Wednesday, June 27, 2012

How to Reform Pensions at the Ballot Box

How to Reform Pensions at the Ballot Box

Posted By | June 27, 2012 in Governing the States and Localities

Please explain the budget and service context that led you to pursue the recently enacted pension reforms in San Jose.

San Jose Mayor Chuck Reed
San Jose Mayor Chuck Reed
Leading up to the passage of Measure B earlier this month, the city had been forced to deal with quickly growing budget shortfalls for 10 years in a row. By 2011, the gap had reached $115 million, with much of the increase coming from increases in pension costs. For example, the city's annual pension contribution grew from $73 million in 2001 to $245 million this year. The reductions in basic services the city could provide were dramatic, and the consequences of corresponding cuts were falling on the backs of the very workers that pensions are intended to serve. In the years leading up to this month's ballot measure, for instance, we cut our workforce from 7,400 to 5,400 workers.

With independent analysis showing another 12 years of increases in pension costs, we feared we were driving the city toward essential-service insolvency. We knew we needed to take action both on behalf of taxpayers, as well as that of the city's public servants.

Tuesday, June 26, 2012

Citizens for More Michigan Jobs Submits More Than 500,000 Signatures to State for November Ballot Consideration


FOR IMMEDIATE RELEASE   
CONTACT:  Emily Gerkin Palsrok
c-517-862-5462  o-517-862-5462
                                                                                                                                           epalsrok@lambert-edwards.com

Citizens for More Michigan Jobs Submits More Than 500,000 Signatures to State for November Ballot Consideration

Lansing, MICH –  Two weeks  shy of the July 9 deadline, Citizens for More Michigan Jobs (CMMJ) today delivered 509,777 signatures to the Secretary of State office – demonstrating overwhelming support from the Michigan electorate for the initiative.

"Despite a massive effort in the past month to deter voters from signing our petitions, more  than half a million Michigan residents endorsed our plan to raise the casino tax rate and create thousands of new jobs through the construction and operation of eight new casinos," said Emily Gerkin Palsrok, spokesperson for the coalition.

"We feel confident that our plan offers a positive alternative to the status quo," continued Palsrok.  "Not only does our plan create thousands of new jobs and raise the tax rate on casinos, but it also dedicates the revenue that casinos generate to important items like K-12 spending, police and fire, road improvements and to local counties and municipalities.  The people of Michigan, instead of Lansing politicians, will get to direct how the new revenue is spent, and every dollar will be accounted for on a new public website that will track revenue and expenditures."
Palsrok said the opposition's attempt to dissuade voters from signing the petitions had little or no effect on the effort.

"Voters saw through the hypocrisy of the existing casinos fighting against more competition and an increase in the gaming tax," said Palsrok.  "It is clear that they are not concerned with job creation, or with generating new revenue for important programs like education and public safety.  Rather, they are intent on maintaining the status quo, which allows them to enjoy a very low gaming tax and limited competition.  They made clear from the outset that they are willing to say anything to maintain their monopoly."

CCMJ is proposing eight new privately owned casino locations, which would – if approved by voters in November – creates thousands of good paying jobs and increase state taxes on all private gaming facilities.  The new revenue would directly benefit Michigan schools, roads and bridges, law enforcement, and local units of government.  

The proposed sites would be located in Detroit, Birch Run, Grand Rapids, Romulus, Clinton Township, Clam Lake (Cadillac), Pontiac and DeWitt Township (Lansing).  CCMJ estimates the new casinos will generate $275 million annually in new revenue for the state and create more than 16,000 new jobs.

Currently, Michigan has 25 casinos, but only three are privately owned and pay taxes – one of the lowest tax rates on gaming in the country.   CCMJ’s proposal would increase that tax to 23 percent, with a specified distribution system to benefit core statewide programs, such as education, police and fire programs, road, local government and gaming addiction programs.

With signatures now submitted to the state, CMMJ plans to officially kickoff proactive campaign efforts in July.

