So it was with interest that I read the account recently of a school board member in Florida sitting down to take some of the "high stakes" tests that the students in his district have to take:

A longtime friend on the school board of one of the largest school systems in America did something that few public servants are willing to do. He took versions of his state’s high-stakes standardized math and reading tests for 10th graders, and said he’d make his scores public.

By any reasonable measure, my friend is a success. His now-grown kids are well-educated. He has a big house in a good part of town. Paid-for condo in the Caribbean. Influential friends. Lots of frequent flyer miles. Enough time of his own to give serious attention to his school board responsibilities. The margins of his electoral wins and his good relationships with administrators and teachers testify to his openness to dialogue and willingness to listen.

.....
“I won’t beat around the bush,” he wrote in an email. “The math section had 60 questions. I knew the answers to none of them, but managed to guess ten out of the 60 correctly. On the reading test, I got 62% . In our system, that’s a “D”, and would get me a mandatory assignment to a double block of reading instruction.

He continued, “It seems to me something is seriously wrong. I have a bachelor of science degree, two masters degrees, and 15 credit hours toward a doctorate.

The thing is, this sort of stunt happens every so often. And I wonder about the credibility of the person taking the exams, especially if he said he guessed on all the math problems. Is it really written that poorly, and nobody noticed til now... or is it that this guy sucks at math and does not think "Hey, perhaps people getting a HS diploma should actually know more than I do"?

In comments, MRW pointed to a public release of the test in question, and having looked at the tenth grade math items, I think what I said was unfair. While we have our share of students who struggle with basic algebra, I'm pretty confident that they would pass this test.

Just for fun, here's a selection of a few of the problems from the 2006 math test given to tenth graders, the one where Mr. Roach didn't know how to answer any of them, and "Not a single one of [his friends] said that the math I described was necessary in their profession." See if you're smarter than a Florida school board member:

[go to link to look at the questions... most of these I could do by 5th grade, btw]
....
Now, of course, I've cherry-picked these questions, to enable maximum snark, but you can look at the test for yourself at the link above, and see for yourself that the math involved is not terribly difficult. And, in fact, the test writers have done a pretty good job of putting the math into a useful (if occasionally a bit contrived) context, to demonstrate what it's all for. Maybe whoever selected the questions for him to take pulled out only the most abstract and difficult questions from several years' worth of tests, but that doesn't seem terribly likely.

This is yet another demonstration of a problem I've been banging on about for years: the innumeracy of intellectuals. Mr. Roach holds three college degrees, and clearly considers himself an educated person, but even a lack of practice at taking tests can't really explain this level of failure.
....
Mr. Roach's failure to score at a reasonable level on this test is something that ought to embarrass him, not the educational establishment. As much as I have problems with the notion of high-stakes testing, I have an even bigger problem with people who believe-- and teach our kids-- that basic mathematical competence is not a necessary component of education.

Now when I had seen the info about his multiple degrees, and his inability to do well on very basic math, I guessed that those degrees were in subjects with the word "education" somewhere, which are some of the most degraded degrees out there. This would be ironic, unless you understood how the current education industry "works": you get raises, promotions, etc. as a public school teacher for these degrees. The college and universities granting them get lots of money. And there's no external check on whether those holding those pieces of paper actually learned anything other than how to work the system.

So let's see if I was correct about Mr. Roach:

The man in question is Rick Roach, who is in his fourth four-year term representing District 3 on the Board of Education in Orange County, Fl., a public school system with 180,000 students. Roach took a version of the Florida Comprehensive Assessment Test, commonly known as the FCAT, earlier this year.

....
Roach, the father of five children and grandfather of two, was a teacher, counselor and coach in Orange County for 14 years. He was first elected to the board in 1998 and has been reelected three times. A resident of Orange County for three decades, he has a bachelor of science degree in education and two masters degrees: in education and educational psychology. He has trained over 18,000 educators in classroom management and course delivery skills in six eastern states over the last 25 years.

To be sure, I had these links before I wrote this post, but I'm sure the idea popped in many minds when hearing about those degrees (and I definitely thought it when I heard the credit hours towards a doctorate). Mind you, I'm not calling all education programs to be phony, but ever heard of Gresham's Law?

Bad money drives out good.

This goes for credentials as well. The economic forces as well as the lack of any controls means that there has been a slide downward not only in the meaning of a high school diploma, but also education degrees.

I have written about this dichotomy of what is considered educated, in how much humanities, and at what level, one must take in college compared to math and science. Well, that was college, and here are two posts (post 1 on Cathy Seipp, post 2 on Richard Cohen) of me bitching about people who considered themselves educated, who would also needed to have guessed on that math exam....and trying to make up excuses that it's okay to be that ignorant in math and call one's self educated.

