Providing trustee education and industry information in an effort to Protect

defined benefit Plans.

FPPTA Florida Public Pension Trustees Association

September 2010

message from the ceoraymond t. edmondson, Jr.

Let me tell you a short story that we may all learn from. After defeat in the First World War, Germany was emerged in a great and lasting depression. A great nation was crushed and humiliated.

In 1933, a captivating orator emerged named Adolf Hitler. He moved the masses starting with the youth. During his reign, a young man lived in Poland. He stated, “When he (Hitler) came for the Jews, I was not Jewish, so I didn’t protest. Then he came for the Catholics and I was not Catholic, so I didn’t protest. Then he

came for the educated and burned their books. Again, I didn’t protest. But then he came for me, and there was no one left to protest.”

Florida has a very diverse population. Northern retirees are drawn to Florida for the sunshine and low taxes. The land of fruits and nuts and even the weather is different. Well, when the Florida Legislature keeps decreasing the state’s educational budget year after year, they say, “I don’t have kids in school, so I will not protest.”

Now the Legislature is attacking public employee’s defined benefit plans, the backbone of public sector employees. The people, who were not interested in the reduction of education in the state, will surely be interested in emergency services, their life blood. The citizens of the State of Florida, even part-time residents, should be very concerned with these issues.

Doing away with defined benefit retirement plans is a very bad idea. It will make hiring qualified personnel very difficult in the future. Do you want a sub-standard employee showing up at your time of need? Consolidation of services is another falsehood. You lose control of your local services and community identity and many more service related issues. Larger is better is another myth. Larger is not better and is the exact opposite. To compare public sector jobs to private sector jobs is another situation of comparing apples to oranges. They never tell you what jobs they are comparing.

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Look at the failures in the private sector. Do you want these in the public service area? The public sector is the model, not the private sector. If the private sector had defined benefit retirement plans, we would not be in the situation we are in today. I say don’t do away with the public sector defined benefit retirement systems, but expand the defined benefit plans to the private sector.

Look at what the politicians did to Social Security. Now they are about to do the same thing to health care. In a state where local and state politicians are more concerned with the plight of the sea turtle than their own employees, and delivering services to its citizens, it is difficult to locate logic in politics.

We now have cameras at intersections to catch red light violators. The next step will be a rise in stolen auto tags. You hear about the premium tax collected on certain types of insurances sold in the state. This tax is designed to assist in the high risk benefits calculated in police and fire defined benefit plans. This is a good use of taxpayers’ money. This year there is an approximate 7% loss in the tax that comes from auto liability insurance that goes towards police high risk pensions. No there’s not a decrease in cars on the road, but most likely an increase in motorists without insurance coverage. There are citizens in our state whose water and electric has been turned off due to lack of payment. The sea turtles are doing quite well. The study on the habits of ants is also fully funded. I don’t know how important turtles and ants are to the Florida economy, but I do know that public defined benefit retirees are very important. Most Florida retirees stay and spend money, pay taxes in Florida. People who have a solid guaranteed base to build their retirement on will feel better about spending money opposed to those who have 401K type individual savings programs that fluctuate with the stock market. People who have 401K type programs can’t retire due to a lack of funds. This has created a crisis in the employment areas of 15 to 24 year old citizens who cannot find work. Our workforce has stagnated, people not leaving, so new hires can’t enter. You find more college students are staying in school and pursuing master degrees because there is no place for them in the work place.

Defined benefit retirement plans are good for the economy, good for the employer, good for the employee, and good for the citizens.

“Hands Off My Pension.”

Raymond T. Edmondson, JrFPPTA Chief Executive Officer

CLICK HERE FOR MORE INFORMATION OR TO REGISTER

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fPPta fall trustees schoolKimberlie ryals, chief operating officer

Fall is in the air! Here in Tallahassee it’s been a little cooler in the mornings which is a welcome sign of Fall coming. I am so ready for some relief from this summer heat. We are closing in fast on the Trustees School being held at the PGA National Resort at the end of the month. The FPPTA Education Commit-tee had their annual meeting here in Tallahassee back in May. We went through each and every session. We have made some necessary changes to keep the course offerings current and relevant for our Florida Trustees. We have added a few new features to the upcoming school. First thing Monday morning we will be broadcasting into each classroom simultaneously from the CEU room. Sue Marden and I will be updating you on what’s happening with the FPPTA and the Faces of Florida. This session will be brief but

very informative. The information given will be very useful to our administrators, trustees and associate members. Also, at the end of the day we will offer the same broadcast but with Ray Edmondson and Randy Touchton informing you on the current legislative issues in the State of Florida and our Town Hall Meeting program. We are very excited about the course offerings and the new broadcast. If you haven’t already done so, you can register for this school on our website www.fppta.org by simply logging into the site. You also have the option of printing the forms and sending them in.

