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Federal Election Commission “Dark Money” Search Could Hurt Nonprofits

(This article was published by the Georgia Center for Opportunity.)

MIKE KLEIN

MIKE KLEIN

While voters fixate on an election next week that could change Washington’s balance of power, some also are looking ahead to next year’s Federal Election Commission agenda that will include an effort by incoming chair Ann Ravel to overhaul campaign finance disclosure law. Ravel has established her target-of-choice: corporate political action committees and super PAC expenditures after a 2010 U.S. Supreme Court opinion that ended independent spending limits.

Thousands of non-profit groups could become caught in a tidal wave of proposed changes that might impact how local, state and national organizations can advocate for children’s welfare, education, health care and virtually any other policy. The concept of the “anonymous donor” who makes community projects and thinking happen could be derailed without considerable care to protect the rights individuals have to use their personal money as they desire.

“Dark money” is the pejorative term opponents created to talk about corporate political action committee and super PAC spending. Ravel speaks openly about “problems we have with these dark money groups” and her view that “people are getting disgusted about what’s happening.” She says, “Polls have shown that elected officials are primarily serving their large contributors and not their constituents. That view is held equally by Republicans and Democrats.”

The FEC vice chair was at Emory University in Atlanta last week on the final leg of a three-city swing described as a listening tour to gather public input before her 2015 planned initiative. Other stops were Denver in early October and the University of Chicago’s new Institute of Politics that was founded by President Barack Obama’s political operative David Axelrod. Obama appointed Ravel to the six-member Federal Election Commission in October 2013. The FEC has three Republican and three Democratic commissioners. Ravel becomes chair in 2015.

The 1971 Federal Election Campaign Act is the cornerstone of U.S. election law. Perhaps more appropriately, it has become at least a time capsule and perhaps even a tomb as the FECA has not been amended since 1979. Changes to national election finance laws have mainly occurred because of FEC rules and regulations or because federal courts decided various questions brought over three and one-half decades.

In 2010 the U.S. Supreme Court (Citizens United vs. FEC) struck down limits on independent campaign spending by corporations and unions. It opened the door to spending by non-profit groups to support or oppose a candidate without having to disclose donors who could be individuals or other entities including corporations. The Center for Competitive Politics says that spending accounted for $311 million of the $7.3 billion spent in the 2012 election cycle.

Georgia State University law school professor Anne Tucker cited higher numbers when she joined Ravel onstage in Atlanta. Tucker said corporate political action committees spent $360 million in the 2012 election cycle and she said super PAC funds accounted for another $75 million. Tucker said 1,220 super PACs that do not disclose their donors raised over $520 million for the 2014 midterm elections. Tucker like Ravel supports the expansion of disclosure.

Thursday evening’s Emory event was far from a balanced discussion. Twenty-eight speakers approached the microphone and nearly all said the same thing: Someone must stop the inflow of corporate and other big money into politics. “I tell people your vote is your voice but I recently have come to believe that I am wrong. Sadly today your dollar is your voice,” said Robin Collins. “We argue that corporate spending in elections should not be equated to the First Amendment rights of individual citizens,” said Cindy Strickland. Another speaker noted she was “invited to this and also reminded” to attend.

Context is often lost where passion prevails. There was important context from William Loughery who knows of what he speaks. Now living in Georgia, the soft-spoken Loughery is a former chief of staff to United States Senator Arlen Specter, a former FEC staffer and he participated in writing the 1971 Federal Election Campaign Act which as noted above has not been amended in thirty-five years.

“When we wrote the Federal Election Campaign Act there never was any enforcement so why would anyone waste time on independent expenditures,” said Loughery. “The fundamental problem is nobody wants to change the law, nobody wants to make a significant radical change to update it because basically, the whole process would be captive of the current members of Congress and even the members of the Commission are basically captives of Congress. Technology has changed, a lot of other things have changed and there’s nothing being done to update the law.”

Battle plans have specific objectives but battles produce collateral damage. Non-profit groups that focus entirely on policies could become swept up in a federal election campaign law disclosure reform movement. As a young Emory student told the panel, “You have to look for the unintended consequences and protect individual rights, freedom of speech and the legitimacy of our democracy. That’s not an easy task.”

