Mike Klein Online

The Unique Challenge of Georgia Juvenile Repeat Crime

Mike Klein

The devil is always in the details and sometimes details are like trying to put lipstick on a pig.  The recidivism rate for Georgia juveniles is a case in point.

One-in-two juveniles leave the system and do not return within three years.  But one-in-two are back within three years, usually because of a new crime, violation of a court order or a probation offense.  There is a cash cost for that level of failure and there also is a human cost.

When the Special Council on Criminal Justice Reform convened this summer it heard primarily generalities about juvenile justice from expert analysts.  When the Council met this week it was taken into the weeds, deeper into data, and some members had their eyes opened a bit wider.

“The question is what do we do from here and how do we improve the recidivism rate,” said Hall County Superior Court Judge Jason Deal.  “The recidivism rate is around 50 percent and that’s not acceptable.”  State Rep. Mary Margaret Oliver described the one-in-two recidivism rate as “very scary” and Douglas County District Attorney David McDade asked, “Are we spending our dollars in a way that protects public safety?  That’s the whole driver for me.”

Powered by literally dozens of power points, Pew Center on the States public safety performance project analysts dove deep into violent and property crime data; the ages, gender and ethnicity data for juvenile offenders; the relationships between status, misdemeanor and felony crimes committed by juveniles; long-and-short term incarceration trends; system cash costs and how the state conducts risk assessment.

All states do not compile and report exactly the same juvenile data and for that reason Pew did not compare Georgia against any other state.   “What we can say for this data is the recidivism rate here in Georgia is not getting better,” said Pew Center policy analyst Jason Newman.

Pew’s Newman, Ellen McCann and their team analyzed ten years of records from the Georgia Bureau of Investigation, the Department of Juvenile Justice and the Conference of Juvenile Court Justices. In several categories they benchmarked June 30 in 2002 and 2011 to create valid comparisons.

The analysis was challenging because 20 percent of juveniles on probation are from Georgia counties that operate their own juvenile court and probation systems and do not report data to the state.  “Tracking that information was difficult at best,” said McCann.

Among the key findings:  Georgia juveniles detained in state facilities on June 30 in the two benchmark years (2002 and 2011) declined by about 1,000 to 1,917 last year but that is not because of reduced criminal activity.

Policy changes in 2005 and 2009 reduced the maximum time juveniles can be detained in some secure facilities and budget cuts that reduced bed space is also a factor.  ”I’m really interested in what the lack of bed space has done,” said state Rep. Oliver.

Juvenile felony and misdemeanor arrests for violent or property crimes declined from about 12,000 four years ago to about 9,000 last year but that represents no real improvement since 2002.  “Youth arrests are down recently but the trends overall are staying flat,” McCann said.

The majority detained in state custody are African-American; 69 percent in state facilities and 58 percent in community settings.  The average youth who enters the juvenile justice system is 15 years old and youths who are designated felons remain in state custody or supervision for four years.  Males are 84 percent of the population in secure facilities and 72 percent in community settings.

Juveniles processed for felonies increased 19 percent and youths 17 years old or younger charged with misdemeanors increased 18 percent between 2002 and 2011.  There was a decline by about half in status cases.  Status offenses are any incidents that would not be considered a crime if the offender was an adult.

Georgia will spend $300 million this fiscal year on juvenile justice incarceration and supervision.  About 41,000 juveniles per year enter the system.  The daily headcount is about 16,000 total in secure confinement and community settings.  It costs about $250 per day for juveniles in custody.

There will be a definite Special Council focus this fall on who should to be detained in a secure facility.  Pew said 40 percent of youths in secure facilities are low-risk to re-offend.   Last year the Council recommended alternative treatment programs rather than time in state penitentiaries for low-risk adults.

“The real question becomes can we be more efficient, keeping public safety in mind, dealing with these folks in a less expensive manner?” said Georgia Court of Appeals Judge Michael Boggs.

The next Council meeting will be at 9:30am Tuesday, September 18 in room 506 of the Paul Coverdell Legislative Office Building.   The Council owes its recommendations to Governor Nathan Deal and legislative leaders before the end of the calendar year.

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

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September 7, 2012 Posted by | Uncategorized | , , , , | Leave a comment

Did Longer Time Served Reduce Crime or Just Cost Money?