Trustees don’t forget you must scan in and out each morning and afternoon and attend the sessions on Wednesday to earn your 10 CEU credits for this school.

2011 Membership is right around the corner. The membership packets will be mailed out and available online October 1st. This year you can fill out your membership and pay the membership fee online. Associate members can update their firm’s information along with the service offerings. Pension boards can update their trustees list and much more.

Thank you for your continued support and dedication to the FPPTA. I look forward to seeing you at the PGA National Resort, September 26 – 29th.

Sincerely,

Kimberlie RyalsFPPTA Chief Operating Officer

Did you Know?

New York City was the first employer to establish a pension plan for civilian employees. In 1857 policemen who were injured in the line of duty received a disability pension. The city’s firemen received a similiar plan about 10 years later and teachers received a plan in 1869.

The States were much slower to create pension plans, and initially only for teachers. It wasn’t until 1911 that Mas-sachusetts became the first state to establish a retirement plan for general state employees.

*Information from “Public Pensions & You: Going Up to the Trustee Level” by NCPERS

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When is it ok to ask a newspaper to do a story? When is it ok to ask a reporter to proof a story? I want to tell a reporter what is really happening with our pension plan, but I don’t want my name printed. How do I respond to a negative story that appears in my local paper? How can I be sure our story will be accurate, since the reporters never get it right?

These are a few of the questions most commonly asked when I speak with people about the role of the media in covering public pension stories. There often is an assumption that the press is “out to get us”. Frustration about negative press runs deep among public employees and especially public pension trustees.

So, it almost always surprises people when I tell them that the press is not the enemy!

The truth is that reporters can be cynical, and they can present facts out of context, leaving readers with something less than the whole picture of a very complicated subject. But it is almost never a calculated effort to take sides. It also is true that reporters don’t owe us the opportunity to pick and choose which angles of our story are covered, or to insist that their news-papers present our own particular views on a subject to the exclusion of other facts or opinions.

In fact, the press is supposed to stoke a boiling pot of facts and opinions. It’s their job to stir the pot to stimulate public dis-cussion and debate. It is our job to develop a trustworthy and credible reputation as a reliable source, and to try to establish a relationship with the press that enhances their ability to get the right story out there. During the past year, the FPPTA has been published in nearly a dozen daily newspapers all across the state of Florida presenting strong opinions about the need to protect defined benefit pension plans, and to correct misinformation that misleads the public. This is only one aspect of our public relations plan, but it is a highly visible and helpful initiative.

At the upcoming FPPTA Trustee School, I will try to explain some of the ‘how and why’ behind the way the press operates; and I will offer some tried and true techniques to deal with the press in a way that honors their efforts, while bringing a fuller and more accurate story to the attention of the public.

I hope you will bring your questions and even your complaints to my attention, so that together we can improve your ability to be more proactive with the press, to be more comfortable dealing with the media, and to better educate reporters about the importance of protecting public pension plans.

Incidentally, here are some quick answers to the questions at the top of this article:

• You can ask a newspaper to run a story any time (though they are not obligated to do so). • It is never ok to ask a reporter to let you proof a story – it’s not your by-line.

• You can offer information to a reporter “on background” without being quoted, but should never ask to speak “off the re-cord”. A person who doesn’t want his name mentioned usually has something to hide and reporters know it.

• You can respond to negative news stories in a variety of ways, from asking for a follow-up story, to writing a letter-to-the-editor, to preparing an op-ed article in response.

• And, you can offer to help reporters with accurate facts and referrals to industry experts in an effort to ensure they get it right.

Public relationssusan marden, Public relations consultant

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news clipsfred nesbitt, fPPta media consultant

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North Miami Beach Officials To Discuss The Controversial Issues Of Public Employee Pen-sions At A Meeting TuesdayBy Nadege Charles, Miami Herald, August 12, 2010The idea of pension reform in North Miami Beach has spurred both protest and applause. Proponents say it’s about time the city tightens its belt, or else residents may bear the brunt of higher taxes or reduced services if pensions continue to take a heavy toll on the city’s budget. Tuesday, the council will take up the issue once again after four out of five pension-related

ordinances were tabled at a July 20 meeting.Officials estimate North Miami Beach could save more than $4 million in the 2010-11 fiscal year if the council passes the plan.

