Public Pensions & The Need For State & Local Action

By Cory Eucalitto
Originally posted by State Budget Solutions on July 12, 2013

Washington is beginning to take note of the funding crisis facing America’s states and municipalities. It calls attention to the inadequacy of the response to the crisis that has so far come from state governments themselves.

Last week, Senator Orrin Hatch (R-UT) unveiled a bill designed to give new flexibility to state and local public pension plans struggling to stay afloat. The Secure Annuities For Employee (SAFE) Retirement Act of 2013 would alter the tax code to allow plans to be transferred to life insurance companies and other annuity providers. State Budget Solutions published a summary of the bill’s key points here.

The pension funding crisis – a combined $4.6 trillion unfunded liability – is first and foremost a state and local government crisis that requires state and local solutions. Of course, those governments operate under the laws and tax code of the Federal government, so anything Washington can do to encourage solutions is a great step. Sen. Hatch’s bill may have potential as one of those steps, in a way that would signify healthy attentiveness on the part of Washington to the needs of the states.

Back down at the state level, though, the pension reform debate is often stale and recycled. True reform, which would involve a complete overhaul of the way public employees receive a secure retirement, modeled after the proven successes of defined contribution plans in the private sector, is left on the table in favor of half measures that end up stalled in a court room battle anyways.

The combination of leaders who still fail to recognize the magnitude of the crisis and entrenched interests desperate to make sure that the ignorance continues is toxic. Until more people in state capitals and city halls recognize what one Senator who has been stuck in the corridors of Washington for over 30 years has been able to, little will change. The pension crisis needs bold, innovative solutions that originate from the same source as the problem itself: the nation’s state and local governments.

Why does Milton Friedman matter?

Widely regarded as the groundbreaking leader of the Chicago School of monetary economics, Milton Friedman led a long and storied career, receiving the 1976 Nobel Prize for Economic Science, the Presidential Medal of Freedom in 1988 and the National Medal of Science the same year. 

But he is beloved because his academic brilliance was employed in the practical service of people.  Friedman’s observance of the facts led him to a passionate belief that people truly free to choose their course in life without the heavy hand of undue government interference is the surest way forward to create hope and opportunity – a rising tide of prosperity – for all.

This is especially true in the timeless work of education freedom to which he and his wife Rose devoted themselves.  As he once famously said:

Governments never learn.  Those words ring clear to the citizens of this country who know that Washington is fundamentally broken.  Those words ring clear to the people of South Carolina where we know that while the sunbeams of economic opportunity don’t shine as brightly in every county of the Palmetto State.

Only people learn.  South Carolina has the opportunity to enrich the lives of so many children and families by innovating policy to focus on students, empower parents and strengthen our education system.

Too many of our low income and minority children are falling behind in school and at incredibly high risk to drop out of school and be caught in a cycle of poverty.  A good education is the first step on the path to solving these problems.  But too many of these children are trapped in struggling schools that don’t fit their needs.  For these children and their frustrated parents, there are no other educational options.  

Time and again, we have seen that more money and Washington mandates are not the answer.  Rather, South Carolina must embrace the kind of education innovations that are passing in states all over the country, including ideas like Opportunity Scholarships that just passed in North Carolina last week.

This year, through heroic efforts in the South Carolina Senate, we took a small but important first step towards opening up this kind of opportunity for our children with disabilities.  But the work is never done.  2014 will be our golden opportunity to cement and build on that important gain. 

And if we do, we stand on the shoulders of giants like Milton Friedman whose policy innovation, founded on a compassion for people, have left a powerful example for us to follow. 

Medicaid Expansion Debate Heats Up Furman University

Lauren Sausser, Post and Courier

GREENVILLE — The General Assembly has gone home for the year, but the fight over Medicaid expansion — a major building block of the federal Affordable Care Act and one of the most contested issues of the legislative session — is far from finished.

Survey Finds Health Care Costs Top CFOs' Worries

The Affordable Care Act's provisions for employee health care top chief financial officers' lists of concerns this year.

$3.6M Being Spent in SC to Market the #UNaffordableCareAct

By SEANNA ADCOX — Associated Press

COLUMBIA, S.C. — South Carolina isn't helping promote the federal health care law to the uninsured, but millions of marketing dollars will still be spent within the state.

The federal government is distributing $3.6 million directly to community groups and health centers to promote the law to an estimated 906,400 South Carolinians without health insurance. The grants are part of a nationwide marketing blitz costing taxpayers at least $684 million, according to data compiled by The Associated Press.

The Obama administration and many states are launching campaigns this summer to get the word out before enrollment for new benefits begins in October. Beyond doling out grants directly, the federal government is also funding state-awarded contracts.

South Carolina is receiving proportionately less, as are other Republican-led states that have opposed the law.

It requires people without health coverage to pay a penalty starting Jan 1. Online marketplaces called exchanges, set to debut in October, will enable residents to compare coverage terms and prices and then use federal subsidies, if they qualify, to buy a policy.

South Carolina is not running an exchange, leaving that responsibility to the federal government. That's why the state didn't seek any of the millions available for outreach, marketing and advertising, said John Supra, deputy director of the state's Medicaid agency.

