Bluegrass Beacon: Actuarial integrity key to repairing pension bridge

20111129beacon2Editor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

Any retiree who worked as an engineer in building and repairing Kentucky’s buildings, highways and bridges should concur with a hearty “Amen!” for structural integrity, which indicates the ability of a structure to withstand a certain amount of intended weight without failing, fracturing or otherwise weakening.

If Kentucky is to fix its pension mess, then “actuarial integrity” must become to its defined-benefit system what structural integrity is to its physical infrastructure.

The new Abraham Lincoln Bridge connecting Louisville with Jeffersonville, Indiana, has a $1.1 billion price tag, a weight-bearing capacity of nearly 5,000 pounds per linear foot and is designed to serve that load for at least the next 75 years.

It was built only after determining the structure’s cost and reaching an agreement between the two states that its beneficiaries cover a substantial portion of the needed funding via tolls.

When the Kentucky Employees’ Retirement System was established in 1956, it was created as a linear system whereby actuaries determine each year’s benefit levels based on several factors, including anticipated investment returns, salary and payroll-growth rates, life expectancy, retirement age and attrition.

When beneficiaries reached retirement, their pension payments would come from a fully funded, actuarially sound system.

However, by allowing the load placed on Kentucky’s retirement bridge to increase by raising benefits established and funded in previous years, actuaries – pension-systems’ engineers, if you will – have compromised the integrity of our entire retirement system.

If engineers want to increase the weight-bearing capacity on the Lincoln Bridge to, say, 10,000 pounds per linear foot, they would complete construction of more lanes or cable before accepting the increased weight.

Allowing the increased weight without expanding capacity would make the bridge structurally deficient and dangerous to all who dare cross it.

Similarly, retirees and current beneficiaries in the commonwealth’s pension plans increasingly rely on a structurally deficient system to provide for them the rest of their lives.

A main contributing factor to this structure’s weakness is the poor performance of actuaries who work for Kentucky’s retirement systems and have given their wink-and-nod blessing to increasing the weight on our pension bridge without a corresponding expansion of its capacity critical for handling the heavier load.

Legislators too often have enabled this to happen without the proper understanding, oversight and questioning critical to protecting their constituents who pay for such shenanigans.

Actuaries know that ensuring the long-term sustainability of the systems requires strict adherence to the original benefits that were fully funded with normal cost payroll contributions.

Enriching these benefits after the fact may represent the worst assumption of all: future employers will have unlimited funding to pay the principal and interest required to fund unaffordable and retroactive benefit enrichments.

But who wants to bear such bad news to the folks who sign your checks, even if not doing so ends up being a large contributing factor to an entire state’s growing pension crisis?

The impact of an outside audit by the PFM Group on addressing the pension plans’ structural weakness likely will be as limited as the scope of its review.

By evaluating the systems only back to 2004, PFM’s audit simply cannot include the impact that increasing benefits and then applying those benefits retroactively in each of Kentucky’s retirement plans for years has exerted on weakening the integrity of our pension systems.

We’re still waiting on PFM’s final recommendations.

Perhaps the firm’s auditors will offer meaningful help in returning our retirement system to one based on actuarial integrity rather than debt, unfunded liabilities and unreasonable expectations by beneficiaries.

To do any less would be the equivalent of giving their own wink-and-nod – consciously or not – to weakening Kentucky’s pension bridge, in which case taxpayers should demand a full refund.  

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: The due process of defining pension benefits

20111129beacon2Editor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

“Can pension benefits be cut?”

My answer to the reporter’s question may sound political but when it comes to Kentucky’s responsibility to its public servants, it’s nevertheless true: “It depends.”

The commonwealth’s moral obligation to protect properly earned and funded pension benefits doesn’t extend to improperly awarded ones.

Just because some group of politicians in the past improperly awarded new benefits or enhanced existing ones doesn’t mean future generations of Kentuckians should be forced to pay the bill for time and eternity for such gravy trains.

Unfortunately, beneficiaries, retirees and even legislators have been misled to believe that any benefit ever granted at any time or level and for any reason – regardless of actual rules or the commonwealth’s ability to pay the bill – is inviolable.

“We will not accept cuts to benefits promised under an inviolable contract,” wrote retiree activist Jim Carroll in a letter appearing in several newspapers. “If a bill is considered that reduces promised benefits, we will storm the Capitol with torches and pitchforks. If it is signed into law, we will litigate.”