Mike Klein

During the past five years there has been extensive discussion in Georgia and nationally about the relationship between prison costs and public safety. Texas and Kansas were the earliest states to enact reforms in 2007.  Then the recession hit, inmate counts were viewed as budget busters and other states jumped aboard the reform wagon.  Georgia passed significant new law this year and is in the earliest stages of implementation that will take years to evaluate.

Most analysis here and nationally focused on the growth in state inmate populations during the past two decades.  That is because politically popular 1990s do-the-crime, do-the-time policies were enacted with faith in the idea that longer time served by bad people would reduce crime.

New research this month from the Pew Center on the States Public Safety Performance Project has concluded, “Experts differ on precise figures, but they generally conclude that the increased use of incarceration accounted for one-quarter to one-third of the crime drop in the 1990s.”  States individually have to decide their own balance between some improvement and $10.4 billion in extra cost to state corrections systems.

What we know today – and it took almost two decades to figure this out – is a lot of people sent to prison were non-violent personal drug users who posed little threat to anyone else, or they were sick and needed medical help more than prison time. More states now understand they must decide whether drugs are a crime or an illness.

When you look closer at national data, inmate populations have sharply accelerated for longer than 30 years.  The country had 320,000 state prisoners in 1980, about 740,000 in 1990 and that more than doubled to 1.543 million over the next 20 years ending in 2010, according to federal Bureau of Justice Statistics data.

You can go back farther and create an intriguing 1925 to 2010 comparison.  Back in the middle of the Roaring 20’s the country had fewer than 92,000 state prisoners and a population of 115 million.  If state prisoner and national populations had grown at identical percentage rates today we would have 1.945 billion people in the country.  We are very good at locking up people.

Pew’s new report “Time Served: The High Cost, Low Return of Longer Prison Terms” studied data from 35 states including Georgia.  Pew said time served by inmates released in 2009 was 36% longer than inmates released in 1990.   Longer time served had huge financial impacts on state budgets.  Pew says the extra cost in Georgia was $536 million.  You can see their calculations here.

Adam Gelb, Director, Pew Public Safety Performance Project

“It certainly is understandable that penalties are raised when society or policy makers don’t feel penalties reflect the seriousness of the offense,” said Adam Gelb, director of the Pew Public Safety Performance Project. “But most often that’s not been the driving factor.  It was a sense that stiffer penalties would be effective at reducing those crimes.”

Average time served for all crimes increased most in Florida, up 166% compared to the 35-state average of 36%.  Georgia was up 75% (sixth highest among 35 states) and North Carolina up 86% (third highest). In time served for violent crimes, Florida was up 137%, North Carolina up 55% (tied for sixth highest) and Georgia up 41% (11th highest) against a 37% average increase.

Drug sentence strategies and time served are an extreme conversation.  At one end you have personal users.  At the other end you have traffickers and manufacturers.  Pew compared time served by the most serious offenders.  Florida sentences were up 194%, Georgia was up 85% (fifth highest) and North Carolina up 38% (17th highest).  Drug sentences served in Tennessee actually decreased by 9% during the twenty-year cycle.

Florida time served for property crimes grew by 181%, again the largest increase.  Georgia was fifth highest at 68%.  North Carolina’s increase was 20% and Tennessee sentences were 45% shorter.

Gelb said Pew’s research “reinforces the notion that state policy choices determine or drive the size and cost of state prison populations, not so much crime rates or broad demographic trends.  These numbers go up or down based on how policy makers respond to situations rather than forces that are largely out of their control.”

The Department of Corrections says Georgia had 54,373 inmates on June 8 this year; that is up from 52,478 last year.  Governor Nathan Deal signed a criminal justice reform law last month that emphasizes alternatives to incarceration for non-violent offenders.

Georgia prisons cost $1 billion a year; probation and parole services add another $400 million.  Alternative court programs for mental health and some but not all drug offenders and other changes are predicted to save the state $264 million over the next four years.  The belief is these changes can be made without compromising public safety.

Georgia criminal justice reform will extend beyond implementation of this year’s new law.  The state Special Council on Criminal Justice Reform will reconvene this summer. Governor Deal has said the council will be asked for juvenile justice and code recommendations that could result in the state’s first comprehensive rewrite of those laws in several decades.

Pew analyzed National Corrections Reporting Program data voluntarily submitted by the states and verified by the U.S. Census Bureau and the Bureau of Justice Statistics.  Click here to read the Pew summary.  Click here to read state fact sheets.