"When we chose to have the federal government operate the exchange, that put the responsibility for marketing and supporting it on the federal government," he said.

South Carolina ranks 32nd in both per capita and total spending.

The federal government is spending 78 cents per person in South Carolina, where an estimated 20 percent of the population lacks coverage. Nationwide, per capita spending ranges from 46 cents in Wisconsin — which also isn't running an exchange — to $9.23 in West Virginia. Total spending in states ranges from $914,000 in Wyoming to $174.2 million in California, slated to receive a quarter of all public money identified by the AP.

The spending in South Carolina includes $2.4 million awarded to 19 health centers statewide.

Those centers operated 157 sites and served more than 315,000 patients last year — 36 percent of them uninsured. They expect to use the money to hire 45 workers and help more than 41,000 residents enroll in health plans, according to a July 10 release from the U.S. Department of Health and Human Services.

Amounts awarded range from $59,000 to Foothills Community Health Care in Clemson to about $208,500 to Care South Carolina in Hartsville.

The federal government has set aside an additional $1.2 million for community groups. The winning applicants are expected to be named in mid-August.

Read more here: http://www.thestate.com/2013/07/24/2878370/36m-being-spent-in-sc-to-market.html#storylink=cpy

Happy Independence Day!

By the rude bridge that arched the flood, Their flag to April’s breeze unfurled,
Here once the embattled farmers stood,
And fired the shot heard round the world. ~ "Concord Hymn,” Ralph Waldo Emerson, 1837

Today marks the 237th anniversary of The Declaration of Independence. After passage by the Continental Congress, a War for Independence ensued, with the insurgents risking their fortunes, their very lives and the lives of their families, all because of the truths that they and we to this day hold to be self-evident. There are few people today who would put themselves in their shoes. Imagine a citizenry willing to lay their lives on the line for principle. The great principles of political freedom and of natural justice, embodied in that Declaration of Independence are what we celebrate today.

We will celebrate Independence Day as we do every year on July 4th. For most, it marks a holiday from our daily work. It’s planned around barbecues and fireworks. For some, today reopens the wounds of the brave men and women who have returned home from war to the land of the free and the home of the brave. For all, it should be day spent with family and loved ones honoring the heroes who returned and the heroes our Creator took Home.

Happy Independence Day from Palmetto Policy Forum!

READ MORE:

The Declaration of Independence
Bill of Rights

The American Founding

For Pension Funds, Higher Fees Don't Mean Higher Returns, Study Finds

Originally published in the Wall Street Journal, July 2, 2013

Report on State Pension Funds Adds Fuel to Debate on Active Investment Managers
By MICHAEL CORKERY

Public-employee pension plans paying the highest investment fees aren't generating the highest returns, according to a new study by a pair of Maryland think tanks.

In fact, just the opposite may be true, says the Maryland Public Policy Institute and Maryland Tax Education Foundation.

On average, 10 states paying the most money-management fees had lower investment returns between June 30, 2007 and June 30, 2012 than 10 states paying the fewest fees.

In recent years, many pensions have been willing to live with the high fees charged by alternative investment managers, such as hedge funds, in hopes that these firms can deliver high returns with less risk than stocks.

The report could add fuel to the growing debate over whether pensions should be moving away from higher-cost, active-investment managers and toward lower-cost, passive investments such as indexes.
The report calculates investment fees as percentage of a pension fund's total assets.

"Many states are spending millions of dollars a year in Wall Street fees and they seem to be getting very little in return," says Jeff Hooke, a co-author of the study and chairman of Maryland Tax Education Foundation, a conservative-leaning group.

The 10 state pension funds paying the most fees had a median five-year annualized return of 1.34%. The 10 state funds paying the least in fees reported a 2.38% return for the five year period.

The study ranks fees and investment returns at the largest pension funds in 35 states with fiscal years ending June 30, 2012.

The study examined fees for statewide pension funds covering a range of workers. In some states, the study looked at the largest pension plan, such as teachers' funds. South Carolina Retirement System paid the most fees in the study, totaling 1.3% of total pension assets. The Teacher Retirement System of Georgia paid the least in fees, totaling 0.09% of total assets, according to the study.

South Carolina's five-year return rate was about 1.5% while Georgia's returns were about 2.9%, the report says.

In a statement, South Carolina chief investment officer Hershel Harper said "there is no one common practice in reporting investment fees paid.''

"We understand practices vary widely, making any 'apples to apples' comparison of standard financial statement investment management fees nearly impossible," Mr. Harper said. South Carolina has a relatively large allocation to alternative investments.

A spokesman for the Georgia teachers' pension couldn't be reached.

The study grew out of the Maryland think tanks' scrutiny of the pension plan of their home state, says Mr. Hooke, a managing director at Focus, an investment banking firm in Washington, D.C. Maryland's investment fees totaled 0.64%, the third highest in the study.

Mr. Hooke says in a similar study last year, his group missed some fees paid by certain states, but those oversights have been corrected this year.

Some pension plans have been demanding lower fees from hedge funds and private-equity firms. One plan in Montgomery County, Pa. has moved nearly all of its money into index funds to lower costs.