Jacksonville Police, Fire Pension Fund And The City Reach Tentative DealBy Matt Galnor, Florida Times Union, August 17, 2010New Jacksonville police officers and firefighters would not have a popular deferred retirement option, would pay more for their pension and have to work five more years before retirement than those with the city now, according to a tentative deal reached. The plan would make a significant dent in Mayor John Peyton’s long-stated goal for pension reform and save the city $700 million to $800 million over the next 35 years. The new deal would essentially halve the percentage of employee pay the city puts toward pension costs. Now, pension costs are about 21 percent of police and fire pay. The proposal would bring it down 10 to 12 percent. Two components of the deal are primarily driving the costs down: increasing the minimum service requirement from 20 years to 25 years and eliminating the guaranteed 8.4 percent return on the Deferred Retirement Option Program. Other changes include: Increasing the employee contribution from 7 percent to 8 percent; Basing the employee pension on the average pay over the last three years instead of the last two; and Establishing an age limit for new hires: 31 years old or 35 with up to four years of military service.

Coral Gables Stuck In Pension PinchBy Tania Valdemoro, Miami Herald, August 22, 2010Secretaries, sanitation workers and code-enforcement officers in Coral Gables could see cuts to their pen-sions and salaries and might have to pay for some of their medical insurance if the City Commission ap-proves new cost-cutting measures. A judge ruled last month, in a nonbinding report, that the city was wrong to try to change the pension formula for only this group. Coral Gables is one of many cities struggling to trim pension costs in an era of reduced revenues resulting from the real estate bust. The city of Miami faces a $101 million pension payout this fall. Miami Beach is asking its unionized employees to contribute an additional 2 percent of their salaries to help fund their pension plan. For the general employees union -- the secretaries, sanitation workers and code-enforcement personnel -- he proposes a 5 percent pay reduction, cutting raises by half, paying overtime only for hours worked, eliminating employees’ ability to sell back unused vacation days and raising contributions to the pension plan to 10 percent from 5 percent. In June, the union representing general employees in Pembroke Pines agreed to a 4 percent pay cut, paying more for their health insurance and forgoing cost-of-living pension increases. Salerno wants to change the formula that determines payouts upon an employee’s retirement. Currently, employees are eligible for retirement at 62 with 10 years of service or 65 with six years of service. Pensions are calculated based on the employ-ees’ income and years of service. Salerno would reduce the income multiplier from 3 to 2.25 percent and increase the average final compensation from three years to five.

www.publicpensionsonline.com/fppta.html

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All Signs Pointing To Heated DebateBy Tom Curtis, River Cities Gazette, August 26,2010Miami Springs Council agreed to a 50/50 split between the city and the employee for any pension contribution that goes above 15 percent. Due to the recent downturn in the economy, it has been determined that the contribution needed to keep the fund fully funded now exceeds the combined 15 percent (5 percent employee, 10 percent city). The required contribution for this year is 15.26 percent, so the employee and the city will split the .26 percent.

City Officials Share Ideas At League’s Annual ConferenceDaytona Beach News Journal, August 26, 2010Seminar and roundtable discussions at the Florida League of Cities meeting included: “The New Normal: How Tough Times Will Change Your City,” “Culture Builds Florida’s Communities,” “Pension Reform: Effective Strat-egies for Reducing City Pension Costs” and “Public Integrity and Transparency in Government.”

Miami to Impose Union Contracts to Help Cut Deficit, Mayor Regalado SaysBy Betty Liu and Jerry Hart, Miami Herald, Aug 24, 2010Miami commissioners are likely to impose contracts on the city’s employee unions that will cut wages and pen-sions to ease a projected $96.5 million operating- budget gap next fiscal year, Mayor Tomas Regalado said. “Prob-ably in two weeks the commission will impose a contract whereby we will be reducing salaries and pensions, which is what’s responsible for the deficit,” the first-term mayor said. Miami faces a pension payment exceeding $100 million in the fiscal year that begins Sept. 30, Regalado said, which will consume a fifth of its operating bud-get. Moody’s Investors Service and Standard & Poor’s both cut the city’s general- obligation bond ratings in the past two months, citing the deficit and pension costs.