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

June 18, 2012 Posted by | Uncategorized | , , , , , , , | Leave a comment

Long Awaited Criminal Justice Reform Bill Expected This Week

Mike Klein

Georgia’s criminal justice reform initiative has flown stealth-like under the radar since November when a special council delivered its report.  That will change soon, perhaps this week, with the introduction of legislation that will propose the greatest change since get tough policies enacted in the 1980’s and 90’s caused the Georgia prison population to swell beyond its walls.

What you should expect from legislation – we are hearing it could be almost 100 pages long – was the focus of an American Legislative Exchange Council criminal justice reform panel held last week in Atlanta.  “Eighty million dollars to build one prison in Georgia – that is the cost of bricks and mortar, not the cost of staffing,” said Georgia Court of Appeals Judge Michael Boggs.

“This may have come about as the result of a fiscal crisis in this nation and in this state.  Maybe that’s why we got where we got, because we recognize we don’t have the money,” said Boggs, who serves on the state special council.  “But at the end of the day, these are laudable goals.”

The goals to which Boggs referred are primarily these: Slow down exponential growth in the state prison population, treat rather than incarcerate people who have addiction issues but not criminal issues, do both in such a way that public safety is not threatened, reinvest dollars that are currently going into prisons into treatment programs, and then continually re-evaluate it.

(Click here to review the Special Council on Criminal Justice Reform report.)

Criminal justice system reform has become one of the better examples of national political bi-partisanship as states realize budgets can no longer accommodate ever expanding corrections costs. Georgia’s annual expense has swollen from $500 million per year to $1.1 billion in 20 years.  Almost 20 states have enacted or are currently considering substantial reforms.

ALEC, the Pew Center on the States, the National Conference of State Legislatures and other public policy organizations are all focused intently on criminal justice.  Last week the Georgia Public Policy Foundation published a state-focused issues analysis that is available online.

Criminal justice reform has its own rock stars – Texas Republican state Rep. Jerry Madden and his Democratic counterpart Sen. John Whitmire.  Starting five years ago they put conventional partisan politics aside to craft a new corrections model that enabled Texas to slow down prison population growth and reduce anticipated state outlays by hundreds of millions of dollars.

ALEC brought Madden to Atlanta – one of several visits he has made since last year to confer with state legislators, the judicial branch and others who are designing Georgia justice reform.

“How many of you would rather spend money on things like schools and highways or tax reduction or something other than spending it on building prisons?” Madden said.  “It is easier for a Red State to do this than a Blue State.  It’s easier because nobody thinks Georgia is soft on crime.  I don’t believe it and nationally nobody is going to believe it.” (Madden discussed criminal justice reform at the 2010 Public Policy Foundation legislative briefing conference.)

Georgia’s prison population – less than 30,000 twenty years ago – is anticipated to reach at least 60,000 within five years if nothing about the state criminal justice system changes.  Prison system expense is the second fastest growing segment of the state budget behind Medicaid.  “This is sucking up a lot of our money,” state Sen. Bill Cowsert told the ALEC gathering.

Two popular get-tough ideas are being challenged; A) Do the time, do the crime, and; B) Lock them up, throw away the key.  That is because another idea – you can rehabilitate almost anyone by having them do time – has proven wrong.  “They don’t learn their lesson,” Cowsert said. “It is not working to just lock them up and throw away the key for a certain length of time.”

Georgia has a 30 percent recidivism rate – almost one-third of released inmates return to prison within three years of their release date.  Or to consider that from another angle, our $1.1 billion annual corrections investment has a 30 percent failure rate.  Recidivism rates are lower – between 7 and 13 percent – when approved offenders participate in accountability courts that are most often used with personal drug use offenders who are not considered a threat.

“We all know you don’t throw water on a grease fire,” Rep Jay Neal told the ALEC audience.   “Now we know you don’t throw the addict into prison and think you’re going to correct behavior.”  Mandatory treatment combined with very strict – sometimes electronic — monitoring and drug testing are possible options with incarceration still on the table for noncompliant offenders.

Georgia currently has just 33 accountability courts; one reason is because public and private sector treatment options are insufficient.  “You can’t have a felony post-adjudication drug court without having treatment options,” said Judge Boggs.  “In rural Georgia, that’s hard to come by.”

The state also has just 13 day reporting centers capable of serving about 200 people each.

Governor Nathan Deal’s criminal justice reform cards are on the table in his proposed budget: $35.2 million for additional prison beds, $10 million for accountability courts expansion, $5.7 million to convert three pre-release centers to residential substance abuse treatment centers and $1.4 million to fund additional parole officers.

