State and Local Pension Plans: Funding Status, Asset Management, and a Look Ahead

State and local employee pension plans, which are primarily defined benefit plans, are now under greatly increased scrutiny. Plan funding conditions have worsened over the past number of years, especially during the aftermath of the post‐​2007 recession. The number of inadequately funded plans increased steeply during 2008-09, when the recession caused implosions in asset prices and state tax revenues. However, the patterns of financial changes vary considerably across the U.S. states and under alternative ways of measuring a plan’s funding status. Much of the worsening in conditions between 2001 and 2009 occurred in states with initially well‐​funded pension plans. This was not only due to economic conditions, but to illogical accounting standards set by the Government Accounting Standards Board.

This report provides a detailed review of the erosion that has occurred in state and local government employee pension plans during the last decade. Controlling for the declines in pension plan asset values during the recent recession, it also analyzes whether at least some of the blame for the current poor funding conditions of plans can be assigned to insufficient contributions by employers and employees. Finally, because pension plans are operated by government entities that are unlikely to be shut down, the report examines how pension funding conditions would change if future contributions and benefits were taken into account.

Key issues covered by the report include:

  • Pension plan funding: a close look at the best and worst states.
  • Analysis of what is behind the general pension funding decline over the past decade.
  • Investment management strategies taken by state and local government pension fund boards.
  • Analysis of whether employers and employees are contributing sufficiently to funds, and if poor initial plan funding stimulates pension contributions.
  • The impact of a government’s size on plan funding.
  • Do pension plan funding contributions depend on federal budget support?
  • How the funding shortfalls of state and local government plans are actually understated under standard actuarial accounting.
  • How plan funding conditions in 2009 appear under the alternative discounting of future benefit obligations.
  • Future expected pension benefit accruals.
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Why Silicon Valley Should Not Normalize Relations With Washington, D.C.

The media and political pundits want Silicon Valley to become more engaged in the politics of Washington, D.C. CEOs are constantly told to stop sitting on the political sidelines; recognize the value of “industry‐​government partnerships”; and become donors, lobbyists, and recipients of subsidies.

There could be no bigger mistake than to “normalize relations with Congress and the White House.” The political scene in Washington is antithetical to the core values that drive success in the international marketplace and risks converting entrepreneurs into statist businessmen. The collectivist notion that drives policymaking in Washington is the irrevocable enemy of high‐​technology capitalism and the wealth creation process. Silicon Valley CEOs should withdraw from Technet, the high‐​tech lobbying association; oppose corporate welfare programs; and stand together to vigorously defend companies like Microsoft, Intel, and other high‐​tech firms when they are under assault by the government.

The End of Welfare: Fighting Poverty in the Civil Society

Bill Clinton promised to “end welfare as we know it.” Alas, he has not. Despite the 1996 Welfare Reform Act, the modern welfare state is still fundamentally intact.

In this book, The End of Welfare: Fighting Poverty in the Civil Society, Michael Tanner argues that that must change. He contends that government welfare programs have failed to accomplish their ostensible goal of alleviating poverty and, moreover, they have undermined the traditional American principle of voluntarism. The interventionist welfare state has replaced civil society with political society and the results have beendisastrous.

Tanner traces the history of welfare programs and finds many of them rooted in the Progressive Era. Although those programs had modest beginnings — for example, the Children’s Bureau’s first annual budget was only $25,640 — they nonetheless laid the groundwork for the New Deal and the Great Society, which expanded government assistance programs enormously. Indeed, the author points out that the welfare state has ballooned to such a level that in “40 states welfare pays more than an $8.00-an-hour job. In 17 states the welfare package is more generous than a $10.00-an-hour job.” Clearly, the system is in need of major revision. But both conservative and liberal critics have misunderstood what needs to be done, writes Tanner.

Liberals often claim that increased funding for job training and child care coupled with an expansion of the earned income tax credit would help many leave the welfare rolls. But, Tanner argues, there is little evidence to support such assertions. For example, “Not only do job‐​training programs fail to move significant numbers of people from welfare to work, they may actually have the opposite effect — moving people from work to welfare. Since individuals may be eligible for training programs only if they are on welfare, it becomes a rational decision for low‐​income working people, currently making a marginal living, to quit work and enter the welfare system.”

Conservatives, on the other hand, frequently push for the establishment of “workfare” programs and support block grants. Those programs, Tanner argues, are also flawed. Workfare “does not address the most serious social consequence of welfare — children growing up in single‐​parent families.” And block grants, in reality, do little to return power to states and local communities.

In contrast to liberal and conservative critics, Tanner argues that welfare “cannot be reformed.” Instead, it “is time to end it” and to finally realize that state‐​supported efforts to cope with poverty are doomed to failure. In place of government programs, Tanner proposes a two‐​pronged approach. First, undo the shackles of regulation and taxation that have been placed on the economy and allow it to grow, thereby providing jobs for those who are able to work. And second, rely on private charities to aid those who can’t work or are temporarily between jobs.

Private charities, Tanner argues, “are far more effective than government welfare programs.” They “can individualize their approaches and target the specific problems that are holding people in poverty. They are also much better at targeting assistance to those who need it most and at getting the most benefit out of every dollar.”

The United States, Tanner writes, must rediscover the approach it employed during the first 130 years of its existence. It must rediscover civil society.

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Reaganomics: An Insider’s Account of the Policies and the People

Reaganomics was the most ambitious attempt to change the course of American economic policy since Franklin Roosevelt’s administration. As a presidential candidate, Ronald Reagan promised to reduce the growth of federal spending, tax rates, regulation, and inflation and to promote free trade among nations. Yet his record of achieving those goals is decidedly mixed. In this lively, informative account William A. Niskanen, a distinguished economist and former top Reagan aide, tells why.

Niskanen was at the forefront of the Reagan administration’s economic program — as its supporter or internal critic and as a participant in or witness to many of the crucial decisions that shaped it. In this volume he recounts the debates over economic policy, assesses the impact of the administration’s program on the budget, taxes, regulation, trade, and monetary growth, and describes the probable legacy of Reaganomics.

Although Niskanen notes the administration’s successes in such areas as lowering tax rates and promoting the deregulation of a number of industries, he does not shrink from examining instances in which the Reagan vision of free markets and limited government went awry, such as the Commerce Department’s often‐​mercantilist view of imports and the many politically motivated concessions on spending policy. In the course of providing candid portraits of the architects of Reaganomics, he describes the exchange of positions by Donald Regan and James Baker as “a mistake for all concerned” and portrays Edwin Meese as “the most conspicuously mediocre man in American public life.” Published by Oxford University Press.

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