Look - would you consider someone educated who could not write coherently? Who could not read great literature (the accessible stuff, not when it was a virtue to be only for the elite) and comment on it?

I really have nothing to this statement from my Seipp post:

Exit exams need to mean something, or high school diplomas will continue to mean nothing. The only reason so many people feel the need to go to college is because a high school diploma means only that you showed up often enough that they gave you a diploma. If you're getting good grades in math from grades 9-12, but can't pass a 9th grade-level exam -- that should indicate to you that your grades are meaningless. I ran into this problem once before: when I taught calculus at N.C. State. There was a reason they had a pretty strict requirement on placing out of Calculus I. Because over half of the freshman class had had Calc I before and claimed to have gotten decent grades in Calculus the year before... and yet, they didn't even know how to give the equation of a line. Or what the area of a circle was.

So the question is: are people happy that high school grades and diplomas are credentials with no credibility? If they're not happy, you've got to have some kind of do-or-die certification. Having "alternatives" where people can opt out of basic math knowledge or literacy is not a good way to shore up the credential.

These "high stakes" exams do tend to be relatively low level, especially in math. I think it's reasonable to set a high school diploma at Algebra I.

Of course, there will be students, diligent and following the rules, who can't clear that hurdle. It is not kind to anybody to lower the standard such that the HS diploma is merely an attendance certificate. For those who accomplish that, give them the attendance certificate. Don't lie to them that by merely showing up they accomplished something academically.

One of the perspectives I'm coming from is that of special education -- if those students can't demonstrate that basic level of knowledge and application, then don't give them a diploma, pretending it means something. What you're doing is giving everybody a meaningless piece of paper just so that some people supposedly won't feel bad. Some of those special ed students may very well be able to clear the same minimal hurdle everybody else does, and they should have something that indicates that. I'm also fine with an "honors certificate" above and beyond the minimal HS requirements. Or vocational credentials, if that's the route they go.

The point is to change high school from a holding pen for teenagers on the way to the "real" credential of college, which will cost many people in money and time lost on wasteful activities....and find they've got yet another meaningless piece of paper, and many times, not even that.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

As he notes, there are two ways this happens in the Illinois Teachers plan:

Why is that? Well teachers get pensions paid on “Service Credit” not actually on the years worked in Illinois. “Service Credit” is a concept that boosts pensionable years worked in IL with giveaways that have been added over the years to increase teachers’ pensions for no reason other than they are teachers.

I know of no private sector system where the workers receive pensions based upon more years than they have actually worked.

Service Credit scam 1: pensions paid on 75,000 years of sick leave never worked.

The major way to get Service Credit is via sick days. Every teachers’ contract contains an allowance for “sick days” averaging about 12 days per year. If the teacher doesn’t take the days off as sick leave (most of the suburban schools have 2-3 personal days on top of sick days so they can use those for real sick days) they can accrue them for up to 2 years Service Credit when they retire.
....
Service Credit scam 2: “Optional Service Purchase”: Pay $63,000 get $1.2 million.

Teachers may also “purchase” Service Credit, at an extreme discount, for teaching previously in other states.

Retirees have paid nominal amounts for 82,700 out-of-state work that by definition is not Illinois work. If it’s not Illinois work why do Illinois taxpayers have to pay pensions for it?
....
Why do Illinois taxpayers have to pay pensions for work not done at all or done in another state?

Very good questions.

These features are not necessarily restricted to Illinois. "Air time" (buying "Service Time" in a new job based on a job worked elsewhere) is something all over the place, and it can be abused in a big way. The amount "charged" for air time is usually well below what it will actually cost (esp. given the low retirement ages).

With regards to sick time being accrued for pension benefits, in many private companies there is a maximum number of sick days allowed to be rolled over from one year to next...and if you don't use them, they're gone.

Zettler also has some more questions related to the TRS plan.

With benefits like is, even with generous assumptions and smoothing to dampen effects, is it any wonder the funding ratio is below 50%?

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Central Falls, Rhode Island will have to default on its pension promises. They threw in the towel in their May, 2010 Petition for Receivership claiming:

8. Because of its dire fiscal situation, the City has sold off much of its chief pension fund assets to satisfy annual pension obligations. Its actuarial accrued liability exceeds $35 million dollars and its assets are approximately $4 million. The City audit reports that for fiscal year 2009, its “required” contribution was over $2.7 million and the City’s actual contribution was $0. For fiscal year 2010, there are no funds available to contribute and over $1.5 million in assets would have to be sold to meet present obligations.