Much greater use of parole is another idea whose time might have come.  Georgia has 22,000 on parole, dramatically fewer than its 156,000 on probation population.  Mandatory sentences that must be fully served are the reason for the disparity.  But in the wake of do the crime, do the time sentencing inmates have been routinely released without post-prison support.

“We lock them up with criminals and when they get out five years later they’re still addicted, except now they have a felony on their record which makes it more difficult for them,” Neal said, “and they spend the last five years in graduate school learning how to be a true criminal, and they weren’t a criminal when we sent them there.  Then we wonder why the recidivism rate continues to be a problem.”

Neal said slightly reducing some prison sentences and combining that with mandatory parole would be preferable to simply releasing inmates into the community “with no guidance, no direction, no accountability, no supervision, you’re just turned loose.”

The special council on criminal justice reform worked for six months. “Criminal justice reform is not a one-time fix in this session of the General Assembly,” Judge Boggs acknowledged.  “It is an ongoing process.”  In fact, Governor Deal kept the council intact for further unspecified work ahead.

“It’s probably not going to be a package where everybody is going to say I like everything in here,” state Rep. Neal said.  “We have to be careful that we don’t let individuals who don’t like one piece convince us that because of that one piece it’s not a good package.”

“The last thing we want to do is be light or easy on crime,” state Sen. Cowsert said. “We have to keep public safety as our top priority.  We want to lower the crime rate in the process and we want to do this in a fiscally responsible manner.”

(Mike Klein will moderate a criminal justice reform conversation on Saturday, February 25 at the Georgia Bar Media and Judiciary Conference in Atlanta.  Panelists include state Supreme Court Chief Justice Carol Hunstein, state Rep. Wendell Willard and Douglas County District Attorney David McDade.)

February 20, 2012 Posted by | Uncategorized | , , , , , , | Leave a comment

Waiting for Georgia Corrections Reform Recommendations …

Mike Klein

Sometime soon – maybe this week – Georgians will get their first glimpse at adult corrections reform ideas that are essential to restore fiscal sanity to runaway costs, maintain appropriate punishment for the crime and do both without sacrificing public safety.  That’s a tall order.

A special council on criminal justice reform report that was due to Governor Nathan Deal on November 1st is still not public two weeks later.  The date is less important than whether the council report contains recommendations that can be embraced by legislators during an election year.  No one wants to campaign on the slogan, “I’m Soft on Crime!”

Political considerations aside, corrections reform must succeed.  Failure is not an option.

Georgians have not forgotten the special council on tax reform.  It was much heralded last year when council members traveled the state to conduct hearings that were attended by hundreds.  Then in December 2010 the council delivered a thorough analysis laden with recommendations.  Tax reform became road kill in April when doubts persisted about its financial impact.  Less grand tax reform is possible when legislators return in January.

The special council on corrections reform has worked much more quietly for six months.  Three senators, three representatives, judiciary members including Supreme Court Chief Justice Carol Hunstein, other appointees with legal discipline backgrounds and extensive staff have received counsel from the Pew Center on the States Public Safety Performance Project which has similar initiatives in 15 states.

Their task is complex:  Redesign the components of an adult corrections system that includes the judiciary, state prisons for men and women, adult parole and adult probation.  Georgia would like to shed an unfavorable distinction:  It has a higher percentage of adults in prison, on parole or on probation than any other state in the nation.  One-in-13 adults can find their names somewhere in the corrections system.

Financially, the state corrections budget to incarcerate some 55,000 inmates is about $1 billion per year and it is the second fastest growing state expense behind Medicaid.  Adult, juvenile justice and parole state expenditures are some $1.5 billion per year.

Georgia’s incarcerated population has grown 30 percent since 2000.  Adult prisons were at 107 percent capacity in September.  Three thousand inmates are in local jails because state prisons have no available beds.  The Atlanta Journal-Constitution recently reported federal immigration authorities might deport up to 1,250 inmates who are now held in state prisons.

One-in-four Georgia adults that entered the prison system last year was admitted for mental health reasons; there is a movement nationwide to treat these individuals in other settings.

Here are a few areas to consider when the council report is released:  Does it recommend dramatic changes in sentencing options for non-violent offenders?   Will the council push for the expansion of drug courts for addicted users who need professional treatment instead of jail time?   Will it address changes for how to monitor 210,000 Georgians sentenced to probation?  Will there be new ideas to slow explosive health care costs for elderly inmates?