That’s a wonderfully emotional statement designed to fire up a base of misinformed beneficiaries and retirees.

Here’s the rub: what benefits are promised “under an inviolable contract?”

Carroll rightly notes that previously awarded cost-of-living adjustments (COLA) not only no longer exist for Kentucky Retirement Systems’ participants but also that such benefits were “a contributor to our unfunded liabilities.”

COLAs still exist for Teachers’ Retirement Systems’ (TRS) beneficiaries, and thus – take Carroll’s word for it, not just mine – remain “a contributor to our unfunded liabilities.”

Plus, they are only one of many benefit enhancements that have helped dig Kentucky’s deep, dark pension hole.

The biggest shovel of all in digging that hole in each of the state’s retirement plans have been decisions, primarily by past legislators, to increase benefits in a particular year and then apply those gifts to all previous years of beneficiaries’ service.  

The very nature of a defined benefit pension system is that the level of benefits fluctuates each year according to actuarial assumptions considered each year, including investment returns, longevity, growth rate of salaries and payrolls, retirement age and attrition rates.

When, for example, investment returns are estimated to be higher, it may be possible to properly fund a higher benefit factor for that year because it is actuarially sound and properly funded.

But for beneficiaries to be led to believe that the commonwealth has a moral obligation to keep the rate at that level and to never lower it for years when returns are down is the worst kind of fake, even fraudulent, news.

Retirement benefits are to be determined annually by the systems’ actuaries based on solid, credible data on what the commonwealth can actually afford.

They form an agreement between the state, employees and taxpayers that’s smashed and broken when policymakers in future years reach back to increase the benefits from previous years.

Doing so is the equivalent of believing that while your personal investment in a money-market account offered a 3-percent return one year, 5 percent during another and 8 percent this year that you’re entitled to an 8-percent return ad infinitum for all years – both past and present.  

While the state has a moral obligation regarding benefits properly established, no such obligation exists for arbitrary benefits or those awarded either retroactively or prospectively without the due process of the actuarial process.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Coal-hating chickens coming home to roost

BluegrassBeaconLogoEditor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

How is it that residents in one of America’s most energy-abundant areas now face the real possibility that proposed hikes in their electric bills will result in a hard choice between staying warm next winter and making the weekly trek to the grocery store?

Rep. Chris Harris, D-Forest Hills, blames greed.

Harris is seeking legislative means to stop Kentucky Power, a subsidiary of American Electric Power (AEP), from getting approval from the Public Service Commission to raise rates by a whopping 16 percent – or more than $20 monthly on average residential customers – in his coal-country district next year.

Additionally, he’s sponsoring the first two pre-filed bills of the 2018 General Assembly which include a request that the PSC reconsider $100 million worth of previous rate-increase approvals for Kentucky Power.

Harris is outraged that the company is asking for such a huge rate hike when it’s (a) already had large increases approved in recent years, and (b) its parent company’s profits are soaring.

Both points are undeniably true.

  • The PSC has approved three increases totaling $104 million in rate increases plus $68 million in additional funding for costs related to projects like closing the Big Sandy power plant in Louisa, for which Kentucky Power customers are getting charged $16 million annually for 25 years to cover. The company’s newest request would add nearly $70 million in rate increases and additional charges to customers’ bills.
  • AEP’s stock prices have doubled during the past five years with dividends increasing for its stockholders each year.

Kentucky Power, in a release accompanying its latest rate-increase request, blamed a 14.2-percent decrease in electricity usage among its customer base just since September 2014 due to losing 2,000 residential and 450 industrial and commercial customers.

The company says it must charge more to cover the cost of continuing to provide electricity to the region.

“You can’t just shut down a third of a generation power plant” because there are fewer customers, Allison Barker, the company’s corporate communications manager, said in a phone conversation. “You either run the whole plant or you run none of it.”

Harris is right in that Kentucky Power, which, while privately owned, also has a monopoly on the electric business in a full slice of Eastern Kentucky – including some of America’s poorest counties – must justify all rate-hike requests.

But Barker says that while AEP has been profitable, each of the power company’s state-based divisions must pay their own way.

“We don’t get money from American Electric Power,” she said. “We pay for our own generation, distribution and transmission, and the way we recover costs is from Kentucky Power customers.”