....

In poker a ‘tell’ is a clue that a player gives about the strength of their hand. Central Falls is a ‘tell’ to anyone who believes that governments are funding their retirement benefit promises adequately. They’re not and you may not find out that cold hard fact until assets are depleted and you get ‘asked’ to take less…….or ‘told’ to take nothing.

The thing is that no number of lawsuits can will money into being. This is why these sorts of promises need to be pre-funded -- if they're not, chances are pretty good that they won't be fulfilled.

Something like this doesn't develop overnight. Usually it takes years of larding up pay and benefits... starting out at a supportable amount, but then, as various groups accrue more power to themselves, they get too piggy. A point gets passed at which the excess can no longer be supported.

One can cry about fairness. Or legality. But once you've eaten up all the cake, crying won't make more appear.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

To quote a drunk, fictional Spaniard: I do not think that means what you think it means.

A Rhode Island town finds itself in trouble... and the rhetoric is silly:

Central Falls receiver seeks 'significant' retiree concessions
1:52 PM Fri, Jul 08, 2011 | Permalink
Katherine Gregg Email

PROVIDENCE, R.I. -- With a legal fight still raging over the state's attempts to rein in the cost of its retiree health and pension benefits, Central Falls receiver Robert Flanders is seeking "significant voluntary concessions'' from retirees in the battered city he is trying to pull back from the brink of bankruptcy.

In a letter that went out Friday to retired members of the Central Falls police and fire departments, he requested a meeting on Tuesday, July 19, to discuss the potential for a cost-saving compromise that could help avert a bankruptcy that could jettison the city -- and it retirees -- into unchartered legal territory. [sic]

Go to the original story if you want details on the specific concessions, the legal threats, yadda yadda. I want to address the "uncharted legal territory" ...

Oh come now. This isn't uncharted legal territory. Prichard, Alabama already blazed this trail. The pensioners of Prichard were SOL when the town and pension fund went bankrupt in 2009. For almost 2 years the pensioners did not get paid. At all.

Here are several posts (some by me, some by someone else) on Prichard's plight:

• Prichard, Alabama and the Public Pension Endgame
• Public Pensions: When the Money Runs Out
• Pension Woes of Alabama Town a Warning to Others

The rest of the article is stuff we've seen elsewhere ... "Changing our benefits is unconstitutional!" yadda yadda. Well, municipal bankruptcy is constitutional, and then when the money runs out of the pension fund.... try to sue your pensions into existence. I'm sure that will work.

I can't find the link right now, but the last I heard of the Prichard pensioners, they got some sort of lump sum settlement of their pensions, but much less than they were owed if you went by the original promises.

If you want to take this court, public employees, you do have recourse to that venue, but you need to realize that you may get far less via that route than negotiating up front right now. You need to figure out what is actually supportable. Hire your own, independent actuaries. Project cash flows under a variety of scenarios.

Because yelling that the original promises must be fulfilled doesn't mean that they will be fulfilled. You need to figure out the likelihood that they will actually be paid.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

No, it's not. Various parties are having fits over having to deal with reality, and I'm not just talking about the Greek populace.

A vote is being taken on Wednesday (or at least, that's the current schedule) in Greece on their latest austerity package....and this is just to get the short-term cash flows promised in various bailout plans previously.... it doesn't take care of their long-term debt problem.

A Bank of England official warns of bank exposure to PIIGS debt, though my understanding is that French and German banks have it much worse. I like the timing of the stress test results release - I'm thinking it will be coming out right about the time the credit agencies will say Greece is actually in default.

Other eurozone countries aren't looking too hot, either.

Leo Kolivakis writes about many things, some personal, but you should scroll down to item 4, where he talks about Greece. An excerpt:

Let me share with you the ugly reality on Greece's woeful tax collection system. Everyone in Greece knows this, but let me give it to you straight. A close buddy of mine, a radiologist, is now vacationing in Greece with his family. His aunt recently had to replace a heart valve and she slipped an enveloppe of 12,000 euros to the cardiovascular surgeon so he would do it. In Greece, this enveloppe is called "fakelaki" and if you don't have the money, you're dead. Specialist surgeons working at public hospitals are typically the worst offenders, but there are others notorious for accepting huge sums and they declare nothing. And most of them pay off Greek tax collectors who are equally corrupt and greedy.

The U.S. has a long way before getting that corrupt, but those officials deliberately trying to weasel themselves around the rule of law (see the PUBLIC FINANCE section) had best beware and be aware... what you may think is a show of power may be what ultimately undermines it.

