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UPDATED: Governor’ Raimondo’s $13.6 Million Refinance

Give this to our super smaht, financially savvy new governor: She knows how to pack a budget with things that require detailed review and analysis if the public is going to have any real sense of whether it’s a good or bad package, on the whole.

Jennifer Bogdan does the good work of digging into the big refinance part of Governor Raimondo’s proposal in today’s Providence Journal:

Roughly $64.5 million in Raimondo’s 2016 fiscal year budget would come from a refinancing effort. Another $20 million would flow in fiscal year 2017. The bonds in question have an average interest rate of 4.9 percent, but if refinanced the interest rate is expected to be lower than 2.34 percent. She calls the refinancing conservative and says it would be irresponsible not to consider a money-saving measure for the state.

By “money-saving,” what the governor means is that she’s using the restructuring to borrow around $84 million in the first two years.  In the third year, the state will actually have to pay about $10 million more in debt service, and the years will change between costing more and costing less over the refinancing period.  As shown in a table included with Bogdan’s article, when the state reaches the end, in 2032, it will have actually paid $13.6 million more in debt service.

That’s where the governor deploys an accounting trick to make the analysis a bit murkier.  In the words of Budget Officer Thomas Mullaney, “The key here is that we would not enter into this transaction if the state would not ultimately come out ahead.”

He’s referring to the fact that if you look at the present value of the changes in payments up and down over the sixteen years — in other words, adjust them for inflation to what they would be in today’s dollars — the real value of the changes is actually $225,238 less in debt service.

Like so many of the “bold and innovative” moves in the governor’s budget, that’s misleading.  For one thing, the assumed inflation rate is critical.  A rough spreadsheet suggests it’s 2.97%.  In that case, it would erase these so-called savings if inflation turns out to be 2.91%.  Below that, we’ll be well into negative territory.*

For another thing, the state isn’t going to treat the refinance like a restricted fund.  The state will spend the savings in the years that there are savings and will have to come up with the money in years that there are costs.  The money is going to have to come from somewhere to pay the extra debt service, and that somewhere will very probably have been worth more to the economy than simply inflation.  (Hey, maybe the governor should invest the savings along with the state pension fund, which the state assumes makes 7.5% profit every year.)

Simply refinancing from 4.9% to 2.34% interest for the same number of years would have saved a great deal of money that could have been left in the hands of Rhode Islanders.  Whatever the governor’s room full of smaht people do for economic development, they have to do better not only than the cost of the refinance, but also the economic activity of people acting without the government’s meddling.

UPDATE (03/27/15 8:37 p.m.): According to the governor’s office, the estimated rate of inflation is 2.44%, which my math leads me to believe would produce a $2 million cost to the refinancing, in current dollars.  I’ve asked for more insight into the governor’s math, but if anybody has an idea, I’d be interested to hear it.  There also must be something incorrect in the information out of the governor’s office.  They’re saying the refinancing is of $160 million of debt, but the Projo’s numbers have the state paying nearly that amount every year.

* Posting this of a Friday afternoon, I got my signs reversed.  I’ve fixed the relevant text.

In Rhode Island, Taylor Swift’s Rights Are Our Rights, Too

The headline for a new statewide property tax proposed by Rhode Island’s Democratic Gov. Gina Raimondo is that pop star Taylor Swift will be among the hardest hit.

A few years ago, Swift purchased a $17 million mansion on the Ocean State’s coast, which means the governor is looking to cull around $43,000 from the starlet’s fortune.

In its first year, the tax is projected to collect $11.8 million from the accounts of the 2,359 households who own second properties worth over $1 million.  As Raimondo put it during her recent budget address, the tax “asks those among us who are most able, to pay a little more.”  As if to emphasize the point, the tax is not technically imposed as a tax on property, but on the privilege of owning it, which makes the tax even more radical than it appears on its face.

Continue reading on WatchDog.org.

More Money, Fewer Students, and Trust

According to Rhode Island law, cities and towns are never allowed to decrease the amount of money that they supply to their public school systems.  If enrollment goes down, they can calculate their “maintenance of effort” on a per-student basis, but that requires a projected decrease.