While AEP has operating companies in other states, “you wouldn’t ask a Kentucky Power customer to pay for a project in Oklahoma; neither do Oklahoma customers want to pay for a project in Kentucky,” Barker explained.  

Harris should be equally outraged that what’s happening in Eastern Kentucky – and likely to occur in many other places across not only the Commonwealth but the nation – is directly connected to concerted efforts by the Environmental Protection Agency to target coal-fired power plants without regard to the devastating consequences for his constituents.

Bad-policy chickens whether in Harris’ district or districts nationwide don’t look good roosting in the form of higher electric bills, job losses or questionable supply of cool air for hot summers or heat for rough winters.

Only the economically naïve could believe that the shutdown of one victim of the EPA’s anti-coal campaign – a large unit at the Big Sandy Plant in Louisa, which consumed around 2 million tons of coal most years and employed 500 workers annually but was slated for shutdown by Kentucky Power in 2012 – wouldn’t yield future negative consequences.  

While Kentucky Power’s rate request must be vigorously debated, it should be done so against a backdrop of understanding that bad policies always produce appalling consequences.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Objection! Beshear MIA in open-records dispute

BluegrassBeaconLogoEditor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

Kentucky’s lawsuit against the manufacturer of OxyContin, heroin’s chemical cousin, stretches back more than a decade and involves three attorneys general.

It began in 2007 during Greg Stumbo’s stint as the commonwealth’s top lawyer, who, when he wasn’t busy indicting members of former Gov. Ernie Fletcher’s administration, was crowing about how “a billion dollars wouldn’t touch” what he could wring from Purdue Pharma.

Stumbo’s lawsuit charged the company lied to doctors about the addictiveness of the prescription painkiller, causing them to overprescribe it with devastating results, particularly among the poor in Eastern Kentucky.

After Purdue insulted the commonwealth with a $500,000 offer as part of a national settlement, Stumbo rightly decided that Kentucky should opt out and pursue its own case against the giant company, which, according to Forbes, has made $35 billion off the drug.

But he failed to deliver.  

A decade and a paltry $24 million settlement later – the amount agreed to by Jack Conway, Stumbo’s successor – the case continues in the courts over what, if any, information related to that agreement should be publicly disclosed.

Purdue is imploring the courts to honor an agreement made with Conway’s office to seal presumably damaging information about how it marketed its drug to doctors, patients and the public.

But First Amendment legal guru Jon Fleischaker, who’s representing STAT, an affiliate of the Boston Globe, rightly urged the Kentucky Court of Appeals to uphold Pike County Circuit Judge Steven Combs’ ruling unsealing the documents.

Combs, whose Eastern Kentucky court sits in a district where 51 people out of every 100,000 died from a drug overdose in 2014 and where a jury likely would render a judgement astronomically higher than the amount Purdue – which tried to get the case moved out of Pike County – agreed to pay, said the public has a right to “see the facts for themselves.”

Fleischaker agreed, arguing: “the public’s right to access cannot be controlled by two lawyers agreeing to keep certain records private.”

He also noted that trial courts possess “great discretion, as long as it’s not abused.”

Nothing prevents the court from releasing only information relevant to the public’s interest and right to know about this case while keeping documents revealing, say, sensitive proprietary information about Purdue under wraps.

While Purdue acted in a despicable manner, it’s a privately-owned company and courts operate on precedent.

If a private firm’s proprietary information – valuable only to competitors – is released in this case, it could have a chilling effect on companies’ eagerness to cooperate and make it tougher to litigate such cases in the future.

However, granting Pharma’s all-or-nothing demand would be an affront to Kentucky’s open records laws.

Fleischaker vigorously asserted that citizens have a right to know how this settlement was reached: “How did the court behave? How did the attorney general behave? Was it settled for too little or too much? You’re dealing with public offices and public trust in the system.”

No doubt, Conway was all too happy to stick a feather in his settlement cap at the expense of a big, bad drug company.

Plus, there has been no “I object!” from his successor Andy Beshear, who, prior to becoming attorney general, worked at the law firm representing Purdue Pharma. Beshear’s father, former Gov. Steve Beshear, now works at that same firm.

Andy Beshear’s office issued a statement claiming, “the terms of the settlement and court orders preclude the attorney general’s office from taking any position on the appeal.”

I object, your honors!

It’s understandable that the favorite position of Beshear – like most mediocre politicians – is to take no position.

