Larry Littlefield's blog
Those of you who have read my posts on Room Eight over the years, and/or might have read essays I produced previously, know that generational equity in public policy has been a recurring theme – and a theme that in my view has been virtually ignored in political discourse and the media. For 30 years, I find, virtually every major fiscal decision has provided more benefits in good times, and no reduction in benefits in bad times, for older generations – those now 55 and over. And every reduction in benefits and well-being has applied to future generations only. When I write about generational inequity, I don’t write about policies that transfer resources from working age adults to the elderly in a broad general sense; these can be justified as long as the transfers are sustainable and those who sacrifice when young can expect to receive the same benefits when old. As I showed in my general overview of what the government does in August 2007, in fact, the majority of U.S. government activities transfer resources from working age adults to the young (public schools and universities) and the old (Social Security, Medicare, nursing home care under Medicaid). I called this the lifecycle of need. When I write about generational inequity, on the other hand, I refer to public policies that have left younger generations worse off than those who came before at every point in their lives, from childhood through middle age, with the worst damage likely to occur when they themselves are old.
That is public policy. I have also noted that in the private economy for most (the non-rich) earnings per worker peaked nearly 40 years ago, with the effect on the typical standard of living covered over first by more hours worked (as women entered the workforce), then by the loss of compensation to be paid out in the future (pension and retiree health insurance) which did not affect current spending, and then by borrowing. This post is about the family. Like our federal, state and local governments, families transfer well-being from working age adults to dependent children and seniors. How have the collective personal decisions of those now age 55 and over, whom I have come to refer to as “Generation Greed,” differed from those who came before, and how do they compare with their collective decisions in public policy? How have those coming after been affected? And, returning to public policy, what will happen as those in Generation Greed reach deep old age when many will require custodial care, which is either extremely personally draining or extremely expensive to provide?
As secretly agreed, I suspect, Cuomo will veto the usual incumbent protection redistricting plan, the legislature will over-ride, Cuomo will condemn, and that will be the end of it. Those who believe there should be actual elections in New York will have to find a way to create them otherwise, and it won't be easy. Perhaps the media might consider encouraging challengers and challenging incumbents rather than the reverse. Perhaps someone might raise money to provide lawyers when the incumbents work to kick challengers off the ballot. Perhaps the ease of writing in candidates with the new machines might provide an avenue to an actual election. There will be no actual elections if the state legislature can avoid it.
Ron Lieber had a recent New York Times column that continues to avoid talking about what no one wants to talk about. According to Lieber "the big picture question...remains one that is more moral than economic. Decades ago, we made promises to government workers. Now, depending on your view, those promises have turned out to be too generous…Whatever your view, we now face a choice: Should all taxpayers (including the retired workers themselves) pay a lot more in taxes and accept large cuts in government services to pay for the promises to government employees? Or should we break the promises (by a little — or more than a little) because they have turned out to cost too much?"
The unsaid is this. In many cases, public employees are not due the pensions that were promised "decades ago" when they were hired. They are due pensions that were retroactively enhanced in deals with politicians in exchange for political support, with costs to others that were deferred, hidden, and fraudulently misrepresented. And taxpayers often didn't fully fund the promises workers were made to begin with. The beneficiaries are past taxpayers, today's seniors, who also left other debts and who now enjoy special tax breaks as retirees.
There is a question about New York’s pensions I’ve been asking for years, but no one has been able to answer. Most objective analyses will tell you that the New York State pension system, which also includes all the local governments outside New York City, is in the hole, and residents of the rest of the state will face diminished services and higher taxes for years as a result. But those same analyses will also tell you that the New York State pension system is nonetheless one of the least underfunded among all public employee pension funds in the U.S. Comparative analyses of local government pension funds are rare, because there are so many and most are small. But according to those I have seen, which analyze large local pension funds along with the states, the separate City of New York pensions funds are among the most underfunded in the U.S. New York City residents, already faced with a higher overall tax burden and service cuts, will suffer even more as a result.
Why the difference? Why is the New York City Teachers Retirement System so much worse off than the New York State Teacher’s Retirement System, the New York City police and fire pension plans so much worse off than the New York State police and fire pension plans, etc.? How long has this been true? Are the benefits that much different? Has New York City never gotten out of the hole it got in after the Lindsay pension deals in the 1960s? Why didn’t various Comptrollers, actuaries and Control Boards require better of funding of the city’s plan in the years since? And if the city has been in the hole all along, how come the state legislature continues to impose pension enrichments on the city that are greater than or equal to those for the local governments in the rest of the state and the state government?