GENERIC PENSION ISSUES

Joshua Ruah, the Northwestern prof who has been slicing and dicing public pension obligations in all sorts of ways, has put out a new paper: the revenue demands of public employee pension promises....and he's asked for responses. Here's some of the responses he's gotten so far. And another response (from governmental pension plan administrators) in the NYT.

Stronger pensions disclosures during muni issues? Sounds like a good idea to me. I wonder why he thinks it helps only bondholders -- ask the pensioners of Prichard whether they would've been well-served by better disclosures earlier. Good info protects not only bondholders but also public employees and taxpayers.

PUBLIC UNION INFLUENCE: MELTING! MELTING! OH, WHAT A WORLD!

Our first story comes from across the pond: UK looks to rein in their public unions. This should be fun. I think various U.S. states should take notes, including the bit about not paying union leaders who don't actually work for the state.

Striking Canada Post workers discover that the government has a lot more power than they do. Huh. How did that happen?

(note: Crown Corporations are just government-run and -owned entities. I recently found out that in some provinces, you get regular car insurance through a Crown Corp. Interesting)

What will the unions in Wisconsin do now? I'm thinking whining is a continuing strategy.

Some take the "defeat" in NJ as a harbinger of tough times for public unions across the U.S....meh. Were they all fired? Their pensions repudiated? No. It was hardly a defeat.

Yet.

Buck up, unions - you've got at least one guy on your side.

PUBLIC FINANCE

Laws? Limits? Ceilings? Pfft. Like that could stop a latter-day messiah who has stuff to get done. I'm curious what the legal status of such debt issues would be.... and I bet institutional investors that suck up these issues would like to know this as well.

Though the bondholders are probably a bit more concerned with the CBO cashflow projections.

VDH points out that Thatcher's inevitabilism is coming due: i.e., other people's money is running out. Bribing people with their own money has always been a difficult balancing act to keep up, and the problem has been in the West is that they've not been producing enough people to keep that going. Oh, tant pis.

Ex-mayor of L.A. warns about the coming bankruptcy of cities, agreeing with Meredith Whitney...with you-know-what playing a major role. Some cities think that they see the light at the end of the tunnel...right before they get hit by a train, I'm thinking.

CALIFORNIA

Public employees in Costa Mesa take on "big" boss to win big pensions.... well, if they can hang onto them. These are chickens I wouldn't count on hatching if the nest eggs aren't even there. I guess they'll learn what "municipal bankruptcy" means soon enough. It doesn't mean that pensions get paid, if the plan is underfunded.

California school admins living large in retirement. I am not fond of the "100K PENSIONS!!!" stories, because it's not individual pensions like this that are necessarily breaking the back of plans. You can have a whole bunch of relatively small amounts killing you, if paid to enough people, for long enough. But these things grab headlines, and stir up envy... and it's always amusing to see the politics of envy redound upon those who love to use it themselves (which is often the way.)

FLORIDA

Having to contribute to your benefits to the tune of 3 percentage points? A crippling tax. Oh baybee. Can we use that when the feds want to increase our taxes to pay for the gravy train they want to continue? If that's such a hardship, of course, the workers are always free to quit.

HAWAII

Pension reform bill signed requiring higher retirement ages and service levels.

NEW JERSEY

After the NJ pension reform passes, the lawsuits begin. Huzzah! Let us not forget the tough times lawyers have fallen upon with their loss in the Walmart case.

The unions also promise to hit back in votes. Good for y'all! That means you're going to stop voting for Democrats, right? Or are you just going to admit that you're stuck? (see article for answer - like with the open borders crowd, reparations extortionists, and gay rights activists, they know they're stuck with the Dems. So.... )

Christie taking his victory lap.

John Bury pricks everybody's balloons in this quarrel.

NEW YORK

The legislature continues to debate letting districts borrow money and pretend they're real contributions to the pension plans.

The NYT whines that it was bullying in NJ but it's bargaining in NY. I don't know - sounds like some of the NY unions don't see Cuomo's actions in quite so benign a light.

OHIO

Employees run for the exits, trying to get theirs while they can.

RHODE ISLAND

Yet another group to look at the state's pension mess and give suggestions for a fix. They've been given a task that's well-nigh impossible:

In tackling a subject that ultimately may mean breaking promises, Raimondo has said that any solutions need to ensure fairness among the new employees, veteran workers and retirees. Newer state employees and teachers bear a greater burden now, she says, because most of their contributions to the retirement system pay for their predecessors’ benefits.

Raimondo stresses that solutions must be fair to taxpayers, as well.

What happened to the last set of suggestions? Let's see... raising the minimum retirement age from 59 to 65 (drastic!), and offering up a DC/DB hybrid akin to what federal employees get... shot down even before it got to a legislative committee.

