Bluegrass Institute president Jim Waters joins talk-show host Mandy Connell today for another Bluegrass Monday from 10 a.m. to 11 a.m. on 84WHAS.
Listen live at www.whas.com.
By Jim Waters
Could it be that one of the reasons Kentucky’s political leaders continue to kick the commonwealth’s can of unfunded pension-liabilities down the road is because they are counting on a bailout from the federal government?
If private companies like General Motors are too big to fail, then what’s to keep states like Kentucky that face huge pension liabilities from seeking their own bowl of Washington-made green gravy?
It must have made the hearts of Gov. Steve Beshear and his political pals controlling the House in Frankfort leap with relief when they heard fellow Dem and Illinois Gov. Pat Quinn recently run the idea of a federal bailout for his state’s $167 billion pension liability up the political flagpole.
For years – particularly when economic times were good – Kentucky’s politicians padded pension and health-care benefits as a way of currying political favor, even bringing private entities into the take. The bloated system now has 1,701 different entities, along with their thousands of employees, connected to our state government’s pension teat.
The story of states’ failing pension funds has been repeated nationwide. States now face a combined total of$2.5 trillion in unfunded pension costs, including Kentucky’s $34 billion liability.
Giving such funding power to cowardly politicians in the first place was like giving car keys and whiskey to teenage boys. An ensuing crash is inevitable, and a bailout would only acquiesce to their disastrous behavior.
In the same way, bailing out these states would be like repeating that process all over again – even after experiencing such disastrous consequence Besides, do we really want the federal government adding to its already mountainous debt with such bailouts?
As the Wall Street Journal noted while referencing a report by the Illinois Policy Institute, federal bailouts of state pension funds “end up pitting states against each other.”
Why should hardworking taxpayers in Washington state – whose pension system at 95 percent funded is the nation’s healthiest – be forced to subsidize the abuse of Kentucky’s pension system by politicians in the form of overspending and benefit creep during the past several decades, which has left the commonwealth’s workers’ retirement funding level at barely 30 percent?
This becomes an even more pertinent question when you realize that there has been little interest in ramping down spending by Gov. Beshear’s administration. A new Cato Institute report ranking America’s governors gives Beshear a “D” for his economic performance, citing “his proposed substantial spending increases in recent years.”
To continue proposing “substantial spending increases” even as the state’s pension hole sinks deeper and deeper is the height of fiscal irresponsibility.
What’s worse, politically cozy retirement-board members have hastened the inevitable wreck by using elaborate accounting maneuvers to offer a much-rosier picture of Kentucky’s public pension situation than reality dictates.
By guaranteeing the retirement plans a fantasy-driven 7.75 percent return on investment, the state makes the unfunded liability less than it would be with more reasonable assumptions. It’s like deciding that your bank account will reap a 6 percent return, writing checks on those expected funds, and then wanting the bank to cover the difference when the yields are only half that much.
The bank will do something all right – but it won’t be covering the difference.
The Wall Street Journal compared the federal-bailout idea to “the GM strategy” employed by labor unions during the automaker’s near-demise: “Never make a concession at the state level, figuring that if things get really bad the federal government will have no political choice but to bail out the pensions if not the entire state.”
As long as Frankfort’s politicians can continue to enjoy the political benefits of protecting the status quo by treating their bloated pension benefits as an “inviolable contract,” little incentive will exist to change, and the current administration will drag the commonwealth ever closer to insolvency.
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I’ve been running a little survey today, very impromptu, about when the US had its largest high school graduation rate. Years to select from start at the 1969-70 school year and run to 2008-09.
So far, no-one has answered correctly.
This graph, which I developed from data presented by the National Center for Education Statistics in Table 111 in the recently released “Digest of Education Statistics 2011” tells the tale (click on the graph to enlarge, if necessary).
You can see how many younger adults today, who simply don’t recall anything much farther back than the late 1990s, are confused and misinformed.
Also note there have been several up and down cycles in the rates over time. At least the current trend is in the right direction, but it still has a way to go just to match 1969-70.
This graph provides one reason why all us more “seasoned” folks who were around way back in the 1960s are concerned about today’s education system. We know it really was better way back when. Now, you know it, too.
We’ve been tracking the ratio of teachers to the total staffing in our schools for years, but newly released data for 2009 has raised even our rather hardened eyebrows.
Back when KERA began, about half of the people in our public school system were teachers.
Now, only 37.5 percent are!
This ratio is definitely out of alignment with the national trends. Kentucky’s teacher to staff ratio ranks as the second lowest among the 50 states and the District of Columbia.
Furthermore, it looks like the ratio is getting much worse.
Is anyone besides the Bluegrass Institute paying attention to this?
My conversation during the Kentucky Board of Education meeting last week with Kentucky Department of Education Associate Commissioner Hiren Desai confirms our new “Bang for the Buck 2012: How efficient are Kentucky’s schools” report is helping the effort to improve education accounting activities in the state.
Our report has helped local district finance folks appreciate the importance of a Kentucky Department of Education project to move from storing each district’s financial data on a local district server to placing all of the information in one, easily accessible web location in “The Cloud.” That change will allow financial experts at the department to directly and efficiently access data from local districts, a process currently overly complicated by the fact that the fiscal information resides in 174 databases at the school district level.
By December 2012, 173 school districts will have transitioned to “The Cloud.” Desai informs me that the data will be also be backed up and secured at two separate disaster recovery sites. Multiple security safeguards will also be in place to protect the confidentiality of this sensitive data.
Associate Commissioner Desai told me that other collaborative efforts to improve the MUNIS financial system are also in the works. One key plan is a badly needed and ongoing effort to review and update the necessary training and minimum qualifications for district finance officers. The department is coordinating with the Kentucky Association of School Business Officials (KASBO) and the School Financial Management Institute (SFMI) at the University of Kentucky College of Business and Economics on this joint initiative.
Feedback to us from multiple sources regarding our Bang for the Buck 2012 study indicates considerable concern both in Frankfort and the field regarding the training and qualifications of not only district finance officers but also administrative and data entry staff at the local level. This issue reportedly is related to fiscal entry errors. That, as we noted in our report, makes the current MUNIS data inconsistent from district to district, severely impeding any attempts to conduct more detailed bang for the buck studies.
Desai noted that the Kentucky Department of Education recognizes the importance of good data quality and created a Division of Enterprise Data in 2010 to coordinate such efforts. Desai complimented the report from the Bluegrass Institute as helping to focus this conversation, shining a critical spotlight on the need for good and accurate data at all levels. The discussions generated by our report are helping to make the case that many changes desired by both the department and local finance officers really are needed.
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