By way of example, budgeting for the 2013-2014 school year, the Tiverton school department projected enrollment of 1,899.  It turned out to be 1,873 in October.  For the 2014-2015 school year, enrollment was 1,871, yet the department is now projecting that it will rebound to 1,890.

This is a side note, though, to my latest post on Tiverton Fact Check.

I recently discovered another area of student projections that has significance for school funding.  For this year’s budget, the schools asked for an increase in their budget for out-of-district expenses for special needs students.  Last year, there were 93 such students, and it appears that the district projected at least as many.  It turned out, though, that there were only 77 such students, so the district transferred exactly $600,000 out of that account.

The projection for next year goes down by another 10 students, so the schools may be returning to their prior ability to project this part of their budget accurately.  Still, the schools’ local funding increased by $546,014, this year, presumably on the strength of the incorrect projection, so that money is baked into the budget.

I’ve confirmed with the Department of Education that the state’s view is that the district cannot return the unneeded money, even if the aggressive school committee that recently sued the town for much less were to vote to do so.

From the 2001-2002 school year to the one we’re currently in, the Tiverton school department’s budget, from state and local funding, has gone up 65%, from $17.7 million to $29.3 million.  Meanwhile, enrollment fell 16%, from 2,219 to 1,871.  It’s as if two full grade levels disappeared from the school, but we’re paying for another five.*  And word has it that the district is about to come forward and ask local taxpayers for millions of dollars for necessary spending on the school buildings, which will certainly require more debt.

The people who support such trends (probably because they profit from them) are quick to accuse anybody who finds them disconcerting of “hating the schools.”  To the contrary, it doesn’t take but a dose of common sense to see that something is seriously out of whack, here.

 

* Preventive PolitiFact note: Using inflation-adjusted dollars, the schools’ budget increase would only be 24%, so it’d be more like losing two grades while paying for an extra two.  But (1) this is a quick illustration to compare numbers, (2) a healthy town’s school system should grow, so the loss in students is arguably understated, and (3) I don’t know why a school system can’t be expected to become more efficient over time, which would require another adjustment.

The HealthSource Tax and Federal Subsidies

Coverage of Governor Raimondo’s proposed new tax on health insurance premiums strikes me as highly misleading:

… most individuals who buy their insurance through HealthSource would find the tax, since it would be rolled into the premium, covered by their federal premium tax credits, said [HealthSource Director Anya Rader] Wallack. Of the roughly 30,000 Health-Source customers, 88 percent qualify for the credits.

“So the bulk of individual customers won’t be paying the premium assessment; the federal government will instead be paying it,” Wallack said.  

Those who obtain coverage directly from insurers or don’t qualify for the credits wouldn’t gain that tax advantage.

If we’re particular about the use of language, then Wallack’s statement is simply not true.  In a recent WatchDog article, I estimated that the 3.8% HealthSource tax on all individual and small group premiums in the state would have to be 9.1% if it were calculated based only on the plans sold through the exchange.  That suggests that about 60% of all plans subject to the tax do not receive subsidies because they are sold outside of the exchange.

According to the latest enrollment data, 12% of Rhode Islanders who are buying insurance through the exchange also receive no subsidies.  That means that only 37% of all people on whom the tax would be levied receive federal assistance for their premiums.

I’ve asked for clarification as to whether it’s actually true that the the federal subsidies will go up to cover the insurance tax.  I didn’t think so, but with Obama as president the rules of government can change without notice, so let’s assume that charging the tax as part of a premium will indeed increase subsidies.  That’s still not the whole story.

Premium subsidies are calculated as a cap that a person would pay for the second cheapest “silver” plan on the exchange (the “benchmark” plan), as a percentage of income.  An individual who makes $10,000 a year is under the poverty level, so that would cap his annual insurance premium for a silver plan at 2% of income, or $200.  Let’s say the benchmark plan is $2,500.  The individual would pay the $200 and receive a subsidy of $2,300.

