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FEN Blog > April 2011

Hot News from Capitol Hill: Debt limit is next battleground in DC

FEN to Visit Capitol Hill. While Congress is out of session for the spring district work period, both political parties are preparing to return to an active and contentious session in May. Among other matters to be considered next month, two themes we can expect to see are debate over a statutory increase in the debt limit and initial consideration of annual spending bills for each federal agency. FEN members can also look for likely hearings on the Public Employee Pension Transparency Act (PEPTA), legislation endorsed by FEN that would require state and municipal pension funds to disclose their underlying actuarial assumptions. FEN will continue its efforts to shape the public policy debate with the visit of FEN President, Jim MacDougald to Capitol Hill the week of May 2 to meet with Congressional leaders. As with past visits, FEN expects to advocate strongly for the following: enactment of PEPTA; legislation to align the minimum retirement age of federal employees with the minimum retirement age of Social Security recipients; repeal of Executive Orders that coerce unionization; small business and corporate tax reform; legislation to revitalize risk-based capital loans; and, repeal or reform of the recently enacted healthcare reform law.

Ryan Budget to Shape Debt Limit Debate. With all eyes on the looming showdown over whether and how to raise the statutory limit on the federal government’s ability to borrow, both parties are beginning to firmly establish their positions. Notwithstanding individual exceptions in each party, Democrats are generally calling for a clean up or down vote on raising the nation’s debt ceiling while Republicans are insisting that any increase must be accompanied by long-term fiscal reforms. The latest scenario has Republicans preparing to attach several provisions from Rep. Paul Ryan’s (WI) recently unveiled budget plan to the debt ceiling increase. FEN members will recall that Rep. Ryan’s budget included several provisions of interest to our organization, including reducing the size of the federal workforce by 10%, a five-year pay freeze for the federal workforce, and reducing the taxpayer-paid portion of federal employees defined benefit plan. Rep. Ryan’s plan was quickly adopted in the House but is not expected to be considered in the Senate. Because the debt ceiling legislation is considered ‘must-pass’ by most in Congress, House Republicans are crafting a strategy to enact many of Rep. Ryan’s provisions by attaching them to the underlying debt increase legislation. House Republicans are also expected to consider attaching provisions to reform the budget process through formulas that will set annual spending caps. 

Labor Dispute at Boeing Attracts Attention of Congress.  A labor dispute at aircraft giant Boeing has caught the attention of some in Congress and staff has confirmed we may see Congressional hearings in May. As reported in multiple sources, the National Labor Relations Board (NLRB) last week sued Boeing, alleging the company established new production work on the company’s Dreamliner aircraft in South Carolina in part to retaliate against the International Association of Machinists and Aerospace Workers for the union’s previous strikes at Boeing’s facility in Washington State.   Employees at the company’s South Carolina facility are not represented by the union. The suit seeks to coerce Boeing to increase its production capacity in Washington, or put more bluntly, the NLRB is seeking a federal court’s permission to tell Boeing where it must produce its most valuable product. Members of Congress responded swiftly, with one Senator threatening to prohibit any funding of the NLRB for activities related to this action.

Rising Gas Prices to Force Congressional Debate. Anytime gas prices rise dramatically, Congress begins anew to examine our nation’s energy policy. FEN members who have read Jim MacDougald’s book UNSUSTAINABLE will remember his call for a long-term energy plan that creates private sector jobs through the building or expansion of new refineries, including expanded drilling for natural gas. FEN will stay closely involved as Congress begins to debate this issue in the coming weeks, including advocating for legislation recently introduced by Rep. Devin Nunes (CA), the Roadmap for America’s Energy Future (H.R. 909). As stated in a letter of endorsement from Mr. MacDougald, “The Roadmap for America’s Energy Future promotes an energy policy that is both market-based and is technology neutral. It provides a thoughtful national energy policy that promotes the economic interest of the private sector by reasonably expanding permits and licenses for companies to engage in energy exploration and production, and by encouraging private sector development of new energy sources in an economically sensible way.”