CMMJ was formed by Jobs First LLC, a group of Michigan business leaders focused on increasing jobs and economic development across the state by targeting convention and tourism areas.  All proposed private casino locations are on land already owned by Michigan Developers.                                                                    
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Group seeking 8 new casinos in Mich. submits ballot signatures | The Detroit News | detroitnews.com

Group seeking 8 new casinos in Mich. submits ballot signatures | The Detroit News | detroitnews.com


The constitutional ballot measure also would increase Michigan's gaming tax to 23 percent from the current 19 percent that MGM Grand Detroit, MotorCity and Greektown casinos pay. The current tax is split between the city and the state, while revenue from the proposed 23 percent tax would be dedicated to local communities, state school aid, state road repair and host counties, as well as police and fire in communities throughout the state.

"We feel confident that our plan offers a positive alternative to the status quo," Emily Gerkin Palsrok, Citizens for More Michigan Jobs spokeswoman, said in a statement. "Not only does our plan create thousands of new jobs and raise the tax rate on casinos, but it also dedicates the revenue that casinos generate to important items like K-12 spending, police and fire, road improvements and to local counties and municipalities."

Thursday, June 21, 2012

Five Things to Consider Before Cutting Pension Benefits | Fox Business

Five Things to Consider Before Cutting Pension Benefits | Fox Business

 Read more: http://www.foxbusiness.com/personal-finance/2012/06/20/column-five-things-to-consider-before-cutting-pension-benefits/#ixzz1ySJmCUMr


The message from voters about public pension plans is clear: They're ready to cut the retirement benefits of police, firefighters, teachers and other state and municipal workers.
The latest indicators include the failed recall of Gov. Scott Walker in Wisconsin - which started with his efforts to cut pensions - and referendums in San Jose and San Diego, where voters overwhelmingly backed pension reform measures.

A recent study by the U.S. Government Accountability Office found that 35 states have reduced pension benefits since the 2008 financial crisis, mostly for future employees. Eighteen states have reduced or eliminated cost-of-living adjustments (COLA) - and some states have even applied these changes retroactively to current retirees.

This week, the Pew Center on the States reported that states are continuing to lose ground in their efforts to cover long-term retiree obligations. In fiscal year 2010, the gap between states' assets and their obligations for retirement benefits was $1.38 trillion, up nearly 9% from fiscal 2009. Of that figure, $757 billion was for pensions, and $627 billion was for retiree health care.
Pensions are, no doubt, consuming a larger share of some state and local budgets. The bill has come due for years when plan sponsors did not make their full plan contributions; in the years leading up to the 2008 financial crisis, many papered that over by relying on strong stock market returns. Many plans also took major hits in the 2008 crash, and returns have since been hurt by low interest rates.
But - before we continue swinging the axe - here are five things to keep in mind about public sector pensions:

1. Pensions aren't simply a gift from taxpayers.

They're an integral part of total compensation, along with salary, health benefits and vacation. Unlike private sector defined benefit pension plans, most state and municipal workers contribute hefty amounts from their salaries. For those who aren't participating in Social Security, the median contribution is 8.5% of pay; for those who do contribute to Social Security, the median contribution is 5% and rising, according to the National Association of State Retirement Administrators.
Investment earnings account for 60% of all public pension revenue, NASRA reports; employer contributions cover 28% and employee contributions account for 12%.

2. Many workers don't get Social Security.

30% of state and municipal workers work for states that have not opted into Social Security. That means pensions are their only source of guaranteed lifetime income in retirement. Social Security comes with automatic cost-of-living adjustments to protect retirees from inflation - a feature that is on the chopping block under many public sector reform plans.