What I'm saying is I'm adding this group to my list of intentions for St. Jude.

UK

Isn't this cute - an "industrial action" from public employees over their pensions being changed. Yes, those schoolteachers are working hard in the mines and the clerks are grinding away with their wrenches. Supposedly, the Tories are asking parents to sub for teachers (yes, I suppose if you've seen it on a Simpsons episode, it's a gimmick).

Some angst over making the women's retirement age the same as men. I always wondered about this -- in the developed countries, women have always lived longer. Why were they given younger retirement ages?

Cross-posted to The Commune.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

How far is it behind in paying? $4 billion, with a B.

International Business Machines Inc. is owed $1.1 million. Office Depot Inc. is waiting for a $660,955 check. And the 17th Street Bar & Grill in Sparta is due $340.52. They are among at least 8,000 vendors including businesses, charities and government agencies waiting months for the state to pay up. At least 114 companies are due more than $1 million, according to documents from Illinois Comptroller Judy Baar Topinka.

While states periodically fall behind in paying Medicaid providers or, in the case of California, rely on bank loans and IOUs, the Illinois backlog has been growing for three years. It's forcing some vendors to fire workers, cut services and, if they can, obtain loans and lines of credit to keep their businesses going while the state takes months to pay.

....
"Banks have refused us a line of credit because of the state," said David Baker, who runs the nonprofit Open Door Rehabilitation Center in Sandwich, Illinois, and is owed $880,000. "We've had a long-time relationship with bankers, but now they wonder 'What if the state never pays you?'"

These are people who are owed for current goods and services. And they are getting screwed. You think Illinois is going to pay late charges or interest owed? (This is learning the risk of having a single or a very large client.... you become beholden to them. Some do have the option of "firing" Illinois as a customer, and others really don't. Not in the short-term.)

So, public employees -- why do you expect to get paid 20 years from now?

I'm not seeing it.

Cross-posted to the Commune.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Q: Is Social Security an investment Ponzi scheme?
....
Before we can decide if Social Security's structure qualifies it as a Ponzi scheme, a quick definition is in order. A Ponzi scheme "is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors," according to the Securities and Exchange Commission.

Some investors think that the fact that Social Security pays existing investors with cash collected by new investors makes it a Ponzi scheme. But that's not true, says Jack Coffee, professor of law and securities law expert at Columbia Law School. "This is less a question and more an aggressive assertion," he says.

Social Security is not a Ponzi scheme because it wasn't an intentional fraud, he says. In fact, the system has worked as expected since its creation in the 1930s. What's happening now is that, like many corporate pension plans, Social Security is running the risk of being underfunded as obligations grow faster than contributions. But again, Social Security wasn't created with this aim, he says. "It was a system that was quite adequate for a long time," he says.

Actually, not all Ponzi Schemes are intentional frauds. Some pyramid schemes (the other term for the same essential thing) are run by people who do not understand the nature of true investment, as opposed to just moving money around from late entrants to early entrants. They may think they're doing God's work.

Which is the point: when it comes to money, people do not care that you had benign intentions if they get totally screwed over.

Because Social Security has never been a pre-funded plan, unlike public pensions (the Trust Fund is a lie - it's not pre-funding). Social Security is a pure transfer from working people to retirees (and others, but I'll ignore that for now). Fine, we have all sorts of cash transfers from one group to another in our government tax system -- the problem is these cashflows are unsupportable going forward, given that we have other things we want to do as well.

So one can quibble over what exact characterization we want to make, but 1. intentions mean little when the results are so disparate (this holds true for so many areas in politics. Education is a really obvious example.) 2. And the crisis is now (actually, it started last year), not when the fictional Trust Fund runs out.

Cross-posted to the Commune.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

On AARP's Policy Council, a group of volunteers who make policy recommendations to the AARP board, Mr. Rother faced intense opposition from members who see their role as protecting low-income seniors. He also faced resistance from the board.

His argument: Tax increases wouldn't be enough to make the program solvent. The leading proposal for raising taxes -- increasing the amount of income subject to payroll taxes, the central financing mechanism for the program -- would fill less than half the hole. Moreover, Republicans were not going to accept a plan that didn't include benefit cuts. The idea that both tax increases and benefit cuts were needed dovetailed closely with plans put forward by several separate commissions in Washington seeking to ease the U.S.'s long-term fiscal woes.

The shit must've hit the fan, because a different AARP official was putting out statements yesterday afternoon:

In a statement released this afternoon, AARP chief executive A. Barry Rand questioned the story's accuracy.