Sandy Springs, GA: The city of the future

4/21/2011 3:52:17 PM by Jo-Lynn Brown
Filed under: private sector, public workers, municipality, taxes, incorporation

By 1989, the city of Sandy Springs, just north of Atlanta, had had enough. The city of about 90,000 people had grown tired of paying high taxes to Fulton County, and seeing virtually no local investments or improvements. People in the city thought they could do better on their own. They were right.

For years, lawmakers from the area would draft and propose bills for incorporation, and every year legislators from neighboring cities in the county blocked them, probably because they didn’t want to lose the big chunk of tax revenue that came from the area. By 2005, HB37, a bill for incorporation, was passed and signed by Governor Sonny Purdue. When voters went to the ballots to approve the referendum, they voted overwhelmingly in favor by 94%.

What happened next was an experiment that proved to be quite innovative. The city outsourced nearly all of its city services. Garbage management, street maintenance, communications, technology, traffic services…all of it was handled by private companies, and handled well.

The University of Georgia had estimated in a study that the city would need a staff of 828 employees for the city to function. They city has employed about 471 since incorporation, and only 271 are public employees, relying on tax dollars. The Mayor of Sandy Springs, Eva Galambos, told John Stossel in 2010, “We have fewer employees than the city to the north of us and we have exactly the same population.”

Sandy Springs began use of their own police and fire departments in 2006, which today employs 128 officers and 97 firefighters respectively. However, city officials say there is no burden of long-term pension or healthcare costs. From inception, neither department has participated in defined benefit plans. Both use defined contribution plans, similar to 401(k) s. In addition health insurance is dealt with much like private savings accounts. According to a report from Reason Magazine, the public safety departments use some of the most innovative technology available.

Public schools remain under the broader district control of Fulton County, but other than that, the city currently let’s a contracting firm designate all other city services. The Colorado-based private contracting firm CH2M Hill is the managing partner with a large group of subcontractors. For every need Sandy Springs faces, the firm contracts out to the specialized company who can do the work most efficiently and least expensively.

This hybrid model to run a city has proven to be a success economically. According to Reason, the cost to run a city the size of Sandy Springs should cost around $50 million a year, but by contracting out to CH2M, it cost the city half of that, about $25 million. The city was able to build up its reserves, re-pave 90 miles of road, construct award-winning parks, and implement a state of the art traffic system, which has saved drivers about $12 million, in fuel and time, over a two year period. At the same time, the city has not had to raise any taxes.

The model has achieved notice. In 2010, the city was the runner-up for the Pioneer Institute’s 2010 Better Government Competition Award. The award is presented for innovative ideas and programs that improve effectiveness and efficiency of government. Citizens seem to approve of the new model too. During the first election after incorporation, every incumbent was re-elected for office. In fact, the lowest margin for re-election for any of the incumbents was 84%.

According to a recent article from the Atlanta Journal-Constitution, other cities in Georgia are considering joining the hybrid-city model.

This month, Sandy Springs voted to award contracts out for information and financial services, and they still have five departments in the bidding process including court services, parks and recreation, and public works.

Hot News from Capitol Hill: FEN priorities resonate in recent legislation

FEN Leadership Resonates in Recent Legislation. The Free Enterprise Nation was founded to represent the broad economic interests of the private sector. The first challenge to this effort was attaining an accurate assessment of the size of the public sector as a market participant, and importantly the inherent advantages the public sector has in its competition with the private sector. Accordingly, FEN immediately called for transparency initiatives to require governments at all levels to adopt unified balance sheets that fully disclose assets and liabilities in accordance with the standards required of the private sector.   FEN funded a study by Andrew Biggs of the American Enterprise Institute that disclosed “off the balance sheet” unfunded liabilities for non-federal public sector pension plans of $3.5 trillion if realistic and conservative interest rate assumptions are utilized in funding calculations. The last few weeks have demonstrated FEN’s foresight and leadership on this important issue. On April 13, the House Committee on Government Reform and Oversight held a hearing on state and municipal debt at which Andrew Biggs testified along with Wisconsin Governor Scott Walker, affirming that greater transparency must be required of public sector pension and employee benefit plans. Likewise, the Public Employee Pension Transparency Act introduced by Reps. Nunes (CA), Ryan (WI), and Issa (CA) reflects FEN’s call for public sector pension fund transparency and is accordingly the top priority of FEN’s legislative agenda this year. FEN will continue to work with the Congress on measures that require transparency in public sector finances. Only then, as advocated by FEN, can voters truly work with their elected officials on the most appropriate remedy for the disparity between the public and private sectors economies.