Miami Leaders Battle Unions Over Budget CutsCBS4, August 11, 2010Faced with a looming budget crisis, the City of Miami and its leaders are at an impasse with the police union over salary and pension cuts. They are already at a stalemate with the firefighter’s union. The stakes are high and include the potential for crippling layoffs. Miami’s police union president Armando Aguilar has a very direct, clear message when city leaders talk about salary reductions. “I think any idea they are going to reduce salaries is crazy,” Aguilar said. The police union says the city wants salary cuts that could stretch from five to 12 percent, pension reductions and the elimination of longevity raises. A state survey puts starting salaries in the mid-range for police agencies in South Florida. “It stands to reason if you cut salaries and lower pension benefits it gives no incentive to anyone to want to work here. Why would they? We have a shooting daily here,” Aguilar said.

Not much news to report from the State Legislative arena since the members and political parties have begun to fully concentrate on the General Election cycle. Just when we thought we had seen our last television campaign commercial, hang on, for the onslaught is about to begin again.

Things will begin to pick up after the elections and the legislators re-turn to Tallahassee for the Organizational Session scheduled for No-vember 16th. It is at this session, that the House Speaker and Senate President will be officially elected by their respective membership, and the successful legislative candidates will be sworn into office.

Likewise, and as reported in the print media, Senator Bennett has in-dicated his plans to unfold his pension reform legislation during the month of November. My assumption is that it will be similar, if not the same, as to his legislation of last session. I plan on meeting with Senator Bennett during the Organizational Session, and upon that occurring, I will be able to provide the FPPTA membership with a copy or a summary of his proposal. Representative Grady who filed the House Pension Reform bill last session, made a decision not to seek reelection, and it is unknown at this point who will assume the point position on this issue in the House.

In addition, Florida Tax Watch has held a series of meetings to de-velop their recommended pension reforms to the Legislature. Many of their recommended changes of last year were incorporated into Senator Bennett’s bill, and I suspect that they will utilize his pro-posal as their legislative vehicle again this session.

As you can probably ascertain, the 2011 Regular Legislative Ses-sion as it relates to pension reform will be just as threatening, if not more, than the previous one.

Look forward to seeing the FPPTA members at our upcoming con-ference later this month.

state legislative updaterandy touchton, fPPta legislative consultant

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Measuring the Economic Impact of State and Local Pension Plans

on Florida

Expenditures stemming from state and local pensions supported…

• 62,587 jobs that paid $3.8 billion in wages and salaries

• $9.1 billion in total economic output

• $1.3 billion in federal, state, and local tax revenues

Each dollar paid out in pension benefits sup-ported $1.41 in total economic activity in Florida.

Each dollar “invested” by Florida taxpayers in these plans supported $5.87 in total economic activity in the state.

Impact on Tax Revenues...

State and local pension payments made to Flor-ida residents supported a total of $1.3 billion in revenue to federal, state and local governments. Taxes paid by retirees and beneficiaries directly out of pension payments totaled $226.6 million. Taxes attributable to direct, indirect and induced expenditures accounted for $1.1 billion in tax revenue.

Information from the National Institute on Retirement Security’s “Pensionomics: Measuring the Economic Im-pact of State and Local Pension Plans.”

For more information please visit: www.nirsonline.org.

notes from Washington, d.c.tom lussier, fPPta legislative consultant

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As they do every year, members of Congress spent most of August in their home districts. Nevertheless, federal agencies continued to work through the capital’s hottest month, the Securities and Exchange Commission approved rules that will make it easier for share-holders such to nominate corporate directors; the trustees of the Social

Security and Medicare programs produced reports that offered both good news and bad news; and the Govern-ment Accountability Office released a study in which it found that states and localities will face $10 trillion in budget shortfalls over the next 50 years. Congress returns to Washington on Sept. 13.

SEC Votes to Give Shareholders Proxy Access

Companies will be required to put on proxy ballots the names of people nominated for director positions by significant long-term shareholders under rules adopted by the SEC on Aug. 25.

The rules approved by a 3-2 vote of the Securities and Exchange Commission (SEC) guarantee the ability of shareholders who own at least three percent of a compa-ny and have done so for at least three years to put nomi-nees for up to one-fourth of a company’s directors on the ballot. Shareholders may combine holdings to meet this threshold. Companies with a market capitalization of less than $75 million will be exempt from the rule for three years.