According to estimates, the new HealthSource tax would make the hypothetical benchmark plan $2,595.  So, the low-income individual would still pay the $200, but receive a subsidy of $2,395.

However, that varies with with income and with the plan.  For an individual making a little over 2.5 times the poverty level (around $30,000), the $2,500 benchmark would start to approach his cap.  Maybe he’d receive some subsidy for the tax, but not all of it.

Moreover, the federal subsidy of the tax in the example would be held at $95.  A gold plan at $3,500 would bear a tax of $133, which is $38 higher than the government subsidy would be.  According to the enrollment data, this dynamic would affect all of the 13% of customers who bought gold plans and some portion of the 65% who bought silver plans.

In other words, “the bulk of individual” insurance customers would be paying the full tax, and a significant number more would pay at least some of it.

Some of the Larger, Seriously Ill-Advised Items In the Governor’s (What Kind of) “Jobs Budget”

During the days following its release, reporters, analysts and observers worked to unpack the budget that Governor Raimondo sent to the General Assembly — and found some unpleasant items therein. Here is a bullet list of some of the bigger ones.

Proposed Statewide Property Tax

… aka, the Taylor Swift tax.

Justin got clarification from Governor Raimondo’s office that the INTENT is not to include apartment buildings as properties to be taxed. This conforms to Governor Raimondo’s attempt to sell this tax as having only a narrow list of targeted properties. (So, gosh, don’t worry about it. And, anyways, we only want to tax those icky rich people.)

Intent, however, is completely secondary. If this tax passes into law, the door will be opened wide for future – and current! – governors and General Assemblies to tax apartment buildings (of all classes and sizes); commercial buildings; second homes of less than one million dollars; PRIMARY homes of more than one million dollars; primary homes of $750,000 – $1,000,000; et empty state cetera. The critical issue is not that the initial list of targeted properties is short. It’s that the list comes to exist at all. To subject just one property classification to a new, statewide tax would set the precedent to subject virtually all real estate in Rhode Island to a statewide property tax via an easy tweak of the targeted property list.

In a perfect bit of timing, RIPEC released an analysis right before the governor released her budget of just how much Rhode Islanders are already taxed. By one measure, Rhode Island already has the fourth highest property taxes in the country. The governor is seriously proposing to raise that ranking? In fact, the one thing above all that our elected officials should not do is exacerbate this burden.

Further, there’s the matter of Rhode Island’s already undesirable reputation as a high tax state. On Twitter, Gary Sasse correctly asks,

When Tax Foundation.et. al.rank tax climate will new statewide property tax impact rankings w resulting reputation risks?

Further to “reputation risks”, WPRO’s Gene Valicenti pointed out Friday morning that the governor’s mere proposal has made the national news via the AP’s feed. This is exactly the kind of publicity that Rhode Island needs to avoid, not curry.

Governor Raimondo’s Proposed Statewide Property Tax Redefines Ownership of Real Estate as a Privilege

This one was a great catch by Justin.

Government Handouts, Mo’ Money, Mo’ Money

Pam Gencarella has a good article on GoLocalProv, describing some of the ways Rhode Island’s handout programs seem always to cost more than expected.  As she says, the state’s ObamaCare health benefits exchange, HealthSource RI, is “not much more than a big advertising campaign for Medicaid and its expansion.” The state’s Medicaid expenses prove the point, with the November revised estimate adding $211 million (10%) in costs.

Meanwhile, despite the exchange’s offering thousands of people subsidized health insurance and more than one-quarter of the state on Medicaid (not to mention Medicare), the bill for uncompensated care is up 16%, to $137 million.

Gencarella also brings up the Unified Health Infrastructure Project (UHIP), which is designed to cascade all government handout programs to those who qualify for any of them.  Her focus is on the budgetary effects of UHIP’s intent, but even the cost of the program massive.  According to Pam, “the total projected cost for this project is $229 million.”

If I may throw another log on the fire, as I noted in last year’s Spotlight on Spending report, UHIP was projected, at that time, to cost $209 million.  There’s another mysterious 10% increase!

Really, Rhode Island, we have to make this stop.