Will there be a recommendation to provide judges with more overall sentencing discretion so they are not bound to inflexible mandates?  Will adult probation and parole be more closely coordinated to avoid duplication of time and expense?  Will the state embrace electronic reporting for non-violent, eligible parolees rather than require case worker visits?  Will the state take steps to reduce the number of state prisoners who are being held in local jails?

These issues are every bit as complex as tax reform and no less critical to our future.

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

November 15, 2011 Posted by | Uncategorized | , , , , , | Leave a comment

Georgia Has Good Reason to Be Wary of Washington Super Committee

Mike Klein

News generally breaks down into two kinds: good and bad.  The good news on Tuesday was the United States of America did not default on its financial obligations, although a Chinese credit rating agency was unimpressed and downgraded U.S. debt anyhow.

The bad news is states will almost certainly feel like they got a sucker punch come the holidays.  There is almost no way that states and cities can win in the next Washington spending cuts scenario.  On Wednesday policy analysts were trying to answer, What Does It Mean?

“The bad news is for states and cities, uncertainty remains,” said Kil Huh, research director at the Pew Center on the States.  “As part of the deal to raise the debt limit Congress capped discretionary spending, expecting to save over $900 billion over the next ten years.  What that means for states and cities is that they’re uncertain about where the cuts are going to come from, how deep they’ll be, or the timing of those cuts.”

Congressional leaders will name a twelve-member super committee – six Republicans, six Democrats – within two weeks.  The lucky dozen will propose at least $1.2 trillion in spending cuts before Thanksgiving.  Everything will be on the table – including Medicaid, Medicare, Social Security, defense spending and assistance to states. The Senate and House will vote before Christmas.  Across-the-board spending cuts will be imposed if the committee proposals fail.

The impact in Georgia could again be life changing as the definition of affordable government service continues to shrink.  The state has gone well past fixing its financial challenges by closing unnecessary museums.   There is only so much you can accomplish with attrition and furlough days.  At some point entire government service sectors might become unaffordable.

All this is happening as Georgia and other states move into new fiscal years without federal stimulus funds that enabled them to claim balanced budgets.  Last year Georgia received $1 billion; the new Fiscal 2012 budget was balanced without stimulus.  Politically, stimulus funds are an idea whose time has come and gone.

Next year budget planning is underway without any real idea how much federal support will be available.  Georgia received $8.5 billion in total federal assistance during Fiscal 2010, the last year for which audited data is available.  That included $5.4 billion for Medicaid.

About one-third of state budget dollars nationwide come from the federal government.  It should be clear now that shrinking state governments will need to shrink even further.

Carolyn Bourdeaux, Georgia State University Fiscal Research Center

“Part of Georgia’s issues are going to come from where we are already relatively efficient — depending on your viewpoint — in Medicaid and social services so cuts in these areas are going to be felt  more keenly,” said Carolyn Bourdeaux, associate director at Georgia State University’s Fiscal Research Center.

States are fearful of ObamaCare legislation mandates that will expand Medicaid eligibility starting in 2014.  The total could be several hundred thousand persons in Georgia.  That is one reason more than two dozen states including Georgia challenged ObamaCare in federal court.

There are plenty of Georgia budget sectors that could be impacted by Washington spending cuts.  What kind of transportation budget can it anticipate?  The Fiscal 2010 budget had nearly $900 million in federal funds.  Federal education dollars are 14 percent of the state budget.

Will decisions in Washington have an impact on Georgia’s unfinished tax reform?  The state is trying to reduce its reliance on personal income tax revenue.  Legislators almost finished tax reform this year before they lost confidence in the financial analysis.

Carolyn Bourdeaux again from the GSU Fiscal Research Center:  “My quick assessment is there are going to be two issues coming out of the federal discussion that might influence tax reform.  One is going to be whether the state wants to make up the difference for lost federal dollars which it could do even post tax reform.

“Two, if Congress takes up federal tax reform this may have a ripple effect on state taxes.  For instance, our income tax is linked to the federal income tax.  Georgia policy makers may want to see what happens with this,” Bourdeaux said.

The bottom line on tax reform:  It was important before.  It becomes more important now.

Georgia will also pay close attention to possible reduced defense spending.  Georgia lost Forts McPherson and Gillem, the Navy Supply Corps School in Athens and Naval Air Station Atlanta as part of military base realignment recommendations that became law six years ago.

