State Budget Shortfalls Force Austerity Measures

Texas Governor May Turn Down Millions as He Slashes Education Funding

March 7, 2011

The Lookout - Texas Gov. Rick Perry may leave $830 million in federal education funds on the table even as he proposes billions in cuts to public education.

Texas' Democratic congressional delegation attached a string to the stimulus money, saying Perry could only access it if he agreed to keep state education spending at existing levels, The Wall Street Journal's Ana Campoy writes. Rep. Lloyd Doggett (D-Texas) told the paper he didn't want Perry to take the federal money and then use state education funds to plug Texas' other budget holes instead of sending it to schools. Perry says making such a promise would be illegal.

The conflict comes at a dire time for Texas schools. One school financing consulting firm estimated 100,000 teachers could lose their jobs under Perry's cuts, the AP reports, in part because of rules that don't allow districts to lower teacher salaries. One proposal cuts $9.8 billion to public education over the next two years.

Not all programs are suffering, though: Perry is adding $50 million to a financial incentive program that encourages businesses to come to Texas, an amount that the AP estimates could pay for 1,000 teachers to keep their jobs.

"If you lay off 1,000 teachers, you're going to have some greater number of that jobs loss because, presumably, those teachers are not going to be spending money in those communities," University of North Texas economist Terry Clower told the AP. "That's going to flow through the economy."

One Fort Worth second-grader brought a sackful of change to school after hearing on the news that teachers could be fired. The city may lose $80 million in funding over the next two years.

Texas is facing a projected two-year budget shortfall of up to $27 billion. Perry says he'll close the gap without raising taxes or using the state's $9.3 billion in rainy day funds, even though lawmakers from his own party want to tap into the funds. Public education could be cut by $9.8 billion, and Pre-K programs would be eliminated entirely under current proposals.

As it seems increasingly unlikely the state would avoid education cuts, some education groups are calling on Doggett to release the federal stimulus funds from the condition. Meanwhile, thousands of teachers and students are expected to rally at the Capitol on March 12 to urge Perry to use the rainy day fund to restore education funding.

Without Action, Pensions Could Bankrupt State

June 6, 2010

Daily News - California's $19 billion budget deficit seems to worsen by the day, but an even larger financial crisis is brewing in the state's pension system. Over the last two decades, state lawmakers have bestowed massive pension and benefit increases upon government workers.

Unfortunately, taxpayers are now getting the bills for these handouts. Recent studies estimate California has $500 billion in unfunded pension liabilities, not to mention more than $50 billion in unfunded retiree health care liabilities. It's important for the state to recognize how it got into this fiscal disaster-and how to get out of it.

California's public pension and retiree health and dental care expenditures have quintupled since fiscal year 1998-99, going from about $1 billion to $5 billion this year. And retirement spending is expected to triple again -- to $15 billion -- within the next decade.

Part of the problem is the growth of state government. Since 1998, California's state workforce has grown by 31 percent and taxpayers now pay for more than 356,000 state workers. Even during this terrible recession, instead of cutting back, California has added over 13,000 workers to the state payroll since 2008.

The benefit increases doled out by Sacramento are also crushing the state. Consider that public pension benefit increases passed in 1999 via SB 400, which offered retroactive benefit increases to government workers, were supposed to cost $650 million in 2010. The actual costs of SB 400 to taxpayers: $3.1 billion this fiscal year and $3.5 billion next year.

To make matters even worse, California is the only state in the nation that calculates pension benefits based on an employee's highest salary in a single year. Most states use three- or five-year periods to determine pension benefits, making their systems less susceptible to pension spiking. SB 2465, which implemented the one-year final salary rule in 1990, has cost taxpayers more than $100 million a year. It was supposed to cost "only" $63 million per year.

The results are lavish pensions for government workers and big bills for taxpayers. California taxpayers are now paying pensions that exceed $100,000 a year to more than 12,000 former state and local government workers, including more than 9,000 state and local employees covered by the California Public Employees' Retirement System (CalPERS) and over 3,000 former school administrators or teachers covered under the California State Teachers' Retirement System (CalSTRS).

This pension crisis threatens to bankrupt the state. To his credit, Gov. Arnold Schwarzenegger has urged action on this issue but current reform proposals merely tinker around the edges of the current defined-benefit system and do not go nearly far enough. There are several steps California must take to permanently get pension costs under control.

The private sector long ago abandoned defined-benefit pensions due to their volatility and unsustainable costs. California is going to have to do the same. Close the defined-benefit pension plans for state employees and enroll all new or future employees in 401(k)-style defined-contribution plans for pensions and other post-employment benefits, such as retiree health care and dental benefits. These 401(k) retirement plans are good enough for the rest of the population; they should be good enough for government workers.

To prevent the handouts and pension favors that politicians have been giving to certain groups, California should adopt an amendment to the state constitution requiring that all future government employee benefit increases be approved by voters, who end up stuck with the bills. It should also pass another amendment prohibiting retroactive benefit increases.

California's pension and retiree health care benefits are unaffordable and unsustainable. Schwarzenegger and a few politicians, from both sides of the political aisle, are now calling for action on this tremendous problem. They'd better hurry.

Taxpayers are sick and tired of being forced to pay ever-greater amounts of their hard-earned money towards increasingly generous benefits for government employees, all while their own retirement accounts shrink amidst the recession.

Florida Must Enact Pension Reform Before Inflated Retirements Bankrupt the State

Bill seeks to limit public pensions.

March 27, 2010

Sun Sentinel Editorial - Predictably, a proposal that would reduce future retirement pay for hundreds of thousands of Floridians has irked the ire of union leaders across the state. Nonetheless, state lawmakers are right to push long-overdue reforms, including opening up broader use of retirement alternatives, such as 401(k) plans.

The legislation has gained momentum because of Tallahassee's budget crisis, and the need to fill a gaping $3 billion hole. Truth is, though, Florida has sorely needed pension reform for many years.

Under the current system, civil service workers, from teachers to municipal and first-responder employees, can inflate their retirement benefits through various ways, some by counting accrued sick days, others by counting overtime pay.

That's wrong because it distorts the formula used to calculate pensions, and it costs taxpayers way too much over the long haul. Sure, it leads to some very tidy and lucrative pensions. But those are expenses the state and its municipalities cannot afford.

Already, salary, benefits and pension costs are eating up anywhere from 60 percent to 80 percent of some city hall budgets across the state. It's unsustainable, pure and simple. The ugly truth for irate union leaders is that much of the changes in House Bill 1319 and Senate Bill 1902 make a lot of sense.

That said, some provisions in the legislation are unjust, and lawmakers should be judicious in eliminating them. Not because they don't make economic sense, but because they change the rules of the game too late for many employees who are coming to the end of their careers.

Namely, it's the plan to recalculate pensions based on an average of an employee's salary throughout their career. That makes sense -- but it should only be applied to new employees, and not those employed at the moment.

Yes, broad implementation would save lots of money. But to tell an employee now, as he or she nears retirement, that their pension will be worth significantly less without enough time to plan or make up the difference is acting in bad faith.

Beyond that, it's time to face reality. The current pension system across the state is unaffordable. It has to be pared back.

BOTTOM LINE: Today's system unaffordable.