“Let me be clear — AARP is as committed as we've ever been to fighting to protect Social Security for today's seniors and strengthening it for future generations,” he said.

“Contrary to the misleading characterization in a recent media story,” he added. “AARP has not changed its position on Social Security.”

Mr. Rand noted that the organization is fighting proposals in Washington to trim Social Security in an attempt to shore up the nation's deficit. He stressed that “long-term solvency is the key to protecting and strengthening Social Security for all generations” and that AARP believed that any changes to the program would be phased in slowly and would not affect current or near-term beneficiaries.

A call to the AARP for further comment was not immediately returned.

A Wall Street Journal spokeswoman did not comment and the story was unchanged on the newspaper's website at press time.

Always on top of the news, the NYT pretty much reports the same stuff from yesterday:

Mr. Rother said the group’s stance on possible cuts, which was first reported in The Wall Street Journal in Friday’s editions, should be seen less as a major change in position than as a reflection of the political and financial realities facing the Social Security system and the country as a whole.

“You have to look at all the tradeoffs,” Mr. Rother said, “and what we’re trying to do is engage the American public in that debate.”

He made clear that the group’s willingness to discuss cuts comes with conditions: Reductions in benefits should be “minimal,” they should not affect current recipients and instead should be directed “far off in the future,” and they should be offset by increases in tax-generated revenue.

Nonetheless, the group’s openness to the possibility of unspecified cuts was seen as a significant development by people on all sides of the Social Security question because of AARP’s influence on federal policies affecting older Americans, including Medicare, prescription drugs and many more.
....
While AARP has not issued specific recommendations or figures on how benefit reductions might be carried out, the group’s recent discussions with its members signal support for using increased revenue to fill two-thirds of the projected gap, and benefits reductions for one-third, Mr. Rother said.

As word of AARP’s position set off debate in Washington on Friday, the group’s chief executive, Barry Rand, issued a formal statement saying that the group’s position had not changed in any substantive way and refuting what he described as “misleading” media reports.

“Let me be clear — AARP is as committed as we’ve ever been to fighting to protect Social Security for today’s seniors and strengthening it for future generations,” Mr. Rand said.

While he did not directly address the question of possible cuts in benefits in his statement, Mr. Rand said his group would be working to evaluate any proposed changes in Social Security “to determine how each might — individually or in different combinations — impact the lives of current and future retirees.”

Here is my take:

Notice that no specific benefit cuts are mentioned (or agreed to). At all. In form or amount. Or who would get hit.

I can think of all sorts of adjustments, and so has the American Academy of Actuaries. At one point, the Academy made a specific recommendation to increase the full retirement age for Social Security, but they also have no problem explaining the trade-offs of various reform choices (and how much it would likely help).

What I think is that some groups would like to be part of the Social Security reform discussion more than they prefer ideological purity. The AARP is one of those groups, I bet. I'm telling you right now that groups that are for absolutely no benefit formula changes are not going to be in the discussion. Also, those who are for privatization-only will not be in the discussion. This is just practical politics.

This is a dangerous place for the AARP to be, even vaguely, because while there are all sorts of benefit "cuts" that are less direct than others...and extremely technical (changing how the COLAs are done, making the benefit lower for higher income people, changing the wage indexing in the formula, etc. etc.), some group is going to get whacked. That's the whole point. It's possible to change the benefit formula and make it a skosh more generous for some groups, by the way, and it still work out ... but again, people will hear "benefit cuts" and get cheesed off.

Not my generation so much (yay Gen X, the perpetually screwed, we were never expecting much), but the Boomers and the other old folks.

Well, I don't think y'all are going to be setting cars on fire in the street, and the money has already run out. Forget the fictional Trust Fund - the SocSec cashflow is going the wrong way in terms of cash flows now, which means that yeah, current benefits will get cut in some manner, but I bet they'll use the various indirect means-testing methods to do it and maybe changing COLAs (some SocSec bennies are already taxable, and that's one area they can expand). So there will be benefit cuts, and if you want to be in the actual policy convo, you had best make noises that you're going to negotiate on what those will be.

Anyway the current story looks to me like an internal battle between Rand and Rother over the AARP messaging, and they should've gotten that straight before talking to the press. Even if they were in policy talks with Congress or the White House, they didn't need to go public with it yet. I guess we'll see if Rother is still there after next week, because that's some loose shit right there.

ADDITIONAL: Allahpundit posts on the issue for Hot Air.

ANOTHER PERSPECTIVE: Tom Blumer thinks the AARP may be doing this because of their dumbass move re: Obamacare (and prior blocking of SocSec reform) means they bled a hell of a lot of members who may not have agree with that policy. Guess what, guys? Maybe you would have done better to have stuck to the fricking discount programs and shut up about the politics! What an idea!

