Stephanie A. Miner, the Mayor of Syracuse NY, has an important op-ed essay in The NY Times Thursday. Syracuse is one of hundreds of cities around the state and tens of thousands around the country that are struggling with the potentially disastrous effects of out-of-control pension costs. Where this crisis is heading can be seen in California, where San Bernadino has become the third California city to declare bankruptcy. These cities are dying. They are caught in a bind. Either they decide not to pay their promised debts to pensioners; or, in honoring those debts, they so fully raise taxes and cut services as to ruin the lives of their citizens.
In Syracuse, Mayor Miner understands well the depth of the problem. First, public employee labor costs are too high not because salaries are high, but because pension costs and medical benefits are rising without limit. Second, revenues are being slashed, both from the recession and from cutbacks from the state and federal governments. Finally, the middle and upper class flight from cities to suburbs have left the tax base in cities low at the moment when poorer city dwellers are disproportionately in need of public services.
The result is that cities are faced with a stark choice: Do they pay older citizens what has been promised to them? Or do they cut those promised pensions in order to provide services for the young? This is a generational conflict that is playing out across the country.
Miner is worried that the response by NY State is making the problem worse. In short, Governor Cuomo and the legislature have decided to let cities that cannot afford to fund their burgeoning pension obligations borrow money to pay those pensions. The kicker is, that the cities are being told to borrow money from the very same pension plan to which they owe money.
If this sounds suspicious, it is. As Danny Hakim—one of the best financial reporters around—wrote almost exactly one year ago in the NY Times, this is a desperate and dangerous move:
When New York State officials agreed to allow local governments to use an unusual borrowing plan to put off a portion of their pension obligations, fiscal watchdogs scoffed at the arrangement, calling it irresponsible and unwise.
And now, their fears are being realized: cities throughout the state, wealthy towns such as Southampton and East Hampton, counties like Nassau and Suffolk, and other public employers like the Westchester Medical Center and the New York Public Library are all managing their rising pension bills by borrowing from the very same $140 billion pension fund to which they owe money.
The state’s borrowing plan allows public employers to reduce their pension contributions in the short term in exchange for higher payments over the long term. Public pension funds around the country assume a certain rate of return every year and, despite the market gains over the last few years, are still straining to make up for steep investment losses incurred in the 2008 financial crisis, requiring governments to contribute more to keep pension systems afloat.
Supporters argue that the borrowing plan makes it possible for governments in New York to “smooth” their annual pension contributions to get through this prolonged period of market volatility.
Critics say it is a budgetary sleight-of-hand that simply kicks pension costs down the road.
Borrowing from the state pension plan to pay municipal pension costs is simply failing to pay the pensions this year and thus having to pay more next year.
Hakim, as good as he is, allows Thomas P. DiNapoli—the state’s comptroller—to get away with calling the scheme “amortization.”
The state’s comptroller, Thomas P. DiNapoli, said in a statement, “While the state’s pension fund is one of the strongest performers in the country, costs have increased due to the Wall Street meltdown.” He added that “amortizing pension costs is an option for some local governments to manage cash flow and to budget for long-term pension costs in good and bad times.”
But how is this amortization? The assumption or hope is that the market will rise, the pension fund will go up, and then the municipalities will owe less. That is hardly amortization. No, it is desperate speculation with public monies.
The crisis in our cities afflicts the whole country, according to a study by the Pew Center on the States.
Cities employing nearly half of U.S. municipal workers saw their pension and retiree health-care funding levels fall from 79% in fiscal year 2007 to 74% in fiscal year 2009, using the latest available data, according to the Pew Center on the States. Pension systems are considered healthy if they are 80% funded.
The reason to pay attention to the problems in cities is that cities have even less ability to solve their pension shortfalls than states. The smaller the population, the more a city would have to tax each citizen in order to help pay for the pensions of its retired public workers. The result is that either cities get bailed out by states and lose their independence (as is happening in Michigan) or the cities file for bankruptcy (as is happening in California).
