Sudden Stop

The second shoe of a three legged problem

The second shoe of a three legged problem has dropped.  The PBGC, the ultimate insurer of private pension plans was investing heavily in stocks.  That is, the PBGC was investing in the same investments in which the pension plans with PBGC insurance were investing.  Plans dropped in value, that was the first shoe.  PBGC assets dropped in tandem.

The third shoe: States will complete their pension fund audits, either at December 2008, or as is most common June 30, 2009.  Massachusetts Pension Investment Trust Fund, one of the largest in the US, has a June year end. (2008 statements are here).  Through June, 2008 the investments were down 1.8% but in the period from July 1, 2008 to November 30, 2008 the value dropping another 20% from $50 billion at June 30, to $37 billion at November 30. 

As the actuaries and sundry green eyeshades finish the audit and actuarial calculations, to no one's surprise, except politicians, underfunding will likely be terribly large, exacerbated by not only the asset value drop but the consideration that a lower future earnings rate projection other than the current 8.25% ought be used. (Anyone know where to get a long term 8.25% on investments?)  

Politicians will react with dismay, blaming the other party, citing years of neglect.  The Director's salary will be dragged into the discussion along with some high level money managers; elected officials will call for tax increases or budget cuts, all acting surprised at the extent of the problem. 

It's a problem that is here, right now, which ought to be addressed as part of the administration's purported effort at pension reform, otherwise the Governor's current pension reform effort (which ignores i) the underfunding ii) the other 105 disparate pension funds littered across the state which are also possibly put in peril by the equity drop of 2008-09)  is window dressing while the rest of the pension house is on fire.

Stop it with the Loopholes Stopping

"Patrick targets pension loopholes", which naturally follows the corporate loopholes  closing, the telephone pole tax loopholes closing. A regular Don Quixote.  Great press: Governor tilts at evil loophole doers, much the same as Congress is after those evil AIG bonuses.

The trouble is --and he knows this-- he's after the small stuff that catches the emotion, while letting the big systemic stuff slide.  The trouble with the Massachusetts pension system is simple; the fix is complicated.  Here's what makes the problem hard to solve:

i) The pension is a defined benefit system, meaning there are a set of rules to determine the retiree's pension.  The rules don't have much to do with how much the employee contributed, but rather are a system for determining a "fair" payout.   And because "fair" is in the eye of the beholder, the rules are complicated and the rule that one person may think is unfair is a "loophole" to the person who did get to take advantage of that particular rule.

ii) The largest pension funds in the state are terribly underfunded.  Not merely underfunded, but horribly, horrendously, obnoxiously underfunded.  Officials will tell you that we're on target to have the fund fully funded in a decade or so, but whoever says that is basing his statement on 2008 numbers.  When  actuaries and accountants finally calculate the 12/08 funding or the 6/09 funding the underfunding in these plans will be epic.

iii) Unless the pension rules change for the entire population of pensioners, the underfunding will have to be made up, of course, by the taxpayer.  The same taxpayer who lost 1/2 of his 401(k) will have to make sure that the state employee doesn't suffer a dime of pension loss, despite the fact that the fund supporting the pensioner dropped at least as much as the taxpayer's 401(k).

iv) The biggest pensions belong to the largest number of pensioners who also make up the States' largest public unions: Teachers and state workers.  Is there a politician who is tough enough to cut into that 3rd rail known as Union collective bargaining and attempt to reverse that which was bargained for?

v) There are hundreds of pension plans and funds throughout the state. Governor Patrick talked large about consolidating the various pensions, but at the last minute caved to the pressures of these little pension fiefdoms and left them alone.

The problem is therefore two-fold, a little problem and the big one.  The little problem is that some of the defined benefit rules produce agregious outcomes-big emotion, little bucks.  These are the outcomes that make the news, the pensioner that makes 100K, etc... Fixing that problem is a matter of eliminating some of the excessive perk which ought never to have been allowed to begin with: stop counting pensionable service that includes Library trustees, stop counting part time service;  stop counting pensionable wages that includes housing or parking allowances.  Easy stuff.

The big problem is the systemic problem of underfunding.  We're paying more than we can afford.  That's the problem best addressed by a one-termer (Mr. Patrick?).  Frankly and idealistically, shouldn't all politicians govern as if they were not running for re-election? 

Confront the unions for concessions, shift new hires to a defined contribution plan, increase the term for vesting, move from 'high 3' or 'high 5' to a pension payout that is based on 'average of last 10'. The problem is big, the solution must be broad.

Only a cup of coffee

It's only a large cup of coffee per week.  That's the Governor's sell job on the gas tax.  Don't drink coffee you say?

Then don't buy the Boston Globe on, say, Friday.  How would the Globe react to that?

School lunches are about $2.75.  Tell your kid to not eat lunch on every other Monday.