3. Pension underfunding isn't as bad as you think.

It's true that funding in some states has dropped to frightening levels. Illinois, for example, which failed to make the necessary plan contributions for years, has a funded ratio of 43.4%. But nationally, the story is more positive. Aggregate asset/liability ratios have been rising. The funding level for all state plans combined was 77% last year, up from 69% in 2010, according to Wilshire Consulting.
Most public sector pension plans have a target funding ratio of 100%. However, ratings agencies consider a ratio of 80% to be adequate. By comparison, private sector pension plans are considered at risk of default if their funded ratios fall below 80%.
However, it's worth noting that public sector funding ratios rely on long-term rate of return assumptions around 8%. Actuaries support that projection, since it is upheld by actual long-term investment history. But economists argue that a more conservative assumption should be used, reflecting only what a fund could earn on Treasuries or corporate bonds - closer to 4%. If public plans adopted lower projections, their funded ratios would be sharply lower than reported.

4. Pensions are more efficient than 401(k)s.

Despite the under-funding of some plans, defined benefit pensions provide retirement benefits more efficiently than defined contribution plans. The efficiencies stem from pooling of longevity risk, maintenance of portfolio diversification and professional investment by pension fund managers.
"With a 401(k), we ask people to be their own investment advisers, which takes about 200 basis points off the return," says Diane Oakley, executive director of the National Institute on Retirement Security, a not-for-profit research and education organization. "Then we ask them to be their own actuaries and decide how long they will need to draw their own money out - and most people can't do that."
That means when workers are shifted from pensions to defined contribution, the value of benefits fall - or taxpayers are on the hook to keep benefits level. For example, a study last year by the comptroller's office in New York City found that it would cost the city's taxpayers 57% to 61% more to provide workers in the city's five defined benefit plans with equivalent benefits via a defined contribution plan.

5. The retirement crisis is real.

The Federal Reserve's recently issued Survey of Consumer Finances contains these stunning figures: the median American family's net worth fell nearly 40% in the three years ending in 2010, and the asset accumulation of most was set back almost two decades. Real income fell 7.7 %.
Americans' confidence in their ability to retire is at a historical low point. Just 14% report they expect to have enough money to live comfortably in retirement, according to the Employee Benefit Research Institute. 60% of households tell EBRI that the total value of their savings and investments -excluding their homes - is less than $25,000.
Against that backdrop, pensions are the only safety net available to public sector workers, especially in states where they are not enrolled in Social Security. That means there's a real risk that pension reforms could push public sector retirees into poverty.
Consider the actuarial assessment of pension reform in one such state - Louisiana, where Gov. Bobby Jindal this month signed a bill that would put new hires into a 401(k)-style cash-balance pension plan starting in 2013. A report by actuaries for the Louisiana legislature concluded that ". . . because there is no Social Security coverage, such a member may very well become a ward of the state because he or she has no other available resources."

(Editing by Beth Pinsker Gladstone; Editing by Dan Grebler)

China PMI Falls, Points To Need for Stimulus - WSJ.com

HSBC Preliminary China PMI Fell in June - WSJ.com
BEIJING—A preliminary gauge of China's manufacturing activity showed more weakness in June, which appeared to strengthen the case for more stimulus measures to spur growth.
The HSBC initial, or "flash," measure of manufacturing also foreshadowed weakness in the months ahead as its barometer of new manufacturing orders, particularly export orders, showed further declines amid a lingering global economic slowdown.
[CECON]
China has already turned to an array of measures to boost growth, speeding up approvals on big projects, offering tax breaks and extending subsidies to promote consumer spending. A big unanswered question is whether the plethora of actions in the past month or so will be sufficient to boost growth during the second half of the year. If so, it could help strengthen global demand at a time when Europe is in recession and the U.S. is growing slowly.


Meanwhile, HSBC pointed to less than robust signs on the domestic economic front as well.
It said there was no meaningful improvement in domestic demand in June, with a rise in inventories of finished goods. Prices were also suggesting a potential for deflation, rather than inflation, due to weak demand.

Wednesday, June 13, 2012

Survey: Cities with emergency managers hate oversight, think not having one would be worse | Crain's Detroit Business

Survey: Cities with emergency managers hate oversight, think not having one would be worse | Crain's Detroit Business

The majority of voters in Michigan cities with emergency managers said they disapprove of that oversight but think their municipalities would be worse off without them, according to a survey commissioned by Business Leaders for Michigan.