Tax Day Brings Multiple Hearings on Tax Reform. As reported previously in this column, several broad-based tax reform proposals have been introduced during this Congress. Though none have been fully considered, the Congress did hold several hearings on tax reform leading up to the personal income tax filing day of April 18. In one hearing of significance to FEN membership, the House Committee on Small Business examined “How Tax Complexity Hinders Small Businesses: The Impact on Job Creation and Growth.” The hearing focused on a report by the U.S. Small Business Administration’s Office of Advocacy confirming that small businesses must spend more per employee than large businesses complying with tax paperwork, recordkeeping, and reporting requirements. Additionally, the hearing examined the need to address reform of personal tax rates applied to small business owners whose income is derived from S Corporations, partnerships, or sole proprietorships. FEN expects more hearings this summer on fundamental tax reform and will report back regularly through this column.

Ryan Budget Approved with Recommendations for Reform to Federal Employee Benefits.  Rep. Paul Ryan’s budget proposal moved quickly through the House of Representatives, receiving final passage on April 15. The Senate is not expected to consider a similar measure. The Ryan budget as approved, however, retained several provisions important to FEN members and reported previously in this column. These provisions include: a reduction in the size of the federal workforce by 10% through an attrition policy that allows only one new federal hire for each three that retire or separate; a five-year pay freeze for the federal workforce; a reduction of the taxpayer-paid portion of federal employees’ defined benefit plan by requiring federal employees to fund 50% of the cost of the plan (current estimates reflect less than 10% is funded by employees); support for small businesses and S Corporations by lowering the top individual tax rate from 35% to 25%; and, a lowering of the top corporate tax rate from 35% to 25%.

Debt Limit Vote to Include Significant Deficit Reduction Provisions.  The House and Senate this week cleared the lingering FY2011 discretionary budget, funding the federal government for the next six months and the House also cleared Paul Ryan’s budget resolution. The next big debate with potential to significantly impact financial markets and the private economy is whether to raise the current statutory debt limit beyond $14.3 trillion. The government is currently running an annual deficit of approximately $1.5 trillion. The ability to borrow is limited by statute, and at the current rate of deficit spending, the government will need to raise the debt limit in early summer or risk compromising the nation’s credit worthiness. The debate promises to be intense. While leaders in both parties recognize that the debt limit must eventually be raised, there is significant effort underway to include deficit reduction provisions and entitlement reforms in any legislation that raises the debt limit. Raising the debt limit is a politically toxic vote, and advocates for dramatic reforms see this as the best opportunity to implement real change during this Congress. Stay tuned to this column for regular updates over the coming months.

FEN Email Stirs Controversy

4/15/2011 4:06:08 PM by FEN Staff
Filed under: Not Bad for Government Work, federal workers

The Free Enterprise Nation recently sent out an email titled “Not Bad for Government Work!” We were astonished by the number of government workers who sent us hate mail. Many of them said that the facts that were presented were not accurate. But they were.

We all receive forwarded emails from family & friends that sometimes contain information that’s a little extreme. FEN decided to counter these by sending a factual email regarding some of the pay & benefits enjoyed by federal employees to see if it would garner the same kind of “forwarding appeal” as some of the more outrageous topics that we’ve all seen.