Governor’s Office: Apartment Tax Not Intended

Ever since Governor Gina Raimondo announced a proposal to impose a statewide property tax on residential properties over $1 million, if their owners do not live in them for a majority of the year, debate has raged as to what would be included.  Much of the discussion has been behind the scenes, among people who follow Rhode Island policy closely and representatives of groups that might be affected.

Initially, anonymous blogger CoffeeBlackRI suggested that the tax would apply to rental apartment properties worth more than the threshold.  I replied with an interpretation of the law suggesting that it would not.

The director of Office of Revenue Analysis, Paul Dion, told Katherine Gregg of the Providence Journal that his estimate of revenue that would be produced by the tax included “two-to-five-family residences,” along with other properties.  Some observers took that as conclusive evidence that the tax would apply to small apartment complexes.

A budget summary from Ted Nesi, posted today on WPRI’s Web site, seemed to confirm the interpretation.  Nesi quoted from a report by the House Fiscal office, “It appears that the intent of the legislation and the revenue estimate excludes apartment buildings from the tax; however, as written, the tax would apply to these properties.”

In a statement to the Ocean State Current, Raimondo spokeswoman Marie Aberger echoed House Fiscal’s report, affirming that “the intent is to exclude apartment buildings.”

Specifically, the intent is to apply it to the following categories, if they are worth $1 million or more: non-owner occupied single family residences, two-to-five family residences (only if they are non-owner occupied and not available for long-term tenants), and non-owner occupied estates, seasonal and beach property, residential condos, time shared condos, dockominiums, mobile homes, and vacant residential land.

The “two-to-five family residences” category was included in the estimate from Revenue Analysis because available data does not allow finer differentiation.  For example, wealthy seasonal residents often employ groundskeepers who reside on the property year round.

According to Aberger, the administration’s plan had been to draft more-specific guidance while writing regulations to enact the law, if passed.  “However,” she continued, “we are happy to work during the legislative process to modify the language, if necessary, to ensure that the intent of the legislation is carried out.”

The “Twice on the Pipe” Tax

There appears to be unanimity that I was reading the legal language of the “Taylor Swift Tax” on second homes too closely when I wrote that it should not apply to apartment buildings.  Lawyers for landlord groups, analysts in the executive branch, and analysts in the legislative branch all agree that the net will snag smallish multifamily units, if they’re worth $1 million or more.

If we’re looking for a new nickname for the proposal, I’d suggest the “Tony Orlando Tax.”

But frankly, I’m still suspicious.  As a long-running concern, I think it’s a grave problem that all of us in the policy and law game fall to the legalistic practice of pretending that profound shifts in legal language (like taxing a “privilege” rather than a “property”) are just immaterial “terms of art.”  At the end of the day, the law isn’t what’s written on paper; it’s what lawyers and bureaucrats agree that it means, as a sort of legal clerisy.

Well, these things are “terms of art” until they aren’t… when we discover on some massive, crucial question that (quoting some future judge) “the principle that the ability to have and hold property is a privilege granted by the state is firmly established in the law.”  When that day comes, we’ll learn that the words as written actually did mean something, even though legal experts on both sides of the issue advised us to focus on more immediate traps and loopholes.

As a practical political matter, I have a hard time believing that Governor Raimondo and her staff thought they’d try selling this as a tax on rich vacation-home owners only to turn around once it had been passed and declare, “Ah-ha!  We fooled you landlords!”  At the same time, it’s difficult to believe that they didn’t pick up on the fact that even the guy estimating the revenue for them included such properties.

I suggest the new nickname of the “Tony Orlando Tax” not just because his most famous song was about a guy in an apartment, and not just because the video was filmed in front of a mansion-looking building, but because I think there’s political significance to the lyric:  “knock three times on the ceiling, if you want tax; twice on the pipe, if the answer is ‘no.'”

In order to sneak in the leading edge of a statewide tax on property — on the very privilege of owning property in the first place — the governor knocks on the ceiling asking to tax vacation property, vacant land, and year-round properties.  Then the landlords bang on the pipe to signal, “no, just the other two” and the mistake of including the most organized target for the tax is fixed.  Everybody’s happy, right?