It's behind a pay wall, but it is worth considering the gist of this WSJ article. "Ralph Nader, the scourge of American business and onetime presidential candidate, has found his next corporate demon: Cisco Systems Inc. Mr. Nader isn't calling for a router recall or claiming the company's networks are unsafe at any speed. Instead, he wants the tech company to pay a bigger dividend to boost its shares."
As a small investor, Mr. Nader is upset that corporate profits are accumulated in cash rather than paid in dividends for retirees like himself. With cronies on the board, he feels the purported democracy of corporations has been replaced by a self-serving oligarcy. He would be wrong if he were simply shortsighted, preferring money now to investment in the future. But that cash just sitting there might also be used for excess executive pay. So where are the institutional investors, handling other people's money, on this one?
If this is true, I'll give Liu etc. their due. But it won't matter unless dividends rise as well.
"New York’s public pension funds, with $118 billion under management, have found a measure of success in pressing companies to end what most experts agree is an egregious practice — CEOs getting paid from company coffers to cover millions of dollars of their golden parachute tax liability. This year the pension fund, which includes the New York City Employees Retirement System, has negotiated behind the scenes with board members of at least four companies — Motorola Solutions Inc., Anadarko Petroleum Corp, WellPoint Inc., and R.R. Donnelley & Sons Co. After those talks, all of the companies revised their change-of-control pay plans."
NYC Comptroller John Liu recently released a report and started an initiative to assure everyone that New York City’s public employee pension funds are fine. “Retirement Security NYC is a major initiative launched by Comptroller John C. Liu to protect the retirement security of public employees while ensuring the City's financial health,” with the retirement security portion intended to gain the support of public employee unions in a campaign for Mayor and the financial health portion intended to assure the city’s bondholders and wealthy and business taxpayers there is a limit to the extent to which their ox will be gored. The latest report is called Sustainable or Not: Pension Cost Projections Through 2060.
I have read the report, and have several problems with it. First, Liu piles up one rosy assumption after another. Next, his claims in big print in the front of the report, and in press releases, are much rosier than the detailed tables in the back of the report, even given the rosy assumptions. Third, those detailed tables lack the details required to figure out how the numbers were calculated. Finally, Liu endorses the Generation Greed position that it is perfectly wonderful if retroactive pension increases for those cashing in and moving out are offset by lower pay and benefits for future public employees. I get the feeling that the only way these reports can achieve their political objective is if no one actually bothers to read them, and write a post like this one. Or nobody bothers to read this post. My objections are detailed after the break.
It has been a heck of a couple of weeks. Between spam and all the Weiner traffic, I'm aware that some of those who wanted to read my series of posts on the latest elementary and secondary school finance data -- and more important download the spreadsheets and print out the tables -- may not have been able to do so. So I am attaching what I had written in an MS-Word document, along with the spreadsheets, to this post. The Word document may differ from what was finally posted, because I always find an extra typo or two right at the end. I'm not sure how the other writers on this site do it...at work all my reports have the benefit of an editor.
From Bloomberg News: "JPMorgan Chase & Co. Chief Risk Officer Barry Zubrow will tell Congress that regulators risk impeding the economic recovery by going too far in tightening bank rules and raising capital requirements...A capital surcharge on the largest global banks combined with higher U.S. margin requirements for certain trading accounts 'currently risks doing more harm than good,'" and "puts U.S. firms at a 'distinct and unnecessary competitive disadvantage.'"
Funny, that's exactly what the financial industry convinced Bloomberg and Schumer to say in a report in 2007, a report I commented on in June 2008. The financial industry has clearly either learned nothing, or has learned that it could bully its way to increased concentration, power and bailouts. Has anyone else learned anything?
The counter implies that I wrote about 11,000 words on comparative public school finance, addition to compiling the spreadsheets. There are probably those who think I’m more of a dweeb for that I do online than Anthony Weiner is for what he did online, particularly since I’m doing it on my own time. For those who read the four posts, downloaded the spreadsheets, and printed them, out congratulations – you now know at least as much about the subject as I do. To complete your education, and your dataset, you might want to read this post and download the spreadsheet with Census Bureau education finance data (from another data source) from FY 1972 to FY 2008 as a percentage of personal income.
Recently, the press was full of the sort of tribal issue that political types love to participate in and the media loves to report on. It seems that a playwright, who did not attend CUNY, was proposed to be granted an honorary degree by that institution, which perhaps wanted to highlight the excellent achievements of alumni of New York University and Columbia. But the proposed honorary degree was objected to and, I believe, not granted based on something the playwright may have said about Israel. Much outrage was engendered on all sides, and the real issue for SUNY and CUNY was safely ignored. That issue is as follows.