Tip your wattress 10%; she doesn't need 15%.  She'll get by.

Stiff your paperboy at Christmas. No tip for you sucka.

Lipitor is about 50 cents a pill.  Lay off that for a couple of days a week and hopefully the cholesterol will understand. 

Or insulin.

A hungry animal is a happy animal.  Sorry Fluffy, Monday is Gas tax day.  No food for you.

And how about people avoiding that one coffee per week.  Suck it Dunkin Donuts.  The State needs the cash more than you.  Just lay off an employee or two.

Budget cut shell games

This from the Boston Globe, budget cuts in the rear view mirror are smaller than they actually appear.  Seems there's a reserve fund that shelters, at least temporarily, the Legislature from cuts.  Makes me wonder about the Executive branch too.  All the noise about the '08 budget cuts, the pain, to the bone...yet in June of '08 the Government headcount stood at 83,636 (page 182 of the State's Comptroller).  Today the number of full time equivalent employees stands at 83,671, with 66 people in the Governor's Office (just to set a benchmark today).

How is it remotely possible for the government, essentially a service organization, to save money -- hundreds of millions of dollars -- with no headcount reductions.  Some transparency is in order as to how the savings in the Governor's office and the various agencies was accomplished, if it was accomplished at all.

Taxable income by Zipcode

So cool.

Reform without cost reduction

Transportation reform's all the rage, driven there by the enormous debt burden that has accumulated over the years.  The solution, and there appear in general to be three: i) raise the gas tax, ii) move the deck chairs around, presumably to reduce the number of Government Authorities that deliver transportation, iii) cut costs.

The explanation for the gas tax principally is that it hasn't gone up in a long time, and because it hasn't, it should.  The gas tax is directed toward transportation only they say, but money is fungible.  What that only means is that taxes are going up.

Agencies rightly ought be addressed.  There is, in this reform no mention about the MARTAs, the transportation agencies located throughout the state.  There's no oppressive debt burden there, so it's unimportant enough to ignore.  However, if you believe the Agencies somehow contributed to the current transportation issues by inflating their overhead, then those too ought be part of the discussion and reform.

Which brings me to reform. Reform, to  me, is cost reduction.  From the website: i) Ending the 23 and out special perk in the MBTA pension system ii) Bringing the Pike and MBTA into the state's health care system and iii) streamlining operations and eliminating 300 positions.

23 and out, meaning 23 years of service, then retirement regardless of age is absurd.  It's no less absurd if the age requirement is 55 or older.  Give a 55 year old the opportunity to sit on a couch, and many will take it.  It's bad policy.  Match the retirement requirement to those of the private sector:  62 or older.

It's unclear if bringing the Pike and MBTA into the State plan is substantial or not, because the employee contribution rate is not addressed.  Presently, the employees contribute only 10%.

Last, "streamlining 300 positions".   Senator Baddour has been very clear that the Senate's version of Transportation reform will not result in layoffs.  "Streamlining 300 positions" is deceptively unclear if 300 "positions" doesn't also mean 300 in headcount reduction.

How can the Government undertake serious reform, if reform doesn't address the largest component of costs, that of labor and headcount.

Amnesty

Tax Amnesty

 

Chapter 461 of the Acts of 2008 provides that the Commissioner of Revenue shall establish a two-month amnesty program during the fiscal year ending June 30, 2009 (the “Amnesty Program”) and determine the scope thereof. Pursuant to the grant of authority in Chapter 461, the Commissioner has established a two-month amnesty period commencing on March 1, 2009 and ending on April 30, 2009 (the “Amnesty Period”), to encourage the payment of delinquent tax obligations to the Commonwealth. The Amnesty Program will apply to tax years or periods ending on or before December 31, 2007 and is limited to: 1) individuals with existing personal income tax liabilities, 2) existing personal use tax liabilities, and 3) existing cigarette excise liabilities (pertaining to purchases for individual consumption). The Commissioner will notify taxpayers of their eligibility to participate in the Amnesty Program. Only those taxpayers to whom a “Tax Amnesty Notice” has been issued will be eligible.

 

Under the Amnesty Program, if a taxpayer is notified by the Commissioner that he or she is eligible and the taxpayer pays the full amount of tax and interest due for any period as shown on the “Tax Amnesty Notice,” the Commissioner is authorized to waive all unpaidpenalties including those imposed for failure to timely file a return,[1] failure to file a proper return,[2] failure to timely pay a tax liability,[3] and failure to pay the proper amount of any required estimated tax payments[4] for such period.

 

When an eligible taxpayer pays the full outstanding balance of tax and interest with respect to previously filed returns or assessments, the Commissioner will waive the unpaid penalties (and that interest directly attributable to those penalties) as to that taxpayer for those tax periods. St. 2008, c. 461.