Overall, however, the state was a winner.  It gained some 4,000 military and civilian personnel plus their dependents because of expansion, much of it at Fort Benning in Columbus.  Georgia also has vast military employment in Atlanta metro, central Georgia and on the coast.

If you’re into countdown clocks, the Congressional super committee is down to 112 days.  They will not be comfortable days for anyone trying to anticipate how this will affect Georgia.

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

August 3, 2011 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

CBO: State and Local Government Pension Liabilities Could Be $3 Trillion

Mike Klein

Another voice chimed in this week on the unhealthy status of America’s public pensions.  The Congressional Budget Office wrote, “The recent financial crisis and economic recession have left many states and localities with extraordinary difficulties for the next few years, but structural shortfalls in their pension plans pose a problem that is likely to endure much longer.”

The Congressional Budget Office is the federal agency mandated to provide nonpartisan analysis to the U.S. Senate and House budget committees.  CBO also creates an independent re-estimate of White House federal budget proposals.  It regularly studies issues like pensions.

CBO analyzed the Public Fund Survey of 126 state and local government pension plans and it reported those plans held $2.6 trillion in assets in 2009 compared to $3.3 trillion in future pension payment liabilities.  The result would be a $0.7 trillion unfunded liability which the Congressional Budget Office said was the lowest percentage asset level in two decades.

Congressional Budget Office Report Illustration

CBO Director Douglas Elmendorf explained the actual problem is more serious in his note that was attached to “The Underfunding of State and Local Pension Plans.”  Elmendorf wrote:

“The reported amount of underfunding varies significantly depending on the approach used to calculate assets and liabilities.  The estimate of unfunded liabilities cited above — $0.7 trillion – is calculated based on the actuarial guidelines currently followed by state and local governments.  Under those guidelines, actuaries compute liabilities by discounting future benefit payments using a discount rate based on the expected rate of return on the plans’ assets.

“An alternative method, the so-called fair-value approach, aims to measure the market value of assets and liabilities.  It more fully accounts for the costs that pension obligations pose for taxpayers by discounting future cash flow rates at a rate that reflects their risk characteristics.  Because the future cash flows associated with accrued pension liabilities are fixed and carry little risk, the discount rate used under this approach is lower than under actuarial guidelines.  That approach yields a much larger estimate of unfunded liabilities for those plans in 2009 – between $2 trillion and $3 trillion.”

Pension fund assets are further impacted by total years of service and salary levels at retirement, how long pensioners are projected to live and cost-of-living adjustments.  They also are affected by pension plan changes as governments move from defined benefit pensions based on service years and salary to 401k-style pensions in which employees make contributions to funds they manage and employers provide some matching funds.

The Pew Center on the States released a similar report on April 26.  Pew estimated that states had a $1.26 trillion unfunded liability in pension and retiree health care accounts.  Click here for the Congressional Budget Office report.  Click here for the Pew Center on the States report.  The idea to take away from all these numbers is that pension funds are in deep water.

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

May 6, 2011 Posted by | Uncategorized | , , , , | Leave a comment

Pew Center: Public Pensions, Retiree Health Care Short by $1.26 Trillion

Mike Klein

Last year’s Trillion Dollar Gap has become this year’s Widening Gap.

Fourteen months ago the Pew Center on the States released its landmark study The Trillion Dollar Gap which reported on 2008 fiscal year unfunded liabilities in state public pension and employee retirement health care obligations.  Now the Pew Center’s new The Widening Gap published this week said those same liabilities grew 26% in just one year to $1.26 trillion.

Pension and retiree health care obligations are state government equivalents of the federal five-headed monster:  Medicare, Medicaid, Social Security, the annual operating budget deficit, and trillions of dollars in principal and interest borrowed to run the federal government.

Some state government revenue streams are beginning to recover from a three-year recession that crippled public sector budgets.  Painful decisions were made all across the nation to reduce state government retiree pension and health care account contributions. Investment results also plummeted which helped to create 2008 and 2009 fiscal tornados inside retiree accounts.

Here are some quick facts from The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs:

** Nationally, state public sector pension shortfalls accounted for $660 billion and retiree health care cost shortfalls accounted for $635 billion in fiscal 2009.  Pew noted, “Far too many states are not responsibly managing the bill for their employees’ retirement.”