The state’s Director of Revenue Analysis, Paul Dion, tells me that 111 of the 2,359 properties over $1 million that he included in his estimate are “two-to-five family residences,” accounting for 4.7% of the total take.*  That’s about $550,000 total — an easy concession to make in the course of negotiating a budget through the legislature.

* Note: An earlier version of this post characterized the 111 properties as “multifamily rentals,” which was how I asked the question. I should have used “two-to-five family residences,” which is how he responded.

Rhode Island Is Too Small to Sustain Its Obamacare Exchange, so It’s Raising Taxes

“Insufficient scale to justify investment.  Do not pursue.”

Such was the conclusion of a 2009 report funded by the Robert Wood Johnson’s State Coverage Initiative to investigate then-Lieutenant Governor Elizabeth Robert’s plan for HealthHub RI.  This year, the first budget proposed by Rhode Island’s new governor, Democrat Gina Raimondo, provides proof that the study was right.

In 2009, the idea was to follow Massachusetts, Connecticut, and Washington in setting up a government-run health benefits exchange.  The hope (at least as publicly expressed) was that an exchange would help the state expand access to insurance while lowering the cost of health care.  Yet, members of the group conducting the study “were disappointed to learn that the development of a full exchange model, as established in Massachusetts, would not” accomplish their goals.

A few years later, with the help of the Obama Administration and a party-line vote in the U.S. Congress, creating the Affordable Care Act, otherwise known as Obamacare. Then following an executive order from Governor Lincoln Chafee, Rhode Island officials went ahead and set up exactly the sort of exchange that their report had warned them not to pursue, calling it HealthSource RI.

With the Affordable Care Act requiring federal funding to cease soon, Rhode Islanders are now finding out what “insufficient scale” actually means.

Continue reading on WatchDog.org.

Beware: The Health Exchange Premium Fee Is a Simple Tax

With publication of the legislation enacting Governor Raimondo’s budget, as House bill 5900, some of the details left ambiguous in standard budget documents can be checked.  One of the more disconcerting is the supposed “fee” assessed on health insurance premiums in the state.

The budget presentation avoids naming what the “fee” is, but the talk and reportage during and after last night’s speech by the governor presented it as a fee structure similar to the way the federal government pays for the federal health benefits exchange.

Reviewing the legislation makes it clear that this is not the case.  The new revenue stream for HealthSource RI is simply a tax.

As I explained during the last legislative session, the federal exchange fee works like so:

  • Health insurers are assessed a 3.5% fee on the premiums of plans sold through the exchange.
  • They are not permitted to charge different prices for the same plan on or off of the exchange.
  • Therefore, the price of the fees must be spread across all people who purchase that particular plan, whether on or off of the exchange.

According to the governor’s legislation, the new health insurance tax would work very differently:

  • HealthSource will determine its budget for the year.
  • That total will be allocated to the small employer market and the individual market in proportion to each market’s participation in the exchange.
  • The insurer will increase all premiums in each market by the percentage necessary to generate the necessary money.

One consequence of this different method that must appeal to our progressive governor is that it shifts the tax burden toward Rhode Islanders with more-expensive plans.  No matter what the proportion of bronze, silver, gold, or whatever plans on the exchange, the tax is a flat percentage on all plans, so people buying more-expensive plans will pay more.

A consequence that surely appeals to the state’s government-first establishment is that there’s no escape from the tax.  It doesn’t matter whether insurers participate in the health benefits exchange or not, and it doesn’t matter if they sell different plans on or off of the exchange.

But the most important consequence is that this fee is completely unrelated to actual usage of the exchange.  Again, it’s just a tax, collected via health insurance plans.

According to the governor’s budget, HealthSource will cost $30.9 million to operate next fiscal year, but $24.7 million of that is still coming from the feds.  You don’t have to agree with me that the Obama administration is breaking the law by continuing to pay for state exchanges to understand that the operating costs of HealthSource are guaranteed to grow by leaps and bounds, as federal involvement tapers off.