(Mike Klein is a journalist and media executive who has held leadership positions with the Georgia Public Policy Foundation, Georgia Public Broadcasting and CNN where he was Vice President of News Production. Learn more about Mike at LinkedIn.)

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October 30, 2014 Posted by | Uncategorized | , , , , , , , , , , | Leave a comment

Do Public Sector Pensions Teeter on the Edge of Financial Collapse?

Mike Klein

What do you know about your pension plan?  Is it defined benefit, defined contribution or some hybrid version?  Does your employer match your contribution?  Is it portable, meaning you take it along when you change jobs?  Who makes the investment choices?  How much do you have in bonds, equities and cash?  What about the municipal bond market downturn; did that cause a volcano inside your pension plan?  Do you even understand how to read the statement?

Most people are not financial wizards but today almost everyone is more personally responsible than earlier generations for knowing something about retirement and pension plans because the good old days of guaranteed lifetime income have come and gone in nearly all professions.

“At the base level, we know there’s fiscal illusion.  That is, people don’t even understand how much they are paying in taxes,” said Georgia State University professor Bart Hildreth.  And when it comes to understanding pension plans, “Most of them could not tell you what they expect to get out of a defined benefit plan.  They know it’s some share of their current salary.”

Georgia State’s Andrew Young School of Policy Studies recently gathered public sector pension and financial analysts for a daylong conference that sought to put some clarity under scary headlines that all pension plans are either insolvent now or they will become insolvent soon.

“There are systems out there; they shouldn’t panic but they should worry,” said Segal Company vice president Leon (Rocky) Joyner.  “They should worry because they have gotten themselves into a mess.”  Segal has managed private, non-profit and public sector accounts for 70 years.  Joyner said pensions are 4 percent of state spending.  “That’s not exactly bankrupting the budget.”

Mercer University economist Roger Tutterow offered this somewhat different long range view: “It is probably time in the public sector to have a candid discussion and indicate to employees that the ability to fund the post-retirement contributions, such as health care going forward, we probably will have to talk about how we restructure that.”

How Bad Is the Pension Problem?

Leon (Rocky) Joyner, The Segal Company

“We get lots of quote information on the media outlets,” Joyner said.  “Some of it is true.”

This spring a Pew Center on the States analysis said state pension and health care retirement accounts are at least $1.26 trillion underfunded.  Deeper into the analysis Pew said the real figure might be much larger, perhaps $1.8 to $2.4 trillion if investments do not earn 8% annually.

A  Congressional Budget Office report published last month estimated current state employee pension fund and health care liabilities at between $700 billion and $3 trillion.  The reason for the vast range is because actuaries use different methods to predict investment returns.  The CBO said, “By any measure, nearly all state and local pension plans are underfunded.”

That includes Georgia.  The Pew Center ranked Georgia among the 2009 calendar year’s best performers because the state pension system was 87% funded vs. liabilities and the state made its 100% ARC – annual required contribution.  But not so the health care obligation, just 4% funded, and Pew said Georgia made just 30% of the annual required health care contribution.

A Mercatus Center study published last December said “governments have set too little aside to fund future benefits; pension portfolios have shifted toward riskier assets in order to discount their liabilities at higher interest rates; and, basing the discount rate on expected asset returns gives plans the illusory appearance of full funding in years when investment returns are robust.”\

Roger Tutterow, Mercer University

Writing in March, the fiscally conservative policy group State Budget Solutions said, “One of the most insidious aspects of pension liability is its stealth nature. Pension obligations don’t appear on state balance sheets.  As such, states with billions in unfunded pension liabilities may technically brag of ‘balanced’ budgets while being swamped by pension debt.”

Colorado faced the possibility of state bankruptcy within 15 years before it enacted reforms last year.  “They changed and lowered the benefit for people who were already drawing a pension,” said Joyner of the Segal Company.  “Is that going to stand in the court system?  It’s my understanding that as soon as the governor signed the papers the lawsuit was filed.”

Do public sector employees understand their plans?  “As a general rule, I believe not and I think that’s a fault of our industry,” said Steve Vaughn, who manages 250 public sector plans for the Association County Commissioners of Georgia.  “Once you begin telling them the differences (between plans) and the contribution levels that it’s going to take, it becomes a culture shock.”