** Nationally, Pew said states had $31 billion or about 5% of the total needed for retiree health care obligations.  Georgia’s $20.2 billion total retiree health care liability was just 4% funded.  The state made 75% of its $500 million required annual contribution, a $125 million shortfall.

** Nationally, state public sector pension plans were 78% funded at the end of fiscal 2009, down from 84% one year earlier.  Georgia’s $79.9 billion pension obligation was 87% funded and the state made its entire $1.3 billion required annual contribution.  Three-fifths of state plans were underfunded and just two – New York and Wisconsin – were fully funded as fiscal 2009 ended.

Pew noted the federal Government Accountability Office and independent experts recommend states maintain at least 80% funding levels to satisfy retirement account obligations.  Twenty-two states fell short in fiscal 2008 and nine more joined the list in 2009.

Investment earnings – and expectations – play a significant role in the overall health of public sector retirement accounts.  Pew noted most states assume an 8% average investment return.  For years, that model worked well.  Pew said 1984-to-2009 investment returns averaged 9.3%.

But a closer look at the most recent decade is more painful, just a 3.9% annual return between 2000 and 2009.  Investment losses in recessionary times have been dramatic.  Pew said the Georgia Teachers Retirement System fund lost 13.1% in fiscal 2008, which was not nearly as dramatic as the 28.7% decline in the Pennsylvania State Employees’ Retirement System.  Georgia investments rebounded in Fiscal 2010 to earn 11.09%, according to the state retirement system.

“The stakes of this debate are high,” the Pew Center said, “because when a state lowers its investment return assumptions, the projected value of its liabilities and the annual contributions required to meet them increase dramatically.  This, in turn, expands the gap between liabilities and assets.”

Click here to read The Widening Gap.  Click here to read The Trillion Dollar Gap.

Ten Best Funded Public Sector State Pension Plans

101%   New York

100%   Wisconsin

99%     Washington

97%     North Carolina

94%     Delaware

92%     South Dakota

90%     Tennessee

89%     Wyoming

88%     Nebraska

87%     Georgia

Ten Best Funded Retiree Health Care Plans

69%     Arizona

68%     Oregon

32%     Alaska

31%     Ohio

28%     North Dakota

28%     Wisconsin

26%     Virginia

15%     Kentucky

13%     Colorado

13%     Utah

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

April 26, 2011 Posted by | Uncategorized | , , , , | Leave a comment

Pew Center Targets Recidivism; Georgia Launches Corrections Reform

Mike Klein

Georgia lawmakers introduced 945 bills this year.  One that passed will fast track review of the state’s $1 billion per year corrections system costs with a concentration on how to reduce existing state prison populations and slow their growth without impacting public safety.

So many Georgia adults are under state corrections system jurisdiction that their number would fill the Georgia Dome three times.  Or if you are a University of Georgia Bulldogs fan …that would be two sold out Sanford Stadiums and 40,000 more folks tailgating.

The state’s new criminal justice reform commission will no doubt find an important resource in a study released by the Pew Center on the States.  “State of Recidivism: The Revolving Door of America’s Prisons,” is the first ever state-by-state survey of adult recidivism.  The study is a clarion call for state legislatures to recognize corrections costs are runaway budget busters.

“State of Recidivism” analysts requested three-year recidivism (return to prison) data from every state for adults released in 1999 and 2004.  Thirty-three states including Georgia provided information for both years; 41 submitted only 2004 year data.  Nine states submitted nothing.

“Our main goal and purpose was not to rank states and say who was doing a good or bad job but to elevate the discussion and to prompt state policy makers to begin asking questions,” said Adam Gelb, director of the Pew Center on the States public safety performance project.  Pew found more than four in 10 adults return to prison within three years after their initial release.

Pew noted that Georgia’s three-year recidivism rates were below national averages.  The state also ranked below national averages for adults returned to prison because they committed a new crime.   All data is not equal, however, as Pew noted some states return adults to prison for certain kinds of violations whereas other states place them in alternative programs.

Last year’s Pew report “Prison Count 2010” examined how alternative strategies in some states contributed to the first reduction in state prisoner head count in 40 years.  “State of Recidivism” was begun two years ago and it is the next building block in Pew public safety research.

Adam Gelb

Gelb is a former U.S. Senate judiciary staffer.  He was back on Capitol Hill in February.  Gelb told a Congressional sub-committee that adult corrections system spending by states is their second fastest growing budget category behind Medicaid.  He said state corrections dollars account for one in every 14 general fund dollars, twice what their share was in the mid-1980s.

