Bacon's Rebellion

Democracy Thrives in Sunlight

Bacon Bits: More Random Notes from a Fevered Mind

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by

James A. Bacon
in

Before and after. Image credit: Richmond BizSense.
Before and after. Image credit: Richmond BizSense.

From beast to beauty. I have issues with Virginia Commonwealth University’s exploitation of its student population but I will say this: The university has done wonders for downtown Richmond. The latest case-in-point is the restoration of the old Broad Street trolley station from its hideous previous incarnation as the Richmond Glass Shop into space for the university’s renowned art department. Not only will the $7 million project house gallery space to showcase student artwork, a soundstage and a 6,000-square-foot research lab with prototype building machines, including laser scanners and plasma cutters, it will transform an eyesore into a thing of beauty. The transformation of downtown Richmond continues apace. Richmond BizSense has the story here.

Investing in public safety. The great recession battered city and county budgets, including spending on police, fire and rescue. Nerdwallet set out to find which cities did the best job of preserving spending on public safety. No surprise, Washington, D.C., the imperial city waxing fat on population growth and economic growth, led the country. Improved public safety no doubt helps explain the perception that the city is worth investing and living in. D.C. has 4,332 police staff per 100,000 residents, or one per 68.5 residents. Also ranked was Richmond with 940 police staff, or one per 45.24 residents. Nerdwallet did not consider the possibility that Washington, Richmond and other cities maintain large police departments because they need them more.

Transparent… but could be better. The U.S. Public Interest Research Group (PIRG) has released a report ranking states by the transparency of their public spending based on criteria such as user-friendly websites, searchable databases and downloadable reports, and the availability of information on state contracts and economic development studies. Indiana won the top score, and seven others rated A-. Virginia rated a B+. Frankly, I’m surprised it did that well. The open-data movement is making inroads across North America and Europe but I never hear it discussed here. Virginians need to hop on the bandwagon — opening up government data to the public will inspire all matter of creative applications that governments themselves could never imagine.

Boomergeddon, anyone? Bridgewater Associates, a Connecticut hedge fund, has warned that public pensions are likely to generate investment returns of only 4% annually on their assets in future years — not the 7% to 8% widely assumed. Public pensions have only $3 trillion in assets to cover retirement liabilities of $10 trillion; annual returns averaging 9% are needed to make up the difference without massive infusions of tax dollars. Bridgewater set up a sophisticated model to simulate many of the possible market environments to see how they would affect public pension resources. “In 20% of those scenarios, public pensions run out of money in 20 years. And in 80% of the scenarios, public pensions run out of money within 50 years,” reports America’s Markets.

If Bridgewater is even close to being right, state and local governments will be fiscally stressed for decades.

— JAB

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8 responses to “Bacon Bits: More Random Notes from a Fevered Mind”

  1. chris bonney Avatar
    chris bonney

    Terrific job on that Broad Street building. Hadn’t known its history. But I di remember it before the glass company did their number on it.

    As for the public pensions, A neighbor of mine who served as a local policeman in Wisconsin and then went on to have a long career at the FBI recently found out that he has a annual pension coming from that police department that is larger than his annual salary when he worked there.

    Needless to say, pension funding is THE BIG THING facing states and, especially, localities. Nobody wants to face up to it and every time a city or town tries to address they get painted as Scrooges. But if they don’t deal with it, they’ll quickly find themselves following in the footsteps of Detroit.

  2. larryg Avatar
    larryg

    where did VCU get that money to do the work from? students?

    😉

    I’m still not understanding how the 1% are making money hand over fist on the stock market these days but not the pension funds ….

    anyone understand that or am I the only one who does not?

  3. Les Schreiber Avatar
    Les Schreiber

    As a current beneficiary of the Virginia Retirement System and a former resident of New York who is old enough to remember the fiscal crisis of the 1970’s ,pensions for public employees have always been of some interest.
    In heavily unionized states such as New York generous benefits in the future were always an easy way for politicians to temper wage increases. In the crisis of the 70’s the unions in New York stepped up to the plate and had their pension funds buy large amounts of bonds issues by the Municipal Assistance Corporation,a special entity set up to bail the city out as it was never technically in default. To my knowledge the city is in pretty good shape.
    The problem with pensions is they were promises to employees made in the open. In return for a lower wage settlement, state and municipal workers accepted future payments. Under funding is one of the oldest political tricks in the books. I seem to remember a certain Republican governor who borrowed $600 million from VRS.
    Are there abuses—there sure are.On the flip side low wage careers such as teaching,were somewhat justified by the promise of a reasonable retirement.In the short run some may have to take a small hit or aid in the solution such as the unions did in New York. Some may look at changing the inflation index used to calculate benefits. In the long run I would suggest raising current pay for teachers and the like allowing them to plan for their own retirement as do most in the private sector. However, I have a real problem with paying Goldman Sachs 100 cents on the dollar for credit default swaps while asking a retired EMT to take a big hit.

