July 2, 2019
02 Jul 2019

Political Update – July 2, 2019

EDITORIAL: Why government pension plans are failing and what to do about it

Las Vegas Review-Journal

June 29, 2019

The stock market continues to flirt with record highs, yet government-run pension plans are far from fully funded. That should concern every taxpayer.

The Public Employees’ Retirement System of Nevada, which is officially only 75 percent funded, falls into that category. The funded ratio would be much lower if PERS were held to the same accounting standards that government regulators demand of private companies.

Starting on July 1, contribution rates are increasing to 29.25 percent for regular employees. That’s the fifth increase since 2009, when the rate was 20.5 percent. Government agencies (read: taxpayer) and employees split the contribution rate increase equally.

In a recent National Affairs article, Manhattan Institute senior fellow Josh McGee traces how government pension plans, such as PERS, have ended up in this precarious predicament.

The plans started small and promised modest benefits. For instance, PERS’ initial contribution rate in 1948 was 5 percent on the first $400 in salary. But rates didn’t stay that low in Nevada or around the country. Mr. McGee points out that employer pension costs grew from 9.6 percent to 16.9 percent of payroll from 1988 to 2017.

As workers grew older, the plans expanded by taking in new members. They also grew, because government hiring expanded rapidly. Unfortunately, governments didn’t fully fund the cost of their promises. Part of the reason was that plans unrealistically assumed they would earn investment returns of at least 8 percent annually. For instance, PERS assumed an 8 percent rate of return for decades, before lowering it to 7.5 percent last year.

An 8 percent rate of return wasn’t as risky during the 1980s, when interest rates were high. Pension plans could earn those returns primarily by investing in bonds. But as returns lagged, pension plans moved more money into stocks and hedge funds. Those are riskier, but offer higher returns. Currently, PERS’ target allocation is 72 percent of assets in stocks, real estate and private equity compared to just 28 percent in bonds. In 2003, PERS aimed for an even split between bonds and investments in stocks and real estate.

When the inevitable next downturn comes, it’s going to hit PERS harder than before, because the system has taken on greater risk.

“The upshot of this history is that public pensions are bigger and riskier than ever,” Mr. McGee writes. “Pension liabilities and debt have never been so large relative to taxpayers’ capacity to pay, and pension investments have never been so uncertain.”

All this should sound like alarm bells to an elected officials, starting with Gov. Steve Sisolak. Unfortunately, there’s little evidence he or most politicians — particularly Democrats — care to be bothered. They’re far more interested in currying favor with government unions, which shower them with campaign contributions in return for ignoring the issue and even expanding benefits. Or, in Nevada, for allowing PERS to keep confidential from taxpayers certain information regarding the pension payouts they are forced to fund.

Quote of
the week



“[Politicians — particularly Democrats are] far more interested in currying favor with government unions, which shower them with campaign contributions in return for ignoring the issue and even expanding benefits.”

Las Vegas Review-Journal

Free Market Watch:
There is Nothing ‘Progressive’ About Big Government

Nevada Business
Michael Schaus 

July 1, 2019

If progressive voters really want the kind of “bold” and “transformative” changes big-government politicians keep promising, they had better change their voting habits. Despite the lofty-sounding rhetoric, there’s nothing inherently progressive—new, innovative or revolutionary—about the policy proposals being touted by big-government proponents. In fact, far from effecting sweeping change, such policies largely serve to cement the status quo. For a prime example, look no further than the education debate that took place in Nevada’s last legislative session.

Far from fundamentally transforming the state’s educational status quo, progressives doubled down on the very policies that have been failing Nevada’s youth, even going so far as to decimate the one innovative alternative available to low income students: Opportunity Scholarships.

Far from embracing any bold innovation to the way we deliver education in Nevada, progressives actively worked to erode any educational reform or program that didn’t enrich the same government special-interests that have been running the show for decades. Public schools received more funding, scholarships for low-income students were kneecapped and, at one point, even public charter schools found themselves in the cross-hairs of “progressive” politicians. In other words, it was “more of the same” from the education establishment that has run public education into the ground—and it was hailed as a victory by “progressive” activists and lawmakers.

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