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    Wednesday
    Jul192017

    States Get Creative on Pension Funding

    The latest plans in California and New Jersey have observers asking: creative solution or accounting gimmick?
    BY  JULY 19, 2017
    New Jersey Gov. Chris Christie
    Gov. Chris Christie has hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. (AP/Seth Wenig)
     

    Most states have enacted some type of reform over the past decade to shore up their pension funds for the future. But such changes have typically done little to make a dent in the liabilities that governments already have on the books.

    As those liabilities increase, states and localities are turning to more creative solutions to ease the burden.

    California and New Jersey are moving forward with plans that would boost respective pension assets, dramatically decrease unfunded liabilities and reduce payouts for the immediate future. But critics of the plans say the two states are doing nothing more than moving numbers around on paper.

    In New Jersey, the state is pledging its lottery -- which an outside analysis determined was valued at $13.5 billion -- as an asset to state pension funds. The action would reduce the pension system's $49 billion unfunded liability and improve its funded ratio from 45 percent to about 60 percent, according to State Treasurer Ford Scudder. The roughly $1 billion in annual lottery proceeds, which currently go to education and human services, among other programs, will now be divvied up among state pension funds. The largest share -- nearly 78 percent -- will go to the teachers' pension fund.

    Although unions grumbled about the plan, it passed with little public debate as lawmakers were preoccupied by budget negotiations. Gov. Chris Christie and Scudder have hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. But others have been less enthusiastic about the plan.

    Municipal Market Analytics' Matt Fabian dubbed it an accounting scheme, noting it also places a roughly $970 million burden on New Jersey's general fund budget to pay for the programs formerly covered by the annual lottery proceeds. "We believe that, at best," Fabian wrote, "this transaction delays honestly confronting the pension liability problem."

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    Friday
    Jul142017

    The Week in Public Finance: Lobbying Congress on the 'Tax Perk,' Chronic Deficits and the Credit Threat in Illinois

    BY  JULY 14, 2017
    Illinois Gov. Bruce Rauner speaks during a news conference. (AP/G-Jun Yam)

    Tax Deductions Aren’t Just for the Super-Rich

    As the Trump administration promotes a tax reform agenda that would take away the state and local tax deduction, government organizations are pushing back hard against the notion that the tax perk is utilized only by the uber-wealthy. A new report this week shows that more than half of the tax filers who take the deduction earn less than $200,000 per year. In fact, the largest group of filers who deduct their state and local taxes from their federal taxable income earn between $100,000 and $200,000 per year.

    “Contrary to popular opinion, the deduction of state and local taxes does not exclusively benefit the wealthy, even though that argument has been used countless times in attempts to modify or repeal the deduction,” says the report, which was prepared by the Government Finance Officers Association.

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    Friday
    Jul072017

    The Week in Public Finance: Late Budgets, Illinois' First in Years and Risky Pension Investments

    BY  JULY 7, 2017
    New Jersey Gov. Chris Christie walks from the podium following a news conference about the government shutdown that had closed state parks and beaches to the public. (AP/Mel Evans)

    Better Late Than Never

    They may be late, but both Maine and New Jersey finally have budgets for fiscal 2018 after shutting down their respective governments for three days.

    Early Tuesday, New Jersey Gov. Chris Christie signed a $34.7 billion budget agreement and ended a shutdown. That same day, Maine’s shutdown wrapped up when Gov. Paul LePage signed a $7.1 billion budget. The deal eliminated a lodging tax increase opposed by LePage in exchange for allocating an additional $162 million to public education.

    Delaware also reached a budget deal early Sunday morning. Gov. John Carney signed a $4.1 billion budget that preserved funding for nonprofits, public health programs and schools by raising taxes on real estate transfers, tobacco and alcohol.

    The Takeaway: A whopping 11 states started their fiscal 2018 this month without a budget deal, an unusually high number that reflects the growing divisiveness of tax and fiscal policy. Be it dealing with budget deficits or juggling a demand to bring funding for services back to pre-recession levels, more and more of these conflicts are resulting in statehouse stalemates.

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    Thursday
    Jul062017

    Immigrants Cost Taxpayers, Then Pay More Than Most

    New research shows immigrants ultimately make state and local governments more money on average than native-born Americans.
    BY  JULY 6, 2017
    Immigrant boy waving an American flag.
    Adult children of first-generation immigrants eventually contribute more than native-born Americans in federal, state and local taxes. (AP/Jacquelyn Martin)

    While the national debate rages over immigration, new research shows how much new immigrants cost state and local governments in the short-term -- and how much they pay off in the long-term.

    Two studies, one by the Urban Institute and a larger one by the National Academies of Science (NAS), find that first-generation immigrants are costlier to state and local governments than native-born adults, but over time, those effects reverse. While first-generation immigrants cost an average of nearly $3,000 more per adult, the adult children of these immigrants eventually catch up and contribute the most on average to federal, state and local coffers.

    Kim Reuben, a senior fellow at the Urban Institute, says the initial higher costs of new immigrants is in large part because of their children. "Education is expensive -- if you have more kids in general as a group compared to other groups, you're going to have higher costs," says Reuben, who co-authored the study and contributed to the NAS report. "But the answer isn't to not educate those kids because we also find that the people who contribute the most to society, even when you control for demographics, are these immigrant [kids]."

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    Friday
    Jun302017

    The Week in Public Finance: Alaska Avoids Its Problems, More Health-Care Pain and Municipal Defaults Are Up

    BY  JUNE 30, 2017The Alaska State Capitol in Juneau
    The Alaska State Capitol, right, sits near the water in Juneau. (Flickr/Jasperdo)

    Alaska Avoids Fixing Its Budget Problem (Again)

    Facing a $2.5 billion budget gap, Alaska lawmakers have sent Gov. Bill Walker a budget that once again relies on one-time fixes and a massive withdrawal from the state’s rainy day fund.

    Walker had proposed a compromise fiscal package that included a combination of revenue-raising measures and spending cuts, reforms to the state’s oil and gas tax credit program, modifications to the income tax, and reductions to residents’ annual dividend payments from the state's Permanent Fund. Instead, the $4.1 billion general fund spending plan passed by lawmakers caps Permanent Fund payments to $1,100 and relies on a $2.4 billion withdrawal from the state’s once-robust rainy day fund.

    Walker has repeatedly warned lawmakers that they can't keep relying on the state’s reserves to fund its annual spending plans. But lawmakers have consistently done so anyway, making multibillion-dollar withdrawals for the past three budgets.

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