However, nothing in the settlement prevents him from now advocating for the disclosure of public records, especially when the issues are so critical and implications so widespread.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Make health care affordable again

Logo

Editor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

Whether the American Health Care Act (AHCA), which narrowly passed the U.S. House of Representatives last month, offers an effective repeal and replacement of the Affordable Care Act (ACA) – affectionately known as Obamacare – is the subject of much debate as the Senate takes up another attempt to deal with the failed health care fiasco.

It’s indisputable, however, that any replacement plan failing to deal with cost – the primary malady affecting health-care policy – is an effort in futility.

A growing body of evidence suggests that not only has Obamacare done little to address the cost of health-care products and services, it’s exacerbated the problem.

Recent analysis by the U.S. Department of Health and Human Services indicates average premiums are 105 percent higher for Americans in the 39 states purchasing policies through the federal exchange in 2017 than for individuals’ plans in 2013 – before the exchange was created.

The analysis further unpacked reports that the average individual market premiums rose from $2,784 before Obamacare had kicked up to $5,712 in 2017.

“Affordable” Care Act, anyone?

All of this, it seems, would produce a wonderful opportunity for Republicans, who control Congress, the presidency and most state legislatures to use the leverage given them by voters to tattoo history with:  “Here’s how you do health-care reform,” and do it right.

Don’t get your hopes up.

Insurance-company lobbyists and welfare recipients have joined forces to weaken the resolve of many legislators who campaigned for changing a policy that never should have been implemented in the first place.

We would’ve been much better off seven years ago, instead of passing Obamacare, to adhere to the wise adage of President Calvin Coolidge: it’s “much more important to kill bad bills than to pass good ones.”

Still, killing not only Obamacare but its foundational ideas and approaches remains a priority.

More than reasonable doubt exists concerning whether the AHCA comes anywhere close to doing this – with its Obamacare-like approaches to taxes, subsidies and even mandates.

Northern Kentucky congressman Thomas Massie, one of 20 Republicans to oppose the AHCA, sassily compared the legislation to a kidney stone, charging “the House doesn’t care what happens to it, as long as they can pass it.”

Yet even when it comes to something as politically charged as whether we’re going to replace a health-care policy bearing the name of a Democratic president with a Republican-created substitute, progress can be made regarding critical policies in a bipartisan way.

There is, for example, strong support for making the cost of care transparent.

Costs have largely been hidden in our days of low co-pays, employer-provided plans dominated by third-party administrators and government programs.

“I don’t think I’ve ever had a Medicaid patient ask me how much something costs,” Dr. Cameron Schaeffer, a Lexington-based pediatric urologist and proponent of free-market policies, said on KET’s recent Kentucky Tonight program.

Neither Obamacare nor the AHCA effectively connects patients with cost, which is critical to making America’s great health care affordable again.

One viewer’s email read by Kentucky Tonight host Renee Shaw noted, “a free market only works when there is competition.”

Both Schaeffer and fellow KET panelist Dr. Barbara Casper, an internist, professor of medicine at the University of Louisville and Obamacare supporter, agreed providers should post their prices in a clear and understandable way.

Doing so would “help patients know what they’re getting into” and “would also allow for … more competition,” Casper said.

“I think we need to do everything we can to lower costs,” she added.

Whatever your political belief system, you will bear the burden or at least the consequences of higher health-care costs.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon: Holding public records hostage

Amye BensenhaverBy Amye Bensenhaver, Guest Columnist

Editor’s note: The Bluegrass Beacon column is a weekly syndicated statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

While employed as an instructor at the University of Kentucky’s School of Journalism, former hostage Terry Anderson recounted his five-year battle with federal agencies to obtain copies of public records under the Freedom of Information Act (FOIA) relating to the government’s efforts to secure his release from Hezbollah kidnappers during his nearly seven-year captivity.

Anderson described his bemusement when agency officials suggested he obtain signed releases from his former captors to expedite disclosure of the records he sought and protect his captors’ privacy. He shared his frustration when the records he received consisted almost entirely of newspaper articles and photos.

Although the content of the records ultimately disclosed to him was disappointing, Anderson’s protracted struggle illustrates, as the federal courts have observed, that “the value of information is partly a function of time.”

In the federal case recognizing this well-entrenched principle of records-access law, the U.S. Department of Justice postponed access to records requested under FOIA for up to 15 years.

