Tuesday, July 22, 2014

The Age of Fracture

By Thomas J. Mackell, Jr., Ed.D.
Special Advisor to the International President International Longshoremen's Association, AFL-CIO
This is an age of fractured jobs, a fractured economy, fractured families, a fractured political system, a terribly fractured American Dream and where the political protagonists, our elected leaders, are in need of spinal transplants.

The soon-to-retire greying generation is experiencing no pensions. Those pensions are promises that will not be kept, leaving thousands of employees in dire straits when they are most vulnerable. Roller-coaster retirement accounts subject to the whims of the market. Longer life spans and higher health care costs. Children in college. Young adults with staggering student-loan debt who are financially incapable of purchasing a home. Aging and ailing parents. A will to work but fewer jobs to be had.

America is dying for a champion who makes preserving the middle class a top priority. They want somebody who can level the playing field so that Main Street doesn't always come second to Wall Street. Someone who is not running networks of oligarchs who take advantage of our weakened campaign finance laws to manipulate the democratic process in pursuit of their self-interests.

This is the scenario as we head into the 2014 Congressional elections with predictions that Republicans will hold the House of Representatives and ,perhaps, gain control of the Senate.

If that happens, forget a Congress that looks out for the little guy.
In conjunction with a non-caring Congress, today, unfortunately, the concept of freedom has come to mean the freedom of the wealthy to do whatever they want, without regard to the consequences for the rest of us. In reality, the 1 percent has undertaken a serious effort to buy elections.

At any kind of gathering whether it be at work or at home, Americans are expressing disappointment about the way things run in Washington. They don't see them dealing with the multitude of problems facing our nation.
Their approval rating is at an all-time low. Many citizens say they see no value in bothering to vote.

Clearly, the constant bickering between the Republicans and Democrats is wearing thin on Main Street and leads to a notion of false equivalency.
The Pew Research Center says that Republicans and Democrats are more divided along ideological lines than at any point in the last two decades.

The GOP has done all it can to undercut the Obama presidency. Democrats had to fight back. The line is drawn in the sand which has resulted in blind allegiance or blind hatred.

But let's put the blame where it belongs: on the Republican side of the aisle. The Republicans must end their internal civil war between the moderates and the Tea Party aficionados.

Recently, a number of the members of Congress who have announced their plans to retire have expressed their frustration with the cantankerous environment in Washington and their inability to get things done.

When even the pols start complaining, you know that things are really bad. If they can't find solutions then we are, truly, in deep trouble.

Despite this horrendous dilemma, failing to vote surely will make things worse. We have a solemn obligation to go to the polls. Neglecting the most fundamental responsibility of citizenship invites complacency and encourages political abuse. Showing up on Election Day proves we are in the game, that we care and that we want to see change.

There are areas of this country where people have been removed from the ranks of eligible voters and GOP operatives are doing all they can to suppress participation by traditional Democratic constituencies.

Today, the American workplace is plagued with wage theft, disrespect of culture, pressure, unsafe environments, unbridled automation and more.
Everything solid is melting into air. This should not be tolerated in modern America. We must vote our pocketbook to protect our livelihoods and our well-being.

We must encourage our union memberships, thoughtful young folks and retirees to go out on Election Day and exercise their right to vote.

They must be engaged in their communities and serve as an example to those who might stay away. Staying home is not an option. It will only continue and calcify this dangerous divisiveness.

Thursday, July 10, 2014

TEXPERS Testimony to the Texas House Pensions Committee

On July 9, TEXPERS Executive Director Max Patterson was invited to testify before the Texas House Pension Committee regarding the implications of GASB rule changes on local pension funds. The following remarks were submitted by Patterson to the Honorable Bill Callegari (R-Katy), Chairman of the House Pension Committee.
Max Patterson is seated in the middle of three men facing the Texas House Pensions Committee on July 9. His testimony can be heard at the 56:24 mark in this tape of the meeting hosted by the Texas Legislature. http://tlchouse.granicus.com/MediaPlayer.php?view_id=28&clip_id=8814

Honorable Chairman Callegari, thank you for this opportunity to provide testimony on the Implications of GASB on local pension funds.
I am Max Patterson, Executive Director, Texas Association of Public Employee Retirement Systems (TEXPERS). 
GASB is intended to show all of the cities debt obligations and in this effort this rule change requires the disclosure of cities pension obligations to be “moved” from the footnote section in its annual financial disclosures (CAFR) to its balance sheet. It should be pointed out that any pension obligations by the city have “always” been disclosed. The primary reason for debt disclosures are to insure that all obligations are disclosed when a city attempts to raise money by the selling of bonds. Pension obligations have always been disclosed but GASB is attempting to highlight any pension obligations because of the growing obligations by cities. It is important to note here that those cities who have been deferring pension payments have increased their debt obligations significantly as compared to the cities that have consistently made their pension payments. 
Unfortunately, because of the GASB 68 change people have directed there attention towards the pension plans rather than to the cities and ask why are you deferring payments when you have previously agreed to these obligations.
When people look at municipal debt it is important to look at all debt not just the pension debt. In most cases, if not all, pension debt is a much smaller debt obligation than other debt the city has accrued. In the Texas Comptroller’s report for August 31, 2013 the City of San Antonio had tax supported debt amounting to $1,406,185,000 and revenue supported debt of $8,426,715,000. As of December 2013 the San Antonio Fire & Police Fund had a $214,876,634 unfunded liability.
If you look at Houston as of August 31, 2013 they have a tax supported debt of $3,383,060,000 and revenue supported debt of $9,293,693,288. The three city pension plans have a combined unfunded liability of $3,051,388,000 as of December 2013.

It is also important to note that these numbers reflect only what is true on that one day and do not reflect a total picture. They don’t reflect on whether a city can make its obligations in the future or if there may be a trend.

When trying to determine if a pension fund is able to meet its obligations we also look at numbers on a specific date and often do not look at other factors to answer the same question.

When trying to determine if a pension fund is able to meet future obligations one has to consider at a minimum three factors; returns, amortization and its unfunded liability. You must look at all three and in conjunction with past numbers to determine if there is a trend. This analysis is a function of the actuary and pension boards depend heavily on the analysis and reporting performed by its actuary and usually on a yearly basis.
In summary GASB focuses primarily on the city and all its debt obligations, but unfortunately some people are seizing the opportunity to transfer the focus toward the pension funds. This discussion could very easily be an issue around a city’s infrastructure, neglected roads and bridges and a failure to set aside sufficient funds to keep up with daily maintenance. Consequently at the end of the day the repair cost is much higher than what it would have been if the repairs were made earlier.

I can’t speak for the rating agencies but in the course of rating a city the bonding agencies look at more than just the numbers on the financial statement. They look at the city’s history of paying its obligations and the ability of the city to meet its obligations going forward. And, they look at all obligations, not just the pension obligation.
As we have always said local pensions in Texas, for the most part, are in good shape. Those cities who are meeting their commitments by making their pension payments are in good shape. Looking at the projected future pension obligation of a pension system can be misleading if that is all you look at. Look at the whole picture before passing judgement.