"Rick Perry 'balanced' Texas' budget with gimmicks

This article was a perfect example of how a budget can be "balanced" technically while being structurally completely unbalanced, by using various accounting tricks. These include:

• Delaying a $2.3 billion payment to public schools by a day to put it on the next year's budget.
• Assumption of no growth in public schools despite a surging population, expectations of 160,000 new students in the next two years.
• collecting $700 million ahead of schedule, taking it from 2013 to 2012
• $800 million from the Legislature instructing the Legislative Budget Board to predict a faster increase in property values and thus taxes
• intentionally underfunding Medicaid by $5 billion, hoping economy turns around
• in addition to $8 billion structural imbalance due to business tax cuts

Rick Perry "balanced" Texas' budget with gimmicks

State Budget Solutions | by Olivia Leonard | November 17, 2011

Texas Gov. Rick Perry has based his presidential bid upon a platform of fiscal responsibility that includes his "clear goal of balancing the budget by 2020," supporting this platform by pointing to Texas's reputation of fiscal health and claiming credit for six balanced budgets during his stint as governor. Unfortunately, as with many "balanced budget" claims, this one is questionable. Texas's budget, while appearing balanced on the surface, is a product of federal stimulus funds and budget gimmicks that included risky gambles with future funds, delayed payments, and underfunded programs; essentially, a convenient kicking of the budgetary can down the road until after the 2012 elections.

The National Conference of State Legislatures reported that Perry's Texas collected more stimulus funds in fiscal year 2010 than did any other state. Texas relied on the $6 billion it received from the American Recovery and Reinvestment Act to close almost 97% of its budget shortfall at the end of fiscal year 2010. While Perry publicly protested the Recovery Act in a Feb. 18, 2009 blog post, he requested the $6 billion in federal funds on the very same day. Without that federal money, Texas would have been forced to dip into its frequently-touted Rainy Day Fund--the $6.5 billion that remains of the $9.5 billion in savings that Perry has frequently used as an example of Texas's fiscal health--to address the shortfall. Now that stimulus funds are unavailable, the Rainy Day Fund is both the first line of defense and, unfortunately, essentially empty. Bill Hammond, president of the Texas Association of Business, grimly referenced the Rainy Day Fund when he commented, "effectively, they've used it...they just aren't going to fess up until January of 2013."

How did Texas get into this deep of a financial hole when its governor and legislature boast of a history of balanced budgets? The recent list of "disingenuous, money-shifting shell games," as Perry himself called them during his 2006 campaign, is painfully long. In one accounting game, Texas delayed a $2.3 billion payment to its public schools by one day, shifting the bill from this year's budget onto the next. Nor did the education fund juggling end there; the new budget operates under a strange assumption of no growth in the number of students enrolling in Texas's public schools, despite Texas's swift population increase and expectations that more than 160,000 new students will enroll over the next two years. Not only did the Texas legislature and governor delay payments until the next fiscal calendar, they also arranged to collect more than $700 million in taxes (including the sales taxes from large Texas retailers) ahead of schedule--taking that money out of the budget for fiscal year 2013.

In order to further create the image of a balanced budget, Texas Republicans "came up" with another theoretical $800 million when drafting this year's budget by instructing the Legislative Budget Board to predict a faster increase in property values (and their accompanying taxes). Additionally, the lawmakers intentionally underfunded Texas's Medicaid program by nearly $5 billion, a dangerous gamble based on a tenuous hope that the state economy might provide additional revenue by taking a drastic turn for the better. If that hope proves unfounded, the state will be forced to fill the gap with either the dregs of the Rainy Day Fund or further state debt. Increasing debt is nothing new for Gov. Perry, who supported a constitutional amendment that allowed the Texas Department of Transportation to borrow money to pay for road projects--contributing nearly $12 billion to theTexas debt that more than doubled under Gov. Perry from 2001 to 2009. All these budget troubles are in addition to the $8 billion structural deficit that plagues Texas biannually--the result of a gamble by the governor that transformed the state's business tax--which was not addressed in the supposedly "balanced" budget.

The line-by-line aside, a quick look at State Budget Solutions' own state debt research paints an even darker picture of the Texas that Rick Perry describes as fiscally healthy. This ranking, which presents the complete debt story by taking into account each state's unfunded pension liabilities and other public obligations, puts Texas at the very bottom when it comes to state debt: in 44th place nationwide for its total budget shortfall and in 47th place when it comes to outstanding debt. Texas' debt per-capita ranking is also below average, coming in at 29th place. Clearly, Texas is a far cry from the pillar of fiscal responsibility described by Gov. Perry.

Rick Perry and his legislature are neither the first nor the last to present the illusion of a "balanced budget" with accounting gimmicks. Perry's vocal opposition to such "shell games" and condemnation of dependence on federal bailouts, however, make his own reliance on federal money and budget dishonesty that much more unacceptable.

Public Sector workers feeling the squeeze

I thought this was a very relevant article to our subject this week of public employee pensions and more generally of how budget policymakers both do and do not have power. On the one hand they are getting savings by paying workers less, having less generous pensions. But on the other hand their projections may be thrown off by the uncertainty of these retirements, the need to replace the retirees with new workers, so now the government is paying a pension and a replacement worker.

December 5, 2011

Many Workers in Public Sector Retiring Sooner

By MONICA DAVEY

MADISON, Wis. — As states and cities struggle to resolve paralyzing budget shortfalls by sending workers on unpaid furloughs, freezing salaries and extracting larger contributions for health benefits and pensions, a growing number of public-sector workers are finding fewer reasons to stay.