Voters in Benton Harbor, Ecorse and Pontiac think their communities would be worse without the appointment of a financial manager, while the majority of Flint voters think the situation would not have changed.

“While the residents of the four cities with emergency managers may not like having an emergency manager, the majority of residents in every case are optimistic about their city’s future and strongly prefer an emergency manager to bankruptcy courts,”

Sunday, June 10, 2012

China's Great Wall is Crumbling Again-- Don't Rely on China to Prop Up the World

 China has 60 million empty apartments

By Fred Leeb

The world's economic recession has breached the Great Wall of China again. In 2008, China had a $600 billion stimulus program.  On June 7, 2012, another domino fell when China had to cut its interest rate by a quarter of a percentage point in an effort to stimulate its growth again.   

China is desperately attempting to shift from an export economy to a consumer economy due to the world-wide recession; it is now in a slow-down of its own.  The current weakening is likely to worsen.  This means that the teetering economies of the United States and Europe cannot depend on China to boost them up.  In fact, a slowdown in China could actually accelerate the effects of the recession on the West due to today's pervasive global economy.  Not only does our economy affect China but China's economy affects ours. 

The interest rate cut was the first cut since December 2008.   According to Tom Orlik of the Wall Street Journal, "A move to lower the cost of capital might support short-term growth, but it comes with a price. Higher lending will push up China's burgeoning ratio of credit-to-gross-domestic-product, building up debts that will one day have to be repaid. And higher investment spending threatens to tip China's economy further off balance, with attendant problems of waste and overcapacity."  
    
Per Gordon Chang of Forbes, once you add in "hidden liabilities, China's debt-to-GDP ratio at the end of last year increased to somewhere between 90-160%.  

By comparison, at the end of last year, the debt-to-GDP ratios for Italy and Greece were 137% and 179%, respectively.   

Many areas of the Chinese economy are weak.  New bank loans for 2012 are projected to be about 15% less than the government's goal, according to Bloomberg News. There reportedly has been a lack of demand due to shaky profits and excess capacity.  In addition, though a real estate bust is not projected, Chinese real estate prices have been falling in value. 

According to China Daily, China's house prices fell to a 16-month low in May, investment growth in property development experienced its eighth year-on-year decrease in April and the real estate confidence index was at its lowest level in nearly three years. 

According to Alex Finkelstein of the World Property Channel, property developers in China are currently selling their inventory at a 40-50% discount and large residential projects have resulted in an estimated 60 million unoccupied apartments.

Nick Edwards of Reuters reported, "China is recognising that they have to keep their economy stimulated and growing," said Gordon Charlop, a managing director at Rosenblatt Securities in New York.  "They will be proactive to make sure they don't run into any of the problems we've faced and are facing and Europe is facing."  According to Edwards, "Beijing wants to see growth solidly underpinned before a once-a-decade leadership change at the top of the ruling Communist Party, due towards the end of this year.  But it is likely to be wary of setting off a fresh round of price hikes that could put social stability at risk."

Instead of being the strong economy holding the global economic system together, China may be another cause of instability, risk and uncertainty.  Though China is on the other side of the globe, its economy may have a profound effect on us locally. 

Our business projections should recognize the risks inherent from being a part of the global economy and we should be developing contingency plans now to be prepared properly in case of another downturn.  Our economy is likely to get even more difficult before getting better.

Friday, June 8, 2012

China rate cut raises fears of grim May economic data | Reuters

China rate cut raises fears of grim May economic data | Reuters

China rate cut raises fears of grim May economic data


BEIJING, June 8 | Fri Jun 8, 2012 5:44am IST
 
(Reuters) - Global cheers over China's decision to cut interest rates could fade to stony silence if, as some economists fear, the move signals that some grim economic data are about to be released.
China's surprise rate cut unveiled on Thursday has boosted hopes that cheaper credit will help combat its faltering economic growth and has encouraged global share markets in their belief that the major economies are stepping up stimulus.


But the central bank's cut, the first since the global financial crisis in late 2008, has also raised concerns about a deluge of May Chinese data due this weekend.