In other words, nobody who cares about Rhode Islanders or the local economy should want to cross this particular Rubicon.  Once this new tax is law, all bets are off.  The success or failure of the exchange becomes immaterial.  The General Assembly never has to face the heat for increasing taxes.  The bloated government start-up company that is HealthSource RI becomes just another factor driving up the costs of Rhode Islanders’ insurance.

New Local Taxpayer Newsletter for Tiverton

Over on Tiverton Fact Check, I’ve put up a post announcing that the Tiverton Taxpayers Association Web site now has a PDF of the group’s first newsletter.  It’s got a couple of articles, some activity introductions and updates, and a local crossword puzzle.

The puzzle is on local matters, but the answers are printed upside down underneath, if folks get stuck.

Possible Budgeting Illusions from Raimondo

Shortly after Governor Gina Raimondo gave her presentation on Rhode Island’s economy and its budget implications, somebody asked me what I expected in her budget.  Here’s a succinct summary of the presentation from the Cranston Herald editorial board:

Neither cuts nor tax increases, the presentation asserts, will solve the problem. The sales tax would need to be raised from its current 7 percent to 8.8 percent in fiscal 2017 to close the projected budget gap. Meanwhile, the $255.6 million shortfall foreseen for that year significantly exceeds the total budgets of 21 combined state agencies.

The governor’s presentation proposes instead a shifting of resources to focus on job growth, creating a “virtuous cycle” in which those investments in education, infrastructure and property tax relief expand employment opportunities and thus grow the state’s revenue base.

My expectation is that Raimondo will follow the playbook from pension reform, with these steps:

  1. Declare a dire problem, consisting of a short-term emergency and long-term doom.
  2. Propose some technocratic solution that will supposedly fix the long-term problem once and for all.
  3. Make sure that there are enough gimmicks in the solution to defuse the short-term emergency and expect attention to have drifted by the time it falls apart.

The short-term emergency, in this case, is a balanced budget for the  next fiscal year, starting this July, and the long-term doom is the unyielding projected deficits resulting, in large part, from Rhode Island’s continuing economic decline.  The expectation, then, is that Raimondo’s budget will include some sort of new revenue stream, perhaps justified by its use toward some economic development scheme, mixed with budget reductions of the “waste and fraud” variety.  Whether the elusive waste-and-fraud savings could be realized is actually immaterial, inasmuch as the budget would be balanced on paper, and adjustments could be made when the budget is reviewed in November and fixed sometime during the fiscal year, when the eyes of those few who pay attention are mainly focused on the next year’s budget.

That’s what I told the person who asked me.  It was notable, therefore, to see this in yesterday’s Providence Journal:

House Speaker Nicholas Mattiello on Tuesday disclosed that Gov. Gina Raimondo had asked him if she could include “$40 million to $50 million’’ in Medicaid cuts, as a “placeholder” in her first budget proposal, without spelling out how and where she intended to reduce spending in the $2.7 billion government subsidized health-care program.

Mattiello said the governor told him, “in very general terms that there would be some kind of a placeholder and a request for a task force to figure out the cuts.’’

The Bill Just Grows and Grows

Sometimes it’s breathtaking, the mismanagement of the United States of America, which has been increasing over decades, to be sure, but which is to the point of being difficult to take.  (Of course, the feeling is especially acute in a place like Rhode Island, with a state government intent on leading the country in mismanagement.)

The examples come like a rising tide that never recedes.  Take, for example, the $16.6 billion taxpayer price tag for bailing out automobile manufacturers.  That’s 20% of the total program, down the drain.

Even worse is the cost of the government takeover of student loans.  What makes it worse is not just the fact that the price tag is $21.8 billion, or that it may be an annual expense, rather than a one-time loss, but the precedent that it sets.  Consider:

… because of a quirk in the budget process for credit programs, the department can add the $21.8 billion to the deficit automatically, without seeking appropriations or even approval from Congress.

In short, the Obama Administration has given the higher education industry a direct line to the debt of the United States of America — that seemingly imaginary debt that politicians pretend will never come due, but that is currently projected to be more expensive, each year, than either defense or discretionary spending by the time a child currently in fifth grade graduates from high school.