The numbers of retirees are way up in Wisconsin, where more applications to retire have been filed this year than ever before. Workers in California’s largest public employee pension system have retired at a steadily increasing rate over the last five fiscal years. In New Jersey, thousands more teachers, police officers, firefighters and other public workers filed retirement papers during the past two years than in the previous two years.

In part, the flood of retirements reflects a broader demographic picture. Baby boomers, wherever they work, have begun reaching the traditional retirement age.

But increasingly workers fear a permanent shift away from the traditional security of government jobs, and they are making plans to get out now, before salaries and retirement benefits retreat further.

“You start to feel like, ‘What will they do next?’ ” said Bob McLinn, 63, a labor union president who left his job with the Wisconsin Department of Corrections in March, earlier than he planned, after political leaders pressed to cut benefits and collective bargaining rights for workers.

“There’s always been this promise that if you came to work and did your job, at the end there would be your reward — a defined retirement. The idea was you could retire with respect and dignity. But that whole idea has been slashed now, and I felt like, ‘What is the point?’ ”

In some places, the rise in retirement has brought welcome and needed financial news. Kansas announced last month that it would save $34.5 million over two years because more than 1,000 workers had agreed to accept cash and health insurance incentives to leave. State officials said they had yet to determine which of the positions of departing workers they considered critical enough to refill.

But some experts and workers question the ultimate result of so much leaving, saying it is already leaving some governments short-staffed (and, in some cases, obliged to pay overtime) and at risk of losing institutional knowledge and technical expertise as older workers vanish.

“What we’re going to see is a lot of young people reinventing the wheel,” said Karen Gunderson, 56, who retired this year from her information technology job with the State of Wisconsin after 26 years, a few years sooner than she had intended, saying she felt that public workers were being “turned into scapegoats” for a troubled economy.

“We’re going to waste a lot of tax dollars with young people attempting things that were tried before. You can get people cheaper, but whether you save money, I don’t know.”

The pattern of retirements, while pronounced in some states and towns, has by no means played out everywhere. In fact, a countervailing trend — of delaying retirement and staying put — has been clear since after 2008, when the national recession and the shortage of jobs (and of potential second careers in the private sector) made people queasy about making moves at all.

Certainly, the number of state and local public-sector workers has been shrinking since the second half of 2008, a necessary, useful scaling back in the eyes of some political leaders facing major budget shortfalls. Across the nation, there were 71,000 fewer state government workers in November than there were a year ago, and 180,000 fewer local government workers, federal Bureau of Labor Statistics data shows.

But a broad survey of about 100 public retirement systems suggests a rate of retirement that has remained within a relatively steady range in recent years, said Keith Brainard, research director for the National Association of State Retirement Administrators. “Before I would call this a trend, it would need to continue for another year or two,” he said.

Still, even with lingering queasiness over jobs and the larger economy, there are other signs that the mood of public workers is turning toward retirement, a worrisome possibility for some already precarious, underfunded pension plans.

In 2009, a survey of more than 400 state and local governments found that about 85 percent of public workers were postponing retirement (presumably because of the grave economy), while fewer than 9 percent were accelerating their retirement dates. This year, a similar survey by the Center for State and Local Government Excellence, a nonprofit research group, found 40 percent still delaying their retirements, with nearly a quarter speeding up their retirement dates.

Already, the trend is apparent in places where lawmakers have made the clearest calls for decreasing workers’ benefits or increasing their contributions for health care insurance and pension plans. And in the last two years, 41 states have made significant changes to at least one of their retirement plans, the National Conference of State Legislatures found.

In Alabama, an unusually high number of school employees — 1,600 — asked to retire this month, leaving some students uncertain midyear about who will be teaching them. Lawmakers there had approved increases to the cost of health insurance for those who retire before they are eligible for Medicare or have fewer than 25 years of service, and the law goes into effect on Jan. 1, setting off a flood of applicants who wanted to beat the change.

In Florida, more than twice as many workers applied to be part of a deferred retirement program in May and June as had the year earlier, protecting them from cuts to pension benefits that legislators put into effect as of July 1.

And in Ohio, where a law cutting collective bargaining passed this year (and was later repealed) and where bills are still pending over raising the age and years of service for eligibility for a public-sector pension, applications for retirement rose 39 percent in the first 10 months of the year compared with a year earlier.

But here, in Wisconsin, the battle over public workers may have been the loudest. Republican leaders said their only hope of balancing the state’s budget was to require workers to pay more for their pensions and health care premiums and to significantly reduce collective bargaining rights for public-sector unions.

Union supporters pushed back, leading an effort to recall Gov. Scott Walker next year over the issue. But government workers also left: 16,785 workers filed retirement applications as of Oct. 31, while in all of 2010, 11,750 workers had done so.

“It’s about fear,” said Jim Palmer, executive director of the Wisconsin Professional Police Association. “A lot of people are seeing this war on public employees and saying, let’s get out.”

Governor Walker, through a spokesman, declined to be interviewed for this article.

For some states, the increase in retirements has been a planned outcome, a budget fixer. In recent years, places like Minnesota and New York offered incentives for employees to retire sooner than they may have planned. In 2010, New York State processed 30,772 retirement applications, more than ever before, and state officials attributed 12,000 of those to an early retirement incentive.

The surprise, though, came in 2011, when no such incentive was offered. In a year after a special retirement deal, applications to leave usually drop off. This year, state officials said, they have not.