I think this is just going to alienate the people who are left in the membership.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

GREECE IS THE WORD

Dammit, will they just default already? I guess the German banks (and others) don't want to take the hit, but they're going to have to eventually.

I'm sorry, but the Greek populace doesn't seem to have digested the concept that they can't have hairdressers retiring at age 50 on someone else's dime. What are the supposed austerity measures the Greeks are up in arms about? Let's see: cutting down the public workforce, a slew of increased taxes, selling off state-owned properties/companies. I'd be curious what companies Greece still owns -- and for all I'm ragging on Greece, they had better be careful in selling off their stuff, because there's a prime opportunity for corruption and graft right there. And I would be cheesed off as a Greek citizen if the country didn't get the best possible price for those properties.

Interesting that it's Socialist parties in Europe having to do this.

And by "interesting", I mean "inevitable".

VDH, as someone familiar with both locales, makes the connections between Greece and California.

PROMISES, PROMISES

U.S. digs itself deeper into a hole with regards to financial promises for the future. I tell everybody not to worry about it: those promises will not be fulfilled. Don't you feel better already?

Iceland gives a counterexample to what might be a better way to go compared to Greece (and the U.S.).

HI HO HI HO IT'S OFF TO WORK WE GO

Get used to the idea of working til you die or are totally disabled.

Somebody else putting a positive spin on the whole matter of increasing lifespans. My own attitude is that it's easy for me who enjoys the work I do, but that many people do have difficulty finding fulfillment in their work and would rather just get it over with ASAP. To those people I say: save up.

For good reason, the main financial worry for Americans is their retirement funds, though, you know, if you were really concerned, you could save more. Just a thought.

Also, annuitize, dammit. But that's a story for a different day.

GENERAL PENSION ISSUES

Hey! Lookie here! A report from NCPERS (National Conference on Public Employee Retirement) saying everything is A-OKAY! If you think 76%-ish fundedness (under the current iffy methods of measuring fundedness) is A-OKAY.

But wait -- look at that "response rate": 17% of the plans that responded were state plans out of 215 respondents - which is about 36 or 37 plans . Now that may sound pretty good to you, but given that some states have more than one plan, this may be not that great a response rate. I rather bet none of the Illinois plans (there are 5 of them) responded.

Let's think of the selection bias here. What is the incentive for poorly-performing pension plans to participate in this survey? Hmm? Right.

And then look at what's reported - they talk about the percentage of active employees and annuitants - but there's a bunch of info missing: how many are close to retirement? And look how popular the 8% asset return assumption is (and given accounting standard, this is what they're using to discount their liability cash flows...)

Anyway, some public employees and retirees really don't have much to worry about. And some local governments really do have good fiscal governance. Way to go, guys! I'm not sarcastic there. Good governance should be recognized. But I can't tell it from this survey, sorry. Too many things can hide bad news...

Boo hoo: public employees have to contribute more to their pensions. Of course, all the money is really coming from the taxpayers, but the issue is that they're getting their total compensation cut.

The space program may be over, but the pensions just go on and on.

UNIONS

From Mish: Illinois unions consolidating power.

Wisconsin teachers unions ready to raise hell. Phrase that rubs me the wrong way: "devout Catholic Democrat". You know, I don't have any trouble with devout Catholics who are Democrats, but ugh on the phrasing. I'm not going to even start to unpack that one.

Considering the Wisconsin law re: public employee unions currently is upheld, could NJ follow Wisconsin's example in taking down the public unions? Hey, if that happens, maybe it's even possible in Illinois! What's St. Jude's direct line, again?

CALIFORNIA

Grand jury in San Rafael cheesed off by backdating of benefits. I find this whole "civil grand jury investigating city council behavior" type of oversight intriguing. This is the fourth such investigation - specifically on pension benefits in California - in the past 6 years.

While corrupt elected officials might get their pensions yanked, that's not necessarily true of non-elected officials.

News flash: people get pissed when money and power gets taken away from them.

Lesson from the California lifeguard story: public employees, stay out of the media if you can help it. Trying to keep your salaries under wraps is a lost cause for the most part, so your best bet is to try to have no one notice you at all. It helps not to have ridiculous-sounding work rules, pay, and benefits, by the way.

So there's this big ballot battle going on in San Fran, and all sorts of things have been popping up along the way. One: Social Security costs not necessarily factored in comparisons between proposals. Two: some rich guys are throwing shitloads of money at this.

GEORGIA

Atlanta pension reform, a kind of hybrid plan, gets out of finance committee. This has been a long slog.