Reuters polls published earlier in the week suggested the world's second-largest economy probably showed signs of stabilising last month from a surprisingly weak April. Now, some economists worry that those expectations may be misplaced.


"The concern is that with industrial production and CPI data coming out of China at the weekend that it's indicative of them knowing something about weak data going forward," said Adrian Schmidt, currency strategist at Lloyds Bank in London.


The outlook was already looking grim by Chinese standards....

Beijing is still tackling the after-effects of the 4 trillion yuan ($635 billion) stimulus programme unveiled in late 2008 during the global financial crisis.


The programme triggered a frenzy of real estate speculation, saw local governments amass 10.7 trillion yuan of debt and drove inflation to a three-year peak by July 2011.


"China is recognising that they have to keep their economy stimulated and growing," said Gordon Charlop, a managing director at Rosenblatt Securities in New York.


"They will be proactive to make sure they don't run into any of the problems we've faced and are facing and Europe is facing."


...Import growth, forecast by analysts at 5 percent year-on-year in May, would be an improvement on April's 0.3 percent rise, but again well below the 10 percent target and an indication of still fragile demand at home and abroad.  [Please click on the hyperlink above to see the entire article.]

Thursday, June 7, 2012

2 big cities OK cuts to worker pension costs - Los Angeles Times

2 big cities OK cuts to worker pension costs - Los Angeles Times

2 big cities OK cuts to worker pension costs

ELECTIONS 2012

Reform advocates predict others will follow example of San Jose and San Diego.

June 07, 2012| 
Catherine Saillant and Tony Perry

Landslide victories on ballot measures to cut pension costs in two major California cities emboldened reform advocates, who said they expect a flurry of copycat initiatives and increased support for Gov. Jerry Brown's long-stalled push to curb the state's obligations to its employees.

In San Jose, nearly 70% of voters Tuesday approved a plan that gives workers the choice between increasing their pension contribution to 13% of their pay, currently 5% to 11%, or switching to a lower-cost plan with reduced benefits. It also steeply cuts benefits for new hires and tightens rules for disability retirements.
In San Diego, where pension cuts already have been implemented, voters opted to eliminate pensions for new workers. By a 66% to 34% margin, voters Tuesday endorsed Proposition B, which provides newly hired city employees with a 401(k) program, but preserves traditional pensions for new police officers.

The San Diego measure also calls for a five-year freeze on "pensionable" pay levels and removes elected leaders' ability to improve retirement packages without a popular vote. Leaders in both cities say voters were echoing a point that reform advocates have made for years.

"They understand the direct connection between skyrocketing pensions and the cuts in services we've suffered," said San Jose Mayor Chuck Reed, the primary mover behind his city's push for reform. "They recognize that the system is simply not sustainable."

Monday, June 4, 2012

All Hail the Generalist - Vikram Mansharamani - Harvard Business Review

All Hail the Generalist - Vikram Mansharamani - Harvard Business Review

All Hail the Generalist

We have become a society of specialists. Business thinkers point to "domain expertise" as an enduring source of advantage in today's competitive environment. The logic is straightforward: learn more about your function, acquire "expert" status, and you'll go further in your career.

But what if this approach is no longer valid? Corporations around the world have come to value expertise, and in so doing, have created a collection of individuals studying bark. There are many who have deeply studied its nooks, grooves, coloration, and texture. Few have developed the understanding that the bark is merely the outermost layer of a tree. Fewer still understand the tree is embedded in a forest....

For various reasons, though, the specialist era is waning. The future may belong to the generalist. Why's that? To begin, our highly interconnected and global economy means that seemingly unrelated developments can affect each other. Consider the Miami condo market, which has rebounded quite nicely since 2008 on the back of strong demand from Latin American buyers. But perhaps a slowdown in China, which can take away the "bid" for certain industrial commodities, might adversely affect many of the Latin American extraction-based companies, countries, and economies. How many real estate professionals in Miami are closely watching Chinese economic developments?