Mayor Miner, a Democrat, takes a huge risk in standing up to the Governor and the legislature. She is rightly insisting that they stop hiding from our national addiction to the crack-cocaine of unaffordable guaranteed lifetime pensions. Piling unpayable debts upon our cities will, in the end, bankrupt these cities. And it will continue the flight to the suburbs and the hollowing out of the urban core of America. Above all, it will sacrifice our future in order to allow the baby boomers to retire in luxury. Let’s hope Miner’s call doesn’t go unheeded.
When people talk about the cost of entitlements or pensions, there is often a whiff of condescension, as if government employees don’t deserve their benefits. Often forgotten is the fact that private pensions are underfunded as well, and they are insured by the federal government. And now we are told that the military may have the biggest pension problem of all. Here is what the Financial Times reports:
Of all the politically difficult budget issues that Mr Hagel will face, few are more charged than the question of military entitlements which have risen sharply over the past decade. A report last year by the Center for Strategic and Budgetary Assessments concluded that at current rates, “military personnel costs will consume the entire defence budget by 2039”. Robert Gates, Mr Obama’s first defence secretary, once warned that these expenses were “eating us alive”.
Just as pensions and entitlements will soon crowd out all other government spending, so too will military pensions crowd out all military spending.
No one today can responsibly argue against pensions and health care. And no one can call the soldiers lazy burdens on the public weal. But neither can we fail to recognize that our addiction to entitlements is destroying our politics and our public spirit. We are sacrificing public action—be it the pursuit of scientific knowledge, the erecting of monuments, the education of our young, the building of infrastructure, and even a well-outfitted military—for the private comfort of individuals. It is no wonder that our political system is broken at a time when all incentives in the country lead interest groups to focus on parochial interests above the common good. It is inconceivable that this situation is not in some way related to the emergence of entitlements as the central function of government.
The question is one of principle. We have gone from a common sense that people are responsible for themselves and the government provides a safety net to a common sense that everyone should receive an education, everyone should receive healthcare, and everyone should receive pension benefits for as long as they live. It is possible to embrace the latter common sense, but with it comes a significantly higher tax burden and a much more communal ethic than has typically reigned in America. This is not a problem that hits only public employees. It is endemic throughout society. And our military.
The after effects of Super-storm Sandy are felt from the beaches to the statehouses. First of all, let’s realize it was not a hurricane, but a freakish combination of storm systems. Super-storm is more truthful than hurricane. Whatever it was, it has upended lives, and politics.
The Financial Times reports today that Governor Chris Christie of New Jersey has now joined NY Governor Andrew Cuomo in requesting not only emergency aid to repair the damage caused by the storm, but also preventative money to build dunes, use eminent domain to purchase property, and generally re-engineer the New Jersey coastline.
The political transformation here is lost on few. As the FT writes:
Mr. Christie, a Republican, has previously sounded more skeptical than Mr. Cuomo, a Democrat, about using state powers to dictate how the state was rebuilt. But he said on Wednesday he might take away local towns’ power to grant “easements” to homeowners objecting to new dunes blocking their sea views and would not rule out using government powers to purchase properties it believed were in the wrong place.
“I have to protect the Jersey shore, both as an economic engine and as a cultural engine,” Mr. Christie said.
The desire to take away local powers and give them to states and to take away state powers and give them to the federal government is neither a democratic nor a republican idea anymore. While the party of the elephant may give lip service to local governance, it has rarely, if ever, backed that up with action. As is now well known, the federal government has grown as fast if not faster under Republican Presidents than it has under democratic.
Hannah Arendt argued that the greatest danger to freedom in the United States was the rise of a large and bureaucratic government. She worried, as she once wrote, that the true threat to freedom was the sheer size of America alongside the rise of a technocracy. The sheer size of the country combined with the rising bureaucracy threatened to swallow the love for freedom she saw as the potent core of American civic life.