“As a matter of fairness and accountability, long-term significant shareholders should have a means of nomi-nating candidates to the boards of the companies that they own,” SEC Chairman Mary Schapiro said. “I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice.”

The panel’s two Republican commissioners voted against the proposal.

The move marks a significant victory for many public pension funds and other shareholder advocates, who ar-gue that proxy access is a key part of ensuring corporate transparency and accountability and who have worked toward enactment of such a rule for many years.

“This is ground-breaking for U.S. shareowners,” said Ann Yerger, executive director of the Council of Insti-tutional Investors. “Access to the proxy will invigorate board elections and make boards more responsive to shareowners and more vigilant in their oversight of com-panies.”

The U.S. Chamber of Commerce and other business groups have long opposed expanding proxy access to shareholders, and Chamber officials have indicated that they may go to court to fight the new rules.

“Using the proxy process to give labor unions, pension funds and others greater leverage to try to ram through their agenda makes no sense,” David Hirschmann, chief executive officer of the Chamber’s Capital Markets Unit, said in a statement. He added that the organization “will continue to fight this flawed approach using every method available.”

The SEC has backed away from previous proxy access proposals because of concerns about legal challenges, but the financial reform bill that became law in July in-cluded a provision that explicitly authorized the agency to enact such a rule.

Medicare Report Adds 12 Years to Trust Fund’s Life, But Doubts Raised

Certain provisions in this year’s health care reform law have extended the projected lifespan of Medicare’s hospital trust fund by 12 years, according to the an-nual financial report released by the program’s Board of Trustees on Aug. 5, though Medicare’s own actuary has cast doubt on those estimates.

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The Medicare trust fund is expected to last until 2029 – rather than 2017, as predicted last year – if the program-related measures in the “Patient Protection and Affordable Care Act” are enacted, the trustees concluded.

“It is clear that the Affordable Care Act is helping to strengthen the solvency of the Medicare trust fund and preserve this important program that millions of Ameri-cans rely on for their health care,” Health and Human Services Secretary Kathleen Sebelius said. “In addition to the provisions of the new law cited in this report that will help make Medicare stronger, there are other important reforms going into effect that will help bring down costs and reduce fraud and waste in the system.”

Actuaries for the Centers for Medicare and Medicaid Ser-vices last week released their own report that also extend-ed the trust fund’s exhaustion date until 2029 and identi-fied $417.5 billion in Medicare savings resulting from the bill, with $350 billion coming from just two measures: aligning payments in Medicare Advantage plans to those in traditional Medicare and connecting provider payments to efficiency.

In the “Statement of Actuarial Opinion” at the end of the trustees’ report, however, Richard Foster, Medicare’s chief actuary, wrote that, while the methodology used in the report was sound, it is unlikely that the reforms will be implemented as written, which means, “the financial pro-jections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range … or the long range.”

Foster, for example, described planned cuts of about 30 percent in physician fees as “implausible” and wrote that the savings projected for the provisions that would reward efficiency are unlikely to be realized because “most health care providers cannot improve their productivity to this degree – or even approach such a level – as a result of the labor-intensive nature of these services.” He noted that the trustees would convene a panel of actuaries and econo-mists to examine these issues and make recommendations regarding financial projections.

Republicans, meanwhile, argued that the projected savings are meaningless since the money has already been com-mitted to new programs aimed at expanding health insur-ance coverage.

The same trustees also oversee Social Security, and their forecasts for that program were largely unchanged from last year. Social Security’s $2.5 trillion trust fund, they projected for the second year in a row, will be exhausted in 2037, at which point the program will be able to pay about 78 percent of benefits under current law.

The trustees predicted that Social Security expenditures will exceed revenues in 2010 and 2011, dip below rev-enues from 2012 to 2014, then permanently exceed rev-enues starting in 2015, a year earlier than projected last year. While the trust fund ensures the program’s solvency for several more decades, it represents a strain on the federal government as a whole, since each year Congress uses the surplus Social Security taxes that form the trust fund for non-program spending and replaces the funds with IOUs.

“The fact that the costs for the program will likely exceed tax revenue this year is not a cause for panic, but it does send a strong message that it’s time for us to make the tough choices that we know we need to make,” Social Security Commissioner Michael Astrue said.

The 75-year shortfall for Social Security is estimated to be $5.4 trillion, or 1.92 percent of taxable payroll.