ILLINOIS

When last we checked in with Illinois, they punted on reforming their pension system in favor of considering casinos as a revenue-booster. Now they're considering pimping out space on license plates. My, aren't they getting creative in avoiding dealing with their core issues.

Easiest pension reform proposal ever: no pensions for people who can vote on their own pensions. Obviously, one would need to make it a state constitutional amendment to keep the inevitable from occurring. Or have an electorate that's paying attention.

Of course, there's local tax money being used to lobby the state government to try to suck off state funds. This is an interesting parasitic situation.

Not exactly news: Cook County and Chicago pensions are in a sucky fundedness state.

A two-part analysis by Bill Zettler -- looking at what is "fair" to pay to part-time employees with partial careers - i.e., teachers, who work fewer hours than your usual full-time employee and then the other participants of the Illinois state pensions, who really don't do all that much work, either. Especially the politicians.

I'm still sitting around for a verdict in the Blagojevich trial, but in the meantime, Mark Kirk thinks Blago shouldn't get a pension, and a new law that would yank pensions from corrupt pols is being considered in Illinois.... and would do bupkis about Blago.

MICHIGAN

This is what you get for writing a complicated tax law. In trying to tax pension benefits, they tried to keep it "fair", in realizing that many of the pensions were of people who do not get Social Security benefits, and then they tried this complicated thing of carving out non-taxable bits, yadda yadda.... so now there's a constitutionality question on the table for Michigan's pension tax.

I've got a very modest proposal to fix the whole deal: dump all your tax code right now, Michigan, and implement something extremely simple. You're a state, so just implement some flat tax scheme. Don't worry about fairness. Just make the damn thing easy to figure out. And cut your frigging spending.

You're welcome.

Remember that active employee/retiree pie chart from the NCPERS report earlier? And why it's crap? Because it doesn't give info about the near-retired population:

Yeah, that's a hella scary graph, eh? [sorry to mix the regionalisms....] That's just general census figures, not public employees, btw. But that makes it scarier with the pension tax - that potential tax base may just up and move away to avoid said pension tax.

NEW HAMPSHIRE

Because of what has happened in NH, I've been thinking of not posting all these "so-and-so proposed this!", "reform gets out of committee!", etc. stories: NH gov vetoed pension reform bill. I've been reading stories for weeks about the negotiations going on, and =pfft= nixed.

Of course, there was that huge Illinois tease, but that was pretty much a foregone conclusion.

NEW JERSEY

John Bury has been carving apart the most recent proposed NJ pension changes. He notes that what's been put out there will do not much at all in keeping the money from running out, then he takes apart a local editorial which had some credulous authors.

Something may or may not be going on in NJ re: pension reform, but no matter what, the public employee unions there are pissed. John Bury grades the proposals in the bill -- and disaster still looms.

NEW MEXICO

Double-dipping law in NM teaches teachers that all is fair game when the state needs revenue.

NEW YORK

Cuomo proposes pension reform: for new hires. Dude, you're a couple years behind other states at this point. That's the easy step.

Pointing out that it may not be good optics to fire asset managers just because their politics differ from the politicians hiring them.

OHIO

Disgraced officials getting disability pension payouts. Hey, they had no shame when in office, you think they're going to have any compunction once they're being booted out? People tend to be rather consistent in their behavior as adults.

PENNSYLVANIA

Talk about slow on the uptake: Philly is just now getting around to considering altering their DROP benefit....by making it a skosh less generous. Wake me up when you actually consider dropping the damn thing.

A LITTLE WEINER

Others may have dropped the Weiner, but POWIP has no shame -- and there's a public pension connection. Though lil Tony has been in Congress since only 1999, he'd be eligible for a federal pension. The earliest he could get that is in 10 years -- so he'd still need to figure out something to do til then...good luck with that. And he'd better hope for no hyperinflation between now and then.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

We, the people, in the form of our various governments, have been making a variety of promises with dollar signs attached... where said dollars would be paid in the future.

We do not have the money to cover those promises, as they are currently constituted. You can get into the squiggly details of discount rates, "bending the cost curve", death panels, soaking the rich, and whatnot, but the bottomline is that the demographics are not favorable and when the demographics were favorable and the promises were made, not enough money was not set aside to fulfill the promises:

The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.
....
The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That's more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Now, I agree that these promises will not bankrupt the U.S. -- because they likely will not be fulfilled. And this is going to hit with the Boomers, because they are much too big a demographic bulge with too few to follow.

So I'm not particularly worried about things as my expectations are low to begin with. Unsustainable stuff will not be sustained.

But you know, some people may get cheesed off when they don't get 100% of what they expected.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.