How Tax Rates Work, and What They Look Like in the East Bay

I’ve got a short post, with an accompanying map, on Tiverton Fact Check to give a quick explanation of the backwards way in which Rhode Island cities and towns develop their tax rates and how Tiverton’s compare with the cities and towns around it.

On the first count, the thing that many folks don’t realize is that the tax rate tends to be the last thing calculated.  It’s just the rate that the government has to apply to the properties in town in order to collect the amount of money officials say they need.  In other words, it starts with them, the government, not you, the people.

If towns focused more on the rates, then the government would have more incentive to make residents’ properties worth more, one way or another.

On the second count, the picture isn’t pretty.  At $19.30 per $1,000, Tiverton’s tax rate is significantly higher than that of any city or town around it, in Rhode Island or in Massachusetts.  The one exception is Warren, where the property values are lower.

Compared with Westport, right next door across the state line, the tax rate is less than half of Tiverton’s.  A Tiverton family with a $250,000 house will pay $4,825 in property taxes, this year, while a family with a house of the same value (which would likely be comparable in size) in Westport would pay only $1,983.

That’s almost an extra $3,000 that the Massachusetts family can invest, save, or spend… perhaps doing something that increases the value of the property.

Can Kicking Defines Public-Sector Pensions

The entire structure, including the politics, of public-sector pensions is an exercise in kicking a can down the road.  It’s been rewarding to public officials to give lavish pensions to government employees, because it wins them votes, the financing confuses most people, and the bill doesn’t come due for decades.  A sufficiently aware electorate would be learning the lesson and not being so easily fooled.

Unfortunately, the public isn’t sufficiently aware, and so we get more can kicking.  Here’s what I mean:

Lawyers from both sides in the lawsuit challenging the constitutionality of the state’s sweeping 2011 pension overhaul law met in Newport Tuesday for a closed-door status conference with the judge. A court official said the jury trial in the case remains scheduled to begin April 20.

Superior Court Judge Sarah Taft-Carter said last month that she was satisfied that a jury should settle the long-running case. Meanwhile, Governor Raimondo, who as general treasurer crafted and lobbied lawmakers to approve the overhaul, has expressed willingness to try again to settle the case before then.

Why would Gina Raimondo want to settle the case?  As the general treasurer championing the pension reform, she expressed confidence that it was lawful far and wide, and even if there’s now doubt, why not get an answer?  Of all people in Rhode Island, she should know what a looming avalanche pensions threaten if they aren’t reformed.  And of all people in Rhode Island, the governor has a responsibility to guide the state past disaster.

We need to know how far the state can go toward undoing the unreasonable, impossible promises of past politicians, as encouraged by labor unions that gamed the system to control both sides of every bargaining table.  The sooner we find out that this reform isn’t constitutional (if it isn’t), the sooner we can get to work finding another — or changing the constitution, if no other reform will do.

Raimondo may still be confident that the state would win its case but wants to avoid the risk; there are two problems of short-sightedness to that approach.  First, it assumes that the things negotiated are worth sacrificing, and those things might only be indirectly related to pensions.  It’s possible that recent talk about exempting retirement income from state taxes is just a backdoor gimme to the unions, and that expense will require either cuts or taxes in another area.  It’s also possible that Education Commissioner Deborah Gist’s job is on the negotiating table, which means that the future of Rhode Island’s children is a possible sacrifice on the pension altar. Is that worth it?

Second, if folks like me are correct that Raimondo’s pension reform was insufficient to solve the problem, then future reforms will be necessary.  In that case, if Raimondo’s reform stands because of behind-the-scenes negotiations, future reforms will be much more difficult to enact, because Rhode Island will have a better sense of the legal battle ahead, but without any more legal certainty.

The Bookends of RI’s Library of Decline

A pair of articles in yesterday’s Providence Journal give an excellent indication of why Rhode Island is the way it is.  The first is about the receiver’s plan for firefighters’ new employment deal with the Central Coventry Fire District.  The details of the plan are definitely interesting, but the key part, in my view, comes at the end:

The union will contest the new terms in bankruptcy court.