Much to our surprise, this seemingly innocuous email has produced an inordinate number of negative and downright nasty email responses to FEN. Many replies claim to come from public sector workers (although we have no way to verify their true identity) who say that the facts stated in our communiqué are overblown, preposterous and/or just plain untrue. Because of those charges, we would like to make our sources available for verification. Ironically, the facts we used all came directly from the government’s own websites.

Since its inception, an objective of the Free Enterprise Nation has been to provide honest information in a way that is understandable. Despite the angry protestations, we will continue to do so and hope that you will continue to help us by sharing what you learn with your family, friends and colleagues.

Click here to view the original email along with links to the sites that we used to gather the information. And please forward it along…truth is power!

Hot News from Capitol Hill: 10% reduction of federal workforce proposed

House Moves Swiftly to Consider Budget Resolution. As reported to FEN membership through this column, Rep. Paul Ryan (WI) has introduced his omnibus Budget Resolution, recommending dramatic changes to most federal programs as a means of reaching a balanced federal budget. The House moved quickly to advance this legislation to the floor, despite the ongoing and unrelated debate on the Fiscal Year 2011 appropriations bill which determines whether the federal government remains open. Rep. Ryan’s budget resolution provides a roadmap document that recommends a series of federal spending and tax rate reforms but the resolution does not provide for implementation of these changes – instead directing Congressional committees to author implementing legislation to enact the changes reflected in the Budget Resolution. Of interest to FEN members, Rep. Ryan’s budget package includes the following recommendations: reduce the size of the federal workforce by 10% through an attrition policy that allows only one new federal hire for each three that retire or separate; a five-year pay freeze for the federal workforce; reduce the taxpayer-paid portion of federal employees defined benefit plan by requiring federal employees to fund 50% of the cost of the plan (current estimates reflect less than 10% is funded by employees); support small businesses and S Corporations by lowering the top individual tax rate from 35% to 25%; and, lower the top corporate tax rate from 35% to 25%.

1099 Provision Finally Repealed. Private sector employers reacted strongly to a provision in the healthcare law dramatically increasing the 1099 reporting requirements for use of vendors or contractors. Congress immediately tried to repeal the provision, but met with a number of legislative and technical challenges, including how to replace the $22 billion in revenue that the new requirement was expected to provide. In the face of widening criticism, Congress finally approved the repeal and sent it to the President for quick enactment. To pay for the repeal, the legislation increases the cost share by individuals that will be enrolled in the new health care program as that individual’s income rises.

Bi-partisan Senate Tax Reform Package Unveiled. As reported previously, Senators Ron Wyden (OR) and Dan Coats (IN) have introduced the Bipartisan Tax Fairness and Simplification Act. As with Rep. Paul Ryan’s Budget Resolution in the House, the Wyden-Coats plan calls for a meaningful reduction in the corporate tax rate, in this case from 35% to 24%. Beyond that provision, however, the legislation seems to do little to appreciably advance the interest of the private sector and free enterprise. The top personal tax rate, paid by many small business job creators, remains at 35% and depreciation schedules are extended, thus reducing the expensing of tangible business property for private sector businesses.

Update on Public Employee Pension Transparency Act. The Public Employee Pension Transparency Act (PEPTA) was introduced with the support of FEN and with active participation by FEN President Jim MacDougald. The legislation quickly garnered 46 cosponsors in the House and a companion bill was introduced in the Senate. Since its introduction, much of the debate in Congress has focused on budget and spending matters, culminating this week in the showdown over the Fiscal Year 2011 appropriations legislation to fund the government. As the appropriations matters begin to settle, Congress is expected to move to a variety of non-spending priorities, including legislation like PEPTA. Given the strong leadership and ongoing hard work on this legislation by Rep. Devin Nunes (CA), Rep. Paul Ryan (WI), and Rep. Darrell Issa (CA), FEN anticipates that by late Spring this legislation may begin to move through the House. FEN remains in full support of PEPTA and considers the legislation to be our organization’s top legislative priority this year. FEN members are encouraged to contact their Members of Congress to request they support H.R. 567 in the House and S. 347 in the Senate.

David Jolly
on behalf of The Free Enterprise Nation

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