 

Penalties that have been assessed or that could be assessed by the Commissioner against a taxpayer for liabilities relating to any other tax types are not eligible for waiver under the Amnesty Program.

 

II. Amnesty Period

 

The Commissioner has established the Amnesty Period to begin on March 1, 2009 and end on April 30, 2009.

 

III. Participation in Amnesty Program

 

The Commissioner will grant amnesty to individual taxpayers who have been notified of eligibility and who submit all required payments of tax and interest in full for each tax period as shown on the “Tax Amnesty Notice.”  

 

A. Eligibility Requirements

 

1. Eligible Taxpayers

 

The Amnesty Program is open to individual taxpayers who:

 

·         have been issued a “Tax Amnesty Notice;” and

 

·         (a) have an unpaid and previously self-assessed tax liability for personal income tax, personal use tax and/or cigarette excise (pertaining to purchases for individual consumption); or

 

·         (b) have been previously assessed a tax liability for personal income tax, personal use tax and/or cigarette excise (pertaining to purchases for individual consumption) by the Commissioner and are properly disputing the unpaid liability or are delinquent in paying the liability.

 

2. Who is Not Eligible

 

The Commissioner will not grant amnesty to any taxpayer who, prior to March 1, 2009 was the subject of a tax-related criminal prosecution or investigation.

 

Taxpayers who have signed a settlement agreement with the Commissioner are not eligible for amnesty for the tax periods covered by the settlement agreement including, without limitation, any settlement reached through the Department’s Litigation Bureau, Office of Appeals or Offer-in-Settlement Unit.

 

Taxpayers who have paid all tax and interest due relating to any outstanding assessment but who, at the start of the Amnesty Period, still owe or are properly disputing penalties with regard to that assessment are not eligible for amnesty for the tax period(s) covered by the assessment.

 

3. Tax Periods

 

The Amnesty Program applies to liabilities for the noted tax types for taxable years or periods ending on or before December 31, 2007.

 

4.  Taxpayers Under Current Payment Agreements

 

Individuals who have entered into a Payment Agreement with the Department prior to the start of the Amnesty Period with respect to qualifying tax types and periods are eligible to participate in the Amnesty Program. The Commissioner will waive eligible penalties associated with any period on the “Tax Amnesty Notice” on which tax and interest is paid in full by the April 30, 2009 deadline. The Commissioner will not waive any penalties associated with the tax liability covered by the Payment Agreement that have already been paid with past installment payments made in accordance with the provisions of the Payment Agreement.

 

5.  Appeals Pending

 

Any taxpayer who has an appeal pending with respect to an assessment made by the Commissioner for an applicable tax type and period is eligible for participation in the Amnesty Program if the taxpayer has been issued a “Tax Amnesty Notice” and timely pays all taxes and interest owed in full. Payment of the outstanding liability does not constitute a forfeiture of statutory rights of appeal or an admission of liability for the disputed assessment.

 

Tollsters

Mobsters, tollsters, ...  The 19 cent gas tax, the newest plan to save money.

The Legislature plan, according to Mr. Steve Baddour "the plan  does not call for anyone to lose their job.  There is the possibility that we can cut back on some of the consultants and lawyers we are currently paying enormous fees to, but we do not expect anyone to be laid off as a result of this plan."  The Governor's plan, who knows, but note, that certainly there must be room to address the one-trooper, one mile of pike phenom:

The 138 miles (222km)  of the Turnpike has 172 state troopers on payroll fulltime, paid in 2008 an average of $150,537 for the year.

...

A ranking of Turnpike employees by pay shows it has nine employees with pay last year of over $200k, all of them cops.

The 65 highest paid officers on the Massachusetts Turnpike payroll of 1,821 persons were cops.

These 65 Turnpike cops, most of them state troopers, all got more than Alan LeBovidge, executive director who got $163k.

Second paid non-cop after the executive director was Marie Breen Legal Counsel who received $153k and ranked 90th in pay ranking after 88 cops and the executive director.

197 employees of the Turnpike last year took gross pay of $100k or more and of these 153 were cops and 44 were non-police. Only 19 of the 172 Turnpike police took home less than $100k/yr.

Pick the poison

All the chatter today is about Gov Deval Patrick and the new gas tax he’s about to propose on Beacon Hill. So the Boston Globe, in all it’s wisdom, has a poll running: Would you rather pay for a toll hike or higher gas taxes? That’s it. Only two alternatives. Do you want higher taxes or do you want higher taxes? How painfully typical of this state’s rabidly liberal media and legislature. Apparently it slipped their minds (and our Governor’s) that there’s another alternative, like NO NEW TAXES & CUT SPENDING.

Worcester County Freedom Trail

Mortgage Handout B&B;

I'm totally onboard with the Mortgage handout, so long as the taxpayers who don't take the handout have the right to use a room in the home of people who do. 

Seeking: handout recipient near the ocean in June.