The federal court decided that the delay was excessive, noting “Congress gave agencies 20 days, not years, to decide whether to comply with requests and notify the requesters.”

The court acknowledged that the Freedom of Information Act “doubtless poses practical difficulties for federal agencies,” but refused to “repeal it by a construction that vitiates any practical utility it may have.”

In other words, the court was unwilling to erode the principle of timely access to public records as an accommodation to the agency’s burden – real or imagined – and suggested that the agency present its concerns to Congress.

Kentucky’s public officials regularly complain about the three-day statutory deadline for responding to a request under the Open Records Act.

Lawmakers undoubtedly adopted a short turnaround for agency response in recognition of the fact that “the value of information is partly a function of time.”

The Kentucky Attorney General’s office in a recently issued decision admonished Louisville Metro Government for failing to explain the reasons for a 45-day delay in producing records responsive to a series of broadly worded requests relating to a complaint of sexual harassment, hostile work environment and retaliation filed by a Louisville Zoo employee.

The attorney general found that the facts on appeal supported the delay in producing the records beyond the three-day statutory deadline based on proof that just one of the multiple requests involved more than 23,000 records.

Delays in producing public records by state and local agencies in Kentucky may pale in comparison to delays at the federal level but are no less offensive to the principle that “the value of information is partly a function of time.”

Perhaps the solution to this and other problems lies in the statutory revision of the 40-year-old law.

Any such revision must be faithful to the law’s strongly worded statement of legislative policy favoring the public’s right to know but recognize the dramatic changes in the public-records landscape since the law’s enactment in 1976.

The newly created Bluegrass Institute Center for Open Government proposes revising the commonwealth’s open records and meetings laws in a new report, “Shining the Light on Kentucky Sunshine Laws.” We identify deficiencies in the laws exposed by successive legal challenges, suggest where revision is needed and make recommendations for change.

Our goal is to preserve what is best in the open meetings and records laws but encourage lawmakers to close loopholes in the laws that are frequently exploited by state and local agencies at the expense of the public’s right to know. Doing so will ease the burden on public agencies, reduce the likelihood of legal challenges, preserve administrative and judicial resources and, above all, promote the clearly stated policy of open, transparent and accountable government.

Amye Bensenhaver is director of the Bluegrass Institute Center for Open Government at www.bipps.org. She wrote nearly 2,000 legal opinions regarding open records and meetings laws during a 25-year career as a Kentucky assistant attorney general. She can be reached at abensenhaver@freedomkentucky.com.

Anti-right-to-work zealots need a new act

BluegrassBeaconLogoEditor’s note: The Bluegrass Beacon column is a weekly syndicates statewide newspaper column posted on the Bluegrass Institute website after being released to and published by newspapers statewide.

Like comedian Kathy Griffin, who despicably held up a simulation of President Donald Trump’s head, leaders of the anti-right-to-work movement desperately need new material.

In fact, they need a brand-new act.

Following are some direct questions that should cause them to see the futility of a lawsuit they have filed opposing Kentucky’s new and effective right-to-work law:    

  • You claim the legal action is all about helping workers harmed by right-to-work. Can you name one single worker injured by this law?

If so, why isn’t their name on the lawsuit, instead of AFL-CIO chief Bill Londrigan and Teamsters 89 boss Fred Zuckerman?

How do these union heads even have standing, considering their claim is built on the premise that Kentucky’s right-to-work law harms workers?

Could they not get even one union dues-paying employee to step up and sign on the proverbial dotted line to take on this state’s governor and Labor Cabinet Secretary Derrick Ramsey instead of the general “affiliated unions and their members?”

Could it be that Gov. Matt Bevin was spot-on when he suggested, in his response to the lawsuit’s filing, that union bosses use these types of doomed-to-fail legal actions to “get re-elected to a job where you’re paid well?”

  • Why would you file a lawsuit to try and stop the growth in economic momentum that right-to-work is bringing to Kentucky?

Try as they may, it’s impossible for the plaintiffs and their political pals to deny this clear claim from Braidy Industries CEO Craig Bouchard, who, at the ribbon-cutting celebrating arguably the largest industry announcement in Appalachia’s history, stated: “If Kentucky was not a right-to-work state, you wouldn’t have gotten on the list because it’s so important to us.”

