A Budget Deal Wimpy Would Like, Saturday Night Debate & A Word on Pensions

Saturday evening, I was asked by a reader (I was surprised to learn she was a regular reader) why I am always pointing out the potential pitfalls associated with data we capture and why so harsh on the good folks in our nation’s capital. “Things are actually pretty [darn] good – a deficit reducing budget is about to be passed, unemployment is the lowest it has been in years and the housing market is abuzz. Not to mention, the stock market has been pretty good to those that have invested.” I responded that I respected her view but was truly bothered by the data, as evidenced by this weekly. So as not to spoil the good time we were having at this event, I offered to be somewhat responsive to her points in this week’s commentary. Needless to say, she was flattered (I think) by my offer.

As I contemplated this challenge (and make no mistake about it, despite her eloquent prose and beautiful dress, this was a challenge from one thorny rose), I asked myself if I simply read too much into the data and, as some have suggested, see the glass as half empty when it is half full. Why not, as one begins to reflect on the year past and focuses on the year ahead, take stock?

So I start with the budget deal to be taken up by the Senate this week. The budget deal – I am thrilled that the House has finally been able to strike some type of deal and even happier that Speaker Boehner has finally decided to stand up to the extremists in his party (I am hoping that Ms. Pelosi will do the same) – offers a little of what each side wanted (some call that a compromise). Maybe it was people seeing the Odd Couple (Obama and Christie) after Sandy and more recently or simply recognizing issues (the average American not doing quite as well as the stock market) need to be addressed. Given where we have been over the past several years, small steps are important to build trust to get to the grand bargain we all had hoped for. So, for now, I am happy that a baby deal has been reached.

That said, I don’t know how anyone can hail this as anything more than a deal that will avert a shutdown or more non-sense in the coming two years. The deal (according to the House Budget Committee) will reduce the federal deficit by just $23 billion over 10 years – little more than a rounding error. The deal includes raising premiums for pension insurance, raising airline passenger security fees (not to protect but to raise revenue); military retirees may see changes to their COLA and new employees contributing to the federal retirement fund will contribute more. Oh, and Medicare will restrict payments for doctors and hospitals in 2022 and 2023 (not a typo and haven’t we heard that one before?). The “deal” actually raises spending for the first two years – yes, it adds to the deficit – and generates savings down the road as the increased spending will, ready for this, increase economic growth. Karen, do you remember the classic cartoon Popeye and his friend Wimpy? "I'll gladly pay you Tuesday for a hamburger today." Sure hope Wimpy pays for the hamburger. He’s been using this line for some time and Tuesday never seems to come.

I’m also afraid that I don’t believe this “deal” is the beginning of a beautiful new era of harmony between Democrats and Republicans working together to pass legislation that will benefit the nation. With the recent change to the filibuster rules and the Dems pushing through as many appointees as possible, I’m afraid the Republicans (especially the extremists) will get more dug-in to their positions.

Karen, I know you want me to address the employment and housing questions but, given I do so fairly often, I am going to simply refer you to our commentary history (www.Lumesis.com) and promise that I will address new data as it is released. If I need to eat crow, as you eloquently suggested I might need to do, I will. In the interim, I offer a few more data points that I think are worthy of your attention.

Poverty

Last week, the US Census Bureau released the county level Poverty data for 2012. Starting with a very basic measure of up or down – for 2012, there were 1,570 counties that saw a decline in the percentage of their population at or below the poverty level (but 1,481counties that saw an increase in the percentage of their population at or below the poverty level) and 1,594 saw a decline in the number of people living in Poverty (1,585 saw an increase in the number of people living in Poverty). One can argue the glass is a tad more than half full.

That said, the percentage of people living in Poverty in this great nation of ours is embarrassingly high (one reason I harp on the lack of progress in DC). A picture is worth a thousand (maybe more) words.

DIVER Analytics, Map Module, US Census Bureau

Pension Fix and Is the Problem Overblown?

Following word of the Illinois pension fix, some opined (not Karen – she actually agreed that unfunded liabilities of public-sector pension plans were of concern) that the ruckus over unfunded liabilities is overblown (see Bloomberg Brief, 12/13/13). The Center for State and Local Government Excellence used “press reports” to determine how many cities have “financial problems.” As regular readers know, we track pension statistics for over 700 plans for cities where the population exceeds 100,000. Keeping this very straight-forward, I offer the Funded Ratio data (please consider that the data below uses the reported figures by the cities and their reported discount rates of between 7% and 8.5%). If one were to use 5%, a figure cited by many economists and Moody’s as more realistic, the number of plans with unfunded ratios at the percentages below would mushroom.

Lumesis, City CAFRs.

As I’ve noted in the past, several municipalities have, with the unions representing their employees, taken the painful step of restructuring plans to reduce the unfunded liability. In fact, that is part of the budget deal awaiting Senate action. Just a thought.

If one is interested in learning more of the critical details around State or City plans, such as ARC, ARC Paid, ARC as a Percent of Revenues or Expenses and Discount Rate, please contact us at [email protected] and we can provide data beyond what is provided in “press reports.”

Have a great week.

Gregg L. Bienstock

CEO & Co-Founder, Lumesis, Inc.

Data Released Last Week:

• Weekly Initial and Continued Jobless Claims, State, 11/30/2013
• Foreclosures, State, County, Nov 2013
• Poverty #, Poverty %, Poverty % Change and Poverty Change, County, 2012
• UPDATED: Gen. Fund Revenue, Expenditure and Expenditure Change (Estimated), State, 2013 & 2014
• UPDATED: Stabilization Fund as % of Expenditures, Stabilization Fund as % of Expend. Change, State, 2012-2014
• UPDATED: Stabilization Fund, State, 2012-2014
• UPDATED: Bankruptcy Filings – Issuers, State, County, 2013
• UPDATED: Default Filings – Issuers, State, County, 2013

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