Boring Pension Plans Became Real Headline Makers

Not long ago you would be hard-pressed to find traditional news media covered up with pension plan stories.  “Retirement stories” were about fun and travel and the good life.  Today pension stories are major headline makers as public sector employees from Utah to Wisconsin to New Jersey and Georgia engage in often volatile debate about benefits and rights.  Atlanta Mayor Kasim Reed made reform a priority because pension benefits are 20% of the city budget.

Steve Vaughn, Association County Commissioners of Georga

The Georgia state government employees plan was reworked three years ago.  New state hires no longer qualify for exclusive defined benefits retirement compensation.  Now they participate in a hybrid model that includes a small defined benefit and a 401(K) option that enables them to decide how much they will save and then manage their own assets.  Georgia actually administers several public sector plans tied to an employee’s hiring date.

“What they have done is they have spread the risk of retirement more between employer and employee and less of it being on the employer,” the Segal Company’s Joyner said about the Georgia’s three-year-old state employees plan.  “I would argue they’ve done a pretty good job.”  New state employees still receive a match, but they cannot plan on a defined monthly benefit.

Corporate and public sector defined benefit plans were built on the premise there would always be money coming into the system to satisfy the obligations.  That worked well in private industry when there were few retirees, lots of growth and profit and strong investment returns which all were true over the past 65 years while America was unchallenged as the world’s best economy.

Public sector plans were financially strong because economic expansion fueled rapid increases in government revenue.  Americans bought lots of things including houses; they paid lots of sales, income and property taxes and U.S. stock markets clicked along at an 8.8% annual gain, allowing for booms and downturns.  Local and state governments satisfied enormous appetites to spend more money by selling bonds, incurring debt to be paid off in later years.

Bart Hildreth, Andrew Young School of Policy Studies

It looked for all the world like the perfect scheme (like Social Security).  The contraction of the U.S. economy ten years ago was a warning light for the worst recession since the Great Depression.  The 2008 downward spiral caused radical declines to government revenues, including in Georgia.

States like Georgia that must balance budgets created “balance” with federal stimulus dollars – more than $3 billion in Georgia since fiscal 2009 — and by draining their savings.  Georgia’s $1.7 billion shortfall reserve in fiscal 2007 dipped below $200 million in fiscal 2010.  The state is under significant pressure to rebuild the reserve fund or see its AAA bond ratings downgraded.

“We have been through downturns before and governments have weathered them pretty well,” said Tutterow, the Mercer University economist who served on last year’s Georgia tax reform special council.  “But we have not been through one in which the job loss and the implications for sales tax collections were as pronounced as they were in this recession.”

The Role of Investment Return Predictions

Pension plan fiscal health is very tied to the financial markets.  There’s no getting around that.

Three months ago the U.S. Census Bureau published data that tracked securities and all other financial instruments held by large public retirement systems during six years ending in 2010.   The systems owned $2.92 trillion in assets in December 2007.  Fifteen months later assets were $2.1 trillion, down almost one-third.  They recovered to $2.63 trillion at the end of last year.

Last month the Center for Retirement Research at Boston College reported that state and local government pension plans were just 77% fully funded when 2010 ended, down from 103% funded in the year 2000.  Reduced investment earnings, increased long-term obligations and the inability of some states to fully fund required annual contributions were among the factors.

The Segal Company’s Joyner told the Andrew Young Policy School conference that pension funds have returned 8.8% annually for 25 years.  “We can ask the question, because of 2008, have the dynamics changed?  Is there something we should look at?  The answer is yes, we should always be looking… but to say 8.8% is unrealistic… is a little fanciful,” Joyner said.

Degas Wright, Decatur Capital Management

Degas Wright respectfully disagrees:  “The key question is should we be using that historical picture going forward and I would say, probably not.”  Wright is a U.S. Military Academy trained mathematician, also owner and chief executive officer of Decatur Capital Management.

Wright’s illustration: A pension plan that holds a 60/40 equities/bonds split would need to earn 11 percent annually in equities to post an 8 percent overall gain if the bonds earned 4 percent.  He thinks that equity earnings percentage cannot be sustained.  The Mercatus Center would appear to agree with Wright; Mercatus says pension plan earnings estimates should be tied to U.S. Treasury bond returns, which currently earn 4 percent.  Georgia estimates 7.5 percent.