Attempting to unravel a policy that will help create 550 jobs paying blue-collar workers $70,000 annually confirms this lawsuit isn’t about protecting workers.

Rather, it’s about forcing the 99 percent to indulge the 1 percent at the top, where union bosses who engineer this type of senseless opposition perch and, with knee-jerking consistency, condemn labor-freedom policies like right-to-work, which simply allow individuals to forego union membership or payment of dues without losing their jobs.

  • Since federal labor law allows states to pass right-to-work policies, why are you wasting your remaining members’ dues on a frivolous lawsuit doomed to fail?

Rep. Jason Nemes, R-Louisville, charges the lawsuit is “an embarrassment” and makes claims that are “outlandish and similar to those rejected all over the country,” including by the Indiana Supreme Court after the Hoosier State passed its right-to-work law in 2012.

Perhaps these anti-right-to-work zealots believe they will get a favorable ruling just because they filed their inane litigation in a county overwhelmingly Democratic in registration and politics.

In pushing for the Kentucky Supreme Court to hear the case posthaste, they also have deluded themselves into believing a law passed by the duly-elected legislature will be overturned simply because most of the justices are registered Democrats with some ideological ax to grind.

But this isn’t a partisan issue, as indicated by many votes from both Democrat and Republican magistrates who supported local right-to-work ordinances in several counties before the statewide law passed in January.

To rule for the unions and upend Kentucky’s right-to-work law, the Supreme Court would have to totally invalidate the Constitution’s Supremacy Clause mandating that federal law preempts state policy.

It would “require a judge to dishonor their robe, and they’re not going to do that,” said Nemes, who previously served as chief of staff and counsel for retired Chief Justice Joseph Lambert.

Bevin has filed a motion to dismiss the legal challenge.

However, even if the courts don’t grant his request, this lawsuit will result in another devastating legal loss for labor-union bosses and a correspondingly large victory for job seekers, economic progress and individual liberty.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Beacon — Kentucky to the ‘trade deficit’: You’re fired!

BluegrassBeaconLogoConsidering the Bluegrass State last year exported $30 billion worth of goods and services – more than 33 other states – Kentuckians should vigorously oppose anything remotely associated with a “war on trade.”

American Enterprise Institute scholar Mark Perry rated the share of Kentucky’s economy in 2015 linked to imports and exports fifth-highest in the nation, comprising 34 percent – or $66 billion – of the commonwealth’s $193 billion GDP.

Perhaps Kentucky Gov. Matt Bevin, who recently conducted a trade mission to Japan, could find a way to strike up a cordial conversation with his good friend President Donald Trump to put the commander-in-chief at ease about this whole “trade-deficit” matter.

Bevin could even share some wisdom from flyover country by passing on Indiana University Southeast economics professor D. Eric Schansberg’s reason for claiming the trade deficit remains “the most misunderstood concept in economics.”

Schansberg, Ph.D., says the discussion about international trade often focuses heavily on the downside – which tends to be more visible in terms of some individuals losing out in a global economy – while nearly completely missing out on its subtle but significantly important benefits for an entire state or nation.

“Trade is good for the aggregate if not always for the individual,” he says.

Schansberg, who’s also a Bluegrass Institute scholar, notes that “exports lead to imports” and warns that attempting to artificially narrow the so-called “trade deficit” could result in fewer dollars invested in America’s economy.

“Everybody talks about the difference in goods and services exported versus imports when what really matters is investment surplus,” Schansberg says.

Shallow-thinking protectionists rarely dig deep enough to reach this important component in making their own determinations about the success or failure of free-trade relationships.

Why, these shallow paddlers must wonder, would Bevin travel to Japan to tout the commonwealth as an attractive investment option instead of chastising that nation because last year it only spent $1.1 billion in direct purchases from Kentucky while we as a state imported $5.1 billion worth of Japanese products?

Consider the rest of this trading-partnership story.

Not only are imports critical to keeping Kentucky at – or near – the top in the automotive, aerospace and pharmaceutical industries, but Japanese-owned companies now operate more than 180 facilities in our commonwealth.

And while Kentucky is the fifth-largest importer of Japanese goods – Japan is the No. 1 international investor in the Bluegrass State, having created 44,400 full-time positions in those facilities.

“Investment surplus,” anyone?