“Nearly 90 percent of the spending goes to prisons, even though two-thirds of the offender population is on probation or parole in the community,” Gelb told the Congressional subcommittee.  “Five states now spend more on corrections than higher education.  When you add in the federal and local incarceration costs, the tab surpasses $70 billion.”

Gelb described the Pew recidivism study as “a gargantuan task.  We hoped that we would have seen a tangible drop in the overall rates but I think it turned out to be fairly flat.   It had been so long since any national recidivism data was available that we didn’t know what to expect.”

Here’s what Pew found: Nationally, 45% of state inmates released in 1999 and 43% released in 1999 were back behind bars within three years.  Georgia’s performance was better with 38% in 1999 and 34.8% in 2004.  Pew said California skewed national statistics.  California has more prisoners than any other state; it reported 61.1% and 57.8% recidivism rates.

Georgia has the nation’s ninth largest total population with 9.68 million but the fourth largest inmate population.  One-in-13 adult Georgians is under corrections system jurisdiction, the worst rate in the nation.  The state has 60,000 adults incarcerated in state facilities and 160,000 on probation or parole. Those totals do not include adults in local and county custody.

Escalation in the state prison population and costs to maintain the system were recognized when Governor Nathan Deal, Supreme Court Chief Justice Carol Hunstein and bipartisan state leaders announced criminal justice reform this spring.  A new commission created by the General Assembly must report its findings before November 1.

The commission will examine options for non-violent offenders that include more probation, day reporting centers, new special courts for drug, DUI and mental health cases and other kinds of community-based programs that could be used when an individual poses no public safety risk.

This year Governor Deal sent a letter to Pew asking for research assistance.  Gelb said Pew has requests from several states, but he added, “All the stars seem to be aligning in Georgia.”

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

April 18, 2011 Posted by | Uncategorized | , , , , , , , , | Leave a comment

State Bipartisan Leadership Group Will Address Criminal Justice Reform

Mike Klein

Georgia is about to launch a new bipartisan attempt at criminal justice reform.

Nationally one in every 100 adults is behind state prison or local jail bars but the number is one in every 70 Georgia adults. Nationally one in every 31 adults is in prison or jail, on probation or on parole but the comparable number is one in every 13 Georgia adults, worst in the nation.

An historic group of state leaders will address criminal justice reform during a Wednesday afternoon news conference at the State Capitol.

Supreme Court Chief Justice Carol Hunstein, Lt. Governor Casey Cagle, House Speaker David Ralston, Attorney General Sam Olens, House Minority Leader Stacey Abrams and Rep. Jay Neal will share the podium with Governor Nathan Deal in a rare coalition of executive, legislative and judicial leaders united to coordinate criminal justice reform.

Georgia is playing a criminal justice reform high stakes game and it really has no choice.  With 60,000 incarcerated adults and 160,000 adult probationers, Georgia is boxed into a no-win corner.  Budget trauma is well told. Georgia cannot afford almost $1.4 billion that it spends per year on adult corrections, pardons and paroles, and juvenile justice systems.

Governor Deal’s Inaugural Address signaled criminal justice reform would be ahead when he said violent and repeat offenders will “pay for your crimes. For other offenders who want to change their lives, we will provide the opportunity to do so with day reporting centers, drug, DUI and mental health courts, and expanded probation and treatment options.”

Georgia’s criminal justice reform initiative is expected to receive assistance from the Pew Center on the States Public Safety Performance Project. The Pew Center is highly regarded for corrections reform work with current projects in 12 states.

Pew assisted Texas four years ago when it made a dramatic shift from incarceration toward community-based programs for non-violent offenders. Texas invested $241 million in programs but it saved a projected $900 million that would not be needed for new prison construction.

Twenty-five years ago Georgia spent $150 million per year on state corrections. That number has increased almost tenfold across adult and juvenile corrections, and pardons and paroles.

“There’s no question that in Georgia, and across the country, the expansion of incarceration has helped reduce the crime rate,” Adam Gelb, director of the Pew Center public safety project, told a Georgia Public Policy Foundation conference this past November..

“When you lock up career offenders, when you lock up violent people, that’s who you have prisons for and it pays off. The issue is, have we locked up so many people, has the net been cast so wide that we’re past the point of diminishing returns? The answer seems to be yes.”

Mike Klein is Editor at the Georgia Public Policy Foundation.

February 15, 2011 Posted by | Uncategorized | , , , , | Leave a comment