Wright also noted that pension plans were heavy on bonds several decades ago but now they are primarily heavy on equities.  The Standard and Poor’s 500 Index that tracks 75% of all U.S. equities returned 3.32 percent during the five-year period that ended May 31.  The 10-year tracking return is even lower at 1.99 percent through Friday June 10.

Pension Reforms Will Play Out Over Decades

This April the National Conference of State Legislatures said 21 states enacted pension plan reforms last year.  Most states adjusted existing defined benefit plans.  Utah became the first state to adopt a full defined contribution plan for public sector employees since Alaska in 2005.  Michigan created a hybrid with elements of defined benefit and contribution plans.

States will continue to owe defined pension benefits for several decades.  Defined benefits are owed to millions of retirees who receive benefits now, and millions who will receive them later.  New public sector employees in defined contribution or hybrid plans will not retire for decades.  That is why states and local governments must remain pro-active with their benefit plans.

“You’ve got to ask some basic questions about what you are trying to accomplish,” said Steve Vaughn of the Association County Commissioners of Georgia.  “What do you think is the right blend of cost-sharing?  What do you think is the right blend of risk sharing?  Most of the time, I find policy makers haven’t thought about those issues.”

For the final word we return to Leon Joyner of the Segal Company:  “As a society we are going through a fairly significant change to our mindset.  This includes how long we work, how long we live, how much longer we should work because we live longer, how much any pension plan should replace.  The big issue is not financing these programs.  It is financing the whole entity government.”

(Mike Klein is Editor at the Georgia Public Policy Foundation)

June 13, 2011 Posted by | Uncategorized | , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Georgia Will Ban Illegal Immigrants From Some But Not All Universities

The University System of Georgia Board of Regents will no longer allow illegal immigrant students to attend state universities and colleges that have full enrollment.  On Wednesday the Board adopted several new policies to address illegal immigrant student population, but it also said the undocumented student population is small, just a few hundred students.

Georgia made national news this past spring when a Kennesaw State University student who had been in the country since childhood was arrested and turned over to federal authorities for deportation to Mexico. Jessica Colotl was taken into custody after a routine traffic stop. KSU, friends and numerous organizations fought for and eventually gained her temporary release.

Colotl’s high-profile story raised immediate questions about how many undocumented students are enrolled in state university system schools, whether they take classroom seats away from academically qualified citizens and whether they pay in-state or out-of-state tuition.

A study committee report approved by the state Board of Regents on Wednesday identified 501 undocumented students among more than 310,000 total registered students at USG institutions. All pay out-of-state tuition which the University System said is actually higher than real costs.

A statement from the Regents noted, “The University System follows current federal and state laws, which allows for undocumented individuals to be enrolled, if academically qualified.”

New regulations that become effective next fall will reduce access illegal immigrant students have to the University of Georgia, Georgia Institute of Technology, Georgia State University, Medical College of Georgia and Georgia College and State University.  Those schools have full enrollments.

State universities and colleges also will be required to verify the “lawful presence” of each applicant; legal penalties could be imposed on applicants who knowingly provide false application information; and, illegal immigrant students will be required to always pay out-of-state tuition rates.

Colotl’s Facebook profile says, “Jessica Colotl, 21, is a senior at Kennesaw State University, a political science major who is now facing deportation because she came to America illegally when she was a child.”  Kennesaw State’s university relations office said it was unable to confirm that Colotl is enrolled.

Mike Klein is Editor at the Georgia Public Policy Foundation.

October 13, 2010 Posted by | Uncategorized | , , , , , , , , , | Leave a comment

Can Georgia Learn from Texas Prison System Reforms?

This article was written for and published by the Georgia Public Policy Foundation.

Each day across Georgia, the state Department of Corrections feeds a population that is nearly equal to the number of residents living in Marietta.  It takes thousands of pounds of food to feed nearly 60,000 adult prisoners.  Paying for the state’s corrections system with its 31 state prisons costs taxpayers $1 billion per year, including the cost to manage 150,000 parolees.

This month the PEW Center on the States reported the first year-to-year drop in state prison population since 1972.   The percentage rate began to decline in 2007, but real numbers did not decline until last year.  Unfortunately, not in Georgia which posted the sixth largest percentage increase in the nation, a 1.6% growth rate, and in real numbers, the Georgia prison population grew by 843 adult felons. Continue reading

April 21, 2010 Posted by | Uncategorized | , , , , , , , , , | Leave a comment