Chris Christie and Andrew Cuomo may well be their respective parties’ nominees for President in 2016. They are both deeply popular and have taken a pragmatic and largely centrist approach to governing at a time of financial crisis and natural disaster. And yet, from an Arendtian angle, it is striking that both governors have so internalized the view that problems are to be solved by bureaucrats and technocrats rather than on a local level.
That the bureaucratic approach is so entrenched should not be a surprise. It is both a consequence of a further spur to the retreat from politics that Hannah Arendt describes. Even Christie’s insistence that he must save the Jersey shore as an economic engine shows the near complete victory of economic thinking over politics.
Political scientists around the country are in a huff here, and here, and here. The reason has little to do with the upcoming election, the vacuum in political leadership, or the state of the world. No, they are upset because Arizona Congressman Jeff Flake has proposed cutting the National Science Foundation's Political Science Program that awards about $11 Million a year to support political science research.
The anger and posturing are extraordinary. And political scientists are rushing to defend the relevance and necessity of their research. Special anger is directed at Congressman Flake's blindness to the import of a $700,000 NSF proposed study to develop "A multi-level, agent-based model for identifying the factors that enable or constrain international climate change negotiations." I have no doubt such a study has uses. But I do wonder if those writing the study could make those uses more accessible. They write:
The goal of our research is to develop a new tool for international climate policy analysis based on the concept of agent-based modeling (ABM). ABM facilitates a more realistic and simultaneous treatment of the diverse forces which influence multi-party decisions. Our model will represent both the international climate negotiation process, as well as the key dynamics of domestic economies relevant to energy and climate change. Some key questions to be explored with our model include: Are there patterns of innovation, adaptation, or climate damages that emerge from an ABM representation of an economy that are obscured by conventional assessments? ...
The authors then provide this graphic to illustrate what they mean:
I don't want to disparage the research, which I am sure will be of interest to a subset of academic political scientists. This research may even, over years, produce insights that gradually merge with the fruits of other research to change and even improve our understanding of how multiparty negotiations impact complicated international topics. And, yes, $700,000 is less than a drop in the bucket in the federal budget. But when looking at the Federal Budget, at a time when students are being forced into bankruptcy because they can't repay student debt, is this where the government should be spending its money?
Congressman Flake, who I never have heard of before happens to have a Masters degree in Political Science; he understands that these grants have multiple uses. First, they advance the general knowledge of the social sciences. They also advance the careers of the political scientists who win them. What is more, the vast majority of the funds dispersed go to subsidize the administrative costs at our nation's colleges and universities. And here is where the proposed funding looks mighty suspect.
The researchers proposing this study are from Dartmouth. Dartmouth is a fine school, also a small school that happens to have an endowment of over $3 Billion dollars. As Congressman Flake notes,
According to the NSF Web site, to date, more than $80 million has been awarded to the program’s nearly 200 active projects. Three-quarters of these awards, totaling over $46 million, were directed to universities with endowments greater than $1 billion.
The outrage of the political science community at these cuts is more than misplaced.
We may wonder why political science and not anthropology. I guess the first answer is that Congressman Flake is a political scientist and thus is beginning to cut in the areas he knows best. But the bigger issue is that these cuts are just the beginning of a desperately needed rethinking of what the federal government should be spending money on at a time of coming austerity.
The beauty of the American system is the dispersion of power. The federal government does not control all the levers of power or all the money in the USA. If the NSF cannot or does not fund a study, those who feel the need for that study have plenty of other pots to dip their hands into. There are a myriad of foundations and universities that support an enormous amount of social science research. The issue is not that necessary research may not get done, but that there will now be one fewer pot. That is sad for political scientists, but not a tragedy. Indeed, political scientists might ask: How has bureaucratic federal grant-making changed and influenced the nature of political science research?