An important teaching moment could occur if our governor explained to the president why Kentucky exporting nearly $30 billion while importing almost $40 billion is worthy of replicating rather than punishing, which would only bring us more harm, anyhow.

Schansberg notes the last time America had a trade surplus was not during an uptick but when the economy tanked during the late 1970s.

“It’s because investors were looking at our economy and they didn’t see it as a great investment,” he said.

All those current imports mean more choices and better prices for consumers and industry. It means foreign investors look at today’s Kentucky and America and they like – really like – what they see.

Frenchman Frédéric Bastiat, a 19th-century champion of free-market economics, proposed reversing “the principle of the balance of trade and calculate the national profit from foreign trade in terms of the excess of imports over exports.”

Bastiat called this “excess” the “real profit,” and challenged the contemporary protectionists of his day to produce evidence showing otherwise.

“Even if our imports are infinite and our exports nothing, I defy you to prove to me that we should be the poorer for it,” he said.

Jim Waters is president of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read his weekly Bluegrass Beacon column at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.

Bluegrass Institute — Charter-school bill: Will kids win?

BluegrassBeaconLogoThe Bevin administration and House Republican leadership – despite hard pushes for other platform priorities such as right-to-work and prevailing-wage repeal – may settle for a mediocre charter-school bill.

This is a testament to the stronghold the public-education complex has on our commonwealth and to its willingness to put money and control before students’ best interests.

Charter-school legislation has passed the state Senate for years, including Sen. Mike Wilson’s bill last year that sailed through with a 28-9 vote but ran aground before reaching the other end of the Capitol – a pattern we’ve seen for years.

Then came Election Night 2016 when the GOP took control of the Kentucky House of Representatives for the first time in nearly a century.

Voters handed Republicans supermajority status in the historic November election and seemed to say – as they had to then-candidate Matt Bevin during the previous year’s gubernatorial campaign: “Go to Frankfort, make the tough decisions and don’t worry about your re-election.”

Legislators led by a new and energized majority leadership responded by passing seven bills in the session’s historic first week concluding with an equally momentous Saturday session despite threats from protesting union bosses in the halls of the Capitol to defeat them in the next election.

Then came the charter-school bills.

Rep. Phil Moffett’s House Bill 103 would have allowed mayors in Kentucky’s largest cities, the Council on Postsecondary Education as well as colleges and universities with accredited education colleges to serve as charter-school authorizers – a best practice working well in other states.

Then superintendents, teachers-union bosses and the public-education complex in general threatened to make this the last term in Frankfort for anyone supporting a strong charter-school bill.

Along came Rep. John “Bam” Carney’s House Bill 520, limiting authorizers to local school boards except for mayors in Metro Louisville and Lexington, albeit with an appeals process to the Kentucky Board of Education. That bill passed the Kentucky House and now sits in the Senate Education Committee.

So, education-complex threats may be strong enough to force Kentucky policymakers to settle for a bill, the mediocrity of which mirrors this state’s education system in which, as Moffett notes, only 51 percent of high-schoolers can read at grade level and just 38 percent are proficient in math.

The Bevin administration sees Carney’s bill as an opportunity to get the door opened for charter schools in one of only seven remaining states without charters.

But even Bevin conceded he “would have liked to have seen more than is in this bill” while insisting “we have to factor in what is possible.”

Another possibility, of course, is to wait until a stronger bill can be passed – not the first time we’ve mentioned in this column that route for serious consideration.

At the very least, facts should drive the debate that will take place in the coming days in Frankfort, including this one: charter-school creation is much-more robust in states with multiple authorizing agencies.

The National Alliance for Public Charter Schools reports there were 6,723 charter schools in the United States during 2015, of which 93 percent – or 6,241 – were in states with multiple authorizers. Only 482 – or 7 percent – exist in states that limit authorizers to local school boards.

For sure, the angst and debate regarding charter-school policy will test the political mettle of those sent to Frankfort by constituents assuming they would be in favor of strong reforms to our education system, which consumes 60 cents of every taxpayer dollar.

Will they stand up to the teachers unions’ uninformed and angry zealotry?

Will they fight for poor and at-risk children who stand to gain the most from great charter schools and who have no other voice but ours?

Will the best interests of thousands of young Kentuckians stuck in hundreds of mediocre and failing schools find a seat at the legislative table and a place in that debate?

Stay tuned.

Jim Waters is president of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read his weekly Bluegrass Beacon column at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.