“We’ll out-lawyer them and outspend them and out-fight them,” Gorman said.

Think of the structural conditions — political and legal — that underlie that threat.  A financially struggling fire district must balance legal fees against the employment packages that the union is protecting.  Meanwhile, the union is fighting with money absorbed, at the point of the taxman’s gun, from local residents.  Can we agree that the union’s ability to “outspend” the employer (if true) is a pretty good indication that maybe the union has gone a bit beyond fixing a supposed imbalance between employer and employee?

The second article is about some hires by the new general treasurer of Rhode Island, Seth Magaziner:

Treasurer-elect Seth Magaziner has announced another round of staff picks, including Tom Sgouros as his senior policy adviser.

Sgouros, who waged a short-lived 2010 campaign for treasurer, describes himself as an engineer at Brown University and a freelance writer and public policy consultant who has consulted in Rhode Island, Pennsylvania, California and Vermont “on public finance, banking, tax policy, and sustainable economic development.”

Reporter Kathy Gregg leaves out the important background that Sgouros is one of the central spokesmen for Rhode Island’s far-left progressives.  (For fun, rewrite Gregg’s second sentence as it would appear if some conservative treasurer had appointed me as senior policy adviser.”)

In fact, we’re watching a whole generation of far-left progressives work their way into state government positions.  In 2013, then-Governor Chafee hired progressive activist Kate Brock, for example, and  even the supposedly conservative Speaker of the House Nicholas Mattiello (D, Cranston) hired RIFuture founder Matt Jerzyk to his legal staff.  That hiring produced this statement, which can’t help but resonate oddly for long-time followers of Rhode Island’s Left and Right:

“Matt’s experience in city and state government will be a valuable addition as we continue to focus on growing the economy and creating jobs,” Mattiello said in a statement.

How exactly are our leading elected officials planning to “grow the economy and create jobs” with staffs full of progressives?  Whatever the answer to that question might be, the two articles from yesterday’s paper  illustrate the left-right punches by which progressives implement policies and insiders, like public-sector labor unions, benefit from the unfair rules of the game.

The next round of RI’s political history has only just dawned, but it’s a safe bet that we’re entering four more years of what the last four brought, more or less.

Municipal Bonds, Another Phony Sword of Damocles

The great government machine has all sorts of ways that officials can shift blame off themselves and ensure that everything is always the responsibility of voters and taxpayers.  If there are budgetary problems, it’s because you haven’t contributed enough.  If more money is needed, it’s more often than not up to you to give more money (even if it’s confiscated in an indirect way), rather than for government to pare down its activities or run with much less waste.

That observation has had a very clear illustration, recently, in Tiverton.

In short, last May, taxpayers voted themselves a 0% tax increase by using about $600,000 of the slush fund above the reserves that are required (and protected from abuse) by the town’s Home Rule Charter.  In setting a bond rating for the town, this November, Standard & Poor’s mentioned that action as a factor in their analysis.

Now, local politicians are priming the rhetoric to use that fact as a political weapon and to justify a bigger tax increase in the next budget.  Taxpayers shouldn’t listen.  Most of what the politicians are saying just isn’t true and is ultimately a decoy away from their bad management… things like letting the firefighters’ union set up a scenario in which a couple of employees out on disability leave can cost the town around a half-million dollars in additional overtime.

For a deep-dive analysis on Tiverton Fact Check, I took the seemingly unprecedented steps of actually communicating with the S&P analysts, figuring out their rating method enough to calculate multiple scenarios, and researching the impact of bond ratings on the actual rates that municipalities pay.  The upshot?

Most of the [officals’] comments are misleading or downright incorrect.  Tiverton was not “downgraded” because voters used some of the town’s unassigned funds at last year’s financial town referendum for a 0% tax increase; money in the town’s reserve fund was not the most significant factor in Tiverton’s bond rating; and failing to achieve a higher bond rating will not cost the town a significant money, if it cost the town anything at all.