The previous three posts showed that after being underfunded in the past, spending per student in the New York City public schools soared to levels that by FY 2009 not only far exceeded the U.S. average after adjustment for the cost of living, but also exceeded (on average) other parts of the metro area in the Downstate New York Suburbs and New Jersey. But a large share of the increased spending went to a category in which New York City’s spending was already high – instructional employee benefits, particularly on the retired, as rich benefits for those not working and no longer working became richer still. So instead of money being drained from the classroom to got to the overfunded school districts in the rest of the state due to the state school aid formula, money has been drained from the classroom to go to the retired due to a series of retroactive pension enhancements.
FY 2009 is the most recent data from the U.S. Census Bureau, and thus the most recent data for which New York City education finance may be compared with the U.S. average and other places. This post uses New York City “Budget Summary” documents dated May 2009 and May 2011 to analyze how the city’s spending has changed from FY 2009 to FY 2011, and how it is proposed to change from FY 2011 to FY 2012. A spreadsheet is attached, with data in $millions. The data is not inflation adjusted, as inflation has been low in this period of recession, and compensation increases for most workers have been absent or negative. And it is not per student, as I don’t have enrollment figures and estimates for these years, just total. But if enrollment in FY 2011 is at the same level as it was in FY 2009, spending per student is up to $23,167 this year. An incredible sum.
As noted in my previous post on education finance, in FY 1996, total public school expenditure per student – with a cost of living adjustment for NYC – was 1.4% above the U.S. average in FY 1996, and 36.5% above the U.S. average in FY 2009. As we face ongoing cuts to the actual education provided by the New York City schools, this huge increase in the city’s relative spending has changed my understanding of what the cause of decreased educational quality is -- underfunding compared with being cheated of fair value.
But most of those discussing education finance policy are either funded or supported by those with a self-interest in taking more for themselves, or tribally aligned with one position or another and unwilling to consider facts contrary to their world view. Thus, according to many people who have commented on my internet comments, posts or reports over the years, what has actually changed is that I have gone from someone in the pocket of the United Federation of Teachers who hates the suburbs and Upstate New York, to someone in the pocket of corporate interests who hates teachers and wants them to eat cat food when they get old. But while facts may interest only me, I’ve done the spreadsheets so I might as well discuss what they say.
From the Politicker: "'I don’t know where those numbers come from,' said Bloomberg, speaking on WOR 710 this morning. 'There’s no rational independent group that would say it.'...Deputy Comptroller Alan van Capelle fires back. 'Dollars to doughnuts this out of touch Mayor has not even read our report.”
That's probably true. But I have read the report. Among the many infuriating things in it, Table 2 on page 9 states in big type that the "normal" rates for contributions to (for example) the current NYC teacher's pension plan is 6.4% to 6.8%. That isn't so bad is it? On page 10 "if no further adjustments to pension benefits are made, other assumptions are accurate, and investment returns are equal to the assumed rate (in Chart 4, 8.0 percent), the gap between contributions as a percentage of salary and the entry-age normal rate will narrow." Well guess what. Presumably based on those same assumptions, in tiny print in a table on page 40 (but without a spreadsheet with all the parameters showing how this is calculated) we find that the total contribution would still be about 20% of salary in 2040. And 14.6% of salary -- double Liu's boldfaced rate -- in 2060.
I have just read three news accounts of Governor Cuomo's pension proposals. Cuomo does not propose any sacrifices at all for current workers and retirees. None of the news accounts said any of the following.
1) That current employees approaching retirement and current retirees received drastically more generous and costly pensions than they had been promised when they were hired. The unions claimed it would cost nothing, but they lied.
2) That future public employees would not only receive less in pension benefits than current workers and retirees are getting, but also less than they had been promised when they were hired.
3) That future public workers would earn drastically less in overall compensation than current workers and retirees. In the article, the differences is expressed as a "savings" for the government. The comparison between current and future workers is not mentioned, or justified, or questioned. And it's connection to broader social trends and values across all areas of public policy is unexplored.
In this post from last year, I provided a historical overview of the Campaign for Fiscal Equity lawsuit, and referenced some long-term data without providing it in spreadsheets or describing it in detail. Then I provided data for FY 2002 to FY 2008, the latest available at the time, to examine what had changed during the Bloomberg/Mayoral Control era. To change things up, this time I’ll provide the long term data and describe it, and compare the FY 2009 revenue and expenditures per student data in my previous post with the same data for FY 1996. Finally, I’ll use NYC budget documents to compare FY 2009 to the present and the budget proposal for FY 2012.
What emerges in the data is the following story.