  4. larryg Avatar
    larryg

    I suspect the problem with pensions is more to do with funding them – and not only with public pensions but corporate pensions. There are over 5000 corporate pensions now in the hands of the Govt – the Pension Benefit Guaranty Corporation.

    Virginia (not alone from other states or corporations) has chosen to pay for more teachers than they are willing to set aside pension contributions for until recently when the GASB accounting standards caught up with them.

    Public pensions in Virginia

    http://ballotpedia.org/Public_pensions_in_Virginia

    the above link is a good read…

  5. larryg Avatar
    larryg

    I wonder how many folks realize that not all states teachers participate in Social Security?

    In fact, about 15 states don’t have it for their teachers and their pensions are separate and independent from it.

    http://www.nctq.org/p/publications/docs/nctq_pension_paper.pdf

    page 62

    Virginia’s teachers pensions would be pretty skinny if they did not get social security.

  6. larryg Avatar
    larryg

    the Superintendent of schools – locally – made a surprising statement at the last budget hearing.

    He admitted that the issue with pension-funding as well as salary increases for teachers is a tradeoff between having too many teachers which then does not leave enough money to fund the pensions nor salary increases and he said he chose to not fill some positions made vacant by attrition as a way to free up money in the budget to fund pensions and raises.

    to me this is an obvious approach.. it requires a determination about which classes have to maintain teacher/student ratios and which can not be a stringent. In other words, when it comes to class size – not every taught subject requires the same class size restriction.

    so if you think about this in the context of boomergeddon, it’s more fire and fury than need be. We simply cannot afford as many teachers as we now have – and still fully fund pensions for all of them.

    we have to make some choices.

    it’s not like almost every school in Virginia does not already provide more funding than the State requires in it’s SOQ match. Most localities, provide millions in discretionary funding over and above what the State requires in SOQ core academic match.

    this is largely a manufactured tempest in a tea pot. We don’t even need to fire anyone. Just let attrition happen and only replace positions that are core academic and class size required.

    more than anything else the Boomergeddon mindsets, essentially presumes that we are incapable of making such cuts … and I’d not accept that premise as the truth from on high.

    we’re going to have to downsize.. not only for schools – but for our military and DOD civilians – and contractors.

    the really funny thing here is that we never hear about boomergeddon with respect to military pensions… it’s always about public sector pensions and social security and Medicare… never about military pensions – in a military that is bigger than the next 10 countries on the planet.

    why? are our military pensions ” fully funded”?

  7. Breckinridge Avatar
    Breckinridge

    Military pensions have no trust fund, no contributions and investments. They are on a cash basis in the general fund budget, as far as I know. But there is plenty of discussion and not a few hard votes ahead on military retiree health benefits.

    I guess VRS can run out of money in fifty years. I won’t be around. If my wife is (at 109….), that’s her second husband’s problem :).

    1. larryg Avatar
      larryg

      actually there is a trust fund for military pensions….

      http://www.gao.gov/assets/210/200562.pdf

      but my point is that we do a 75-year actuarial look ahead for social security and 50 year-look aheads for public pensions but how far do we look ahead for civilian DOD and military pensions?

      all of these are legitimate issues to be concerned about in our budgets, deficits and debt but we pretty much exclude from most discussions the actual and true cost of our military – beyond it’s annual budget.

      if you know that we spend more on defense than most of the rest of the world – combined – (when you count both explicit and implicit defense spending – like the VA and NASA, DOE)… do you think that much of that budget is for personnel, their current salary and health care AND their future retirement benefits WHICH INCLUDE Social Security and Medicare?

      What I advocate is that if we are going to do look-aheads and get into Boomergeddon – then we need to be honest about all the costs that we face in the future and discussions about what to do (or not) need to include ALL of our anticipated expenditures – that are said to be “unsustainable”.

      I’m not opposed to the military or civilian DOD at all. They are an integral and needed part of not only the US but the world – but like entitlements, health care and retirements – we need to live within our means – which means we do need a robust and powerful – but lean and cost-effective military.

      I advocate the same for entitlements, and schools, retirement and Medicare if you read my comments here.

      but we pretty much exclude the very significant costs of “defense” when we talk about the “unsustainability” of public pensions and Medicare, MedicAid, etc.. and I think there’s a certain amount of blind pretending going on and you see this kind of thinking in Paul Ryans latest budget that actually advocated INCREASED spending for “defense”.

      if we are going to get our budget under control, everything needs to be on the table.

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