was a matter of "personal responsibility." Now it seems that any law requiring collective action is "unamerican."

Life would certainly be better without those tyrannical government mandates that we all drive on the same side of the road or obey the speed limit.