HHS Issues Grants to Enhance State Oversight of Health Premium Hikes

The U.S. Department of Health and Human Services (HHS) announced on Aug. 16 that it has awarded $46 mil-lion to 45 states – including Florida – and the District of Columbia to help them improve their oversight of health insurance premium increases.

The grants are part of a five-year, $250-million program included in the recently-enacted health care reform law.“States will use these grant dollars in the way that makes the most sense for their insurance consumers,” said Jay Angoff, director of HHS’ Office of Consumer Information and Insurance Oversight. “As we continue to implement the new health insurance reform law, we will continue to work with states to ensure they have the tools they need to ensure the stability of the marketplace, keep costs low and provide consumers with increased transparency, choice and quality they need to make the best health care deci-sions for their businesses and families.”

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We Want to Hear from youWould you like to see an issue addressed in the next fPPta e-newsletter? is your board

facing a specific challenge or attack that fPPta membership should be aware of?

We welcome your comments, questions, and suggestions.

Please contact ray edmondson at ray@fppta.org

According to HHS, Florida intends to use the grant to:

• Seek review and approval authority over large group rates or over policies sold by out-of-State companies to Florida residents. The State will seek approval authority for these products during the 2011 legislative cycle.• Expand the Scope of Health Insurance Premium Review: The State will expand the scope to include large group and out-of-State products.

• Improve the Health Insurance Premium Review Process: Florida currently prospectively reviews individual and small group premium increases. Florida will enhance its premium review process by implementing new premium filing requirements. Additionally Florida will improve the quality of its review process by hiring additional actuaries and by making improvements to its existing systems.

• Make More Information Publicly Available: Florida currently posts premium increase filings on its website. The State will develop a new search tool to make it easier to access filings.

Bill to Require Shareholder Approval of Political Spending Advances

A House of Representatives committee on July 29 approved legislation that would give shareholders more influence over corporate political expenditures.

The House Financial Services Committee, by a 35-28 vote, sent to the full chamber the “Shareholder Protection Act” (H.R. 4790), which would require companies to hold an annual shareholder vote on how much money to spend on political activities. All Republicans on the panel opposed the bill, as did three Democrats.

The bill would not require a vote on the content or type of political advocacy.

The legislation is a response to the Supreme Court’s “Citizens United” ruling in January, which struck down a long-time ban on political spending by corporations and unions.

“The Supreme Court decision effectively increases the influence of money in politics and diminishes the voice of the voter,” Rep. Michael Capuano, D-Mass., the bill sponsor, said after the vote. “We should be working to limit outside influence on elections, not giving corporations a louder voice. My legislation is a simple and direct way to ensure that corporate political expenditures reflect the will of the shareholders, since the money in question belongs to the share-holders.”

The bill would also direct the Securities and Exchange Commission to issue rules requiring corporations to disclose any materials for political activities created with or purchased using company funds and would hold officers and di-rectors who authorize political expenditures without shareholder approval liable for three times the amount of dollars spent.

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The legislation is opposed by business interests, with the U.S. Chamber of Commerce writing in a letter to law-makers on July 27 that the bill “would encumber the free speech rights of the American business community, erode the business judgment rule, and infringe upon the tradi-tional power of the States to administer corporate law.”

“At its most basic level, the bill seeks to impose height-ened burdens on corporate political decision making by requiring a shareholder vote before a company could en-gage in certain political activities,” the letter states. “This burden is so onerous, time consuming and administra-tively challenging that few if any companies would likely even attempt to comply with it. This requirement would virtually ensure that most firms would be precluded from engaging in political activities.”

The Chamber and GOP lawmakers also object that the bill would not impose similar requirements on unions engag-ing in political activities.

A vote by the full House is expected in September.

N.J. Charged with Securities Fraud Related to Pen-sion Underfunding

The state of New Jersey on Aug. 18 settled without penalty charges by the Securities and Exchange Commis-sion (SEC) that it engaged in securities fraud in a matter related to the funding of its public pension plan.

The SEC accused the state of failing to disclose in its bond offerings between August 2001 and April 2007 that it was underfunding its Teachers’ Pension and Annuity Fund and its Public Employees’ Retirement System. No New Jersey officials were named in the SEC’s charges.

“All issuers of municipal securities, including states, are obligated to provide investors with the information neces-sary to evaluate material risks,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “The State of New Jersey didn’t give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation.”

The state agreed to accept a cease-and-desist order to settle the charges. It neither admitted to nor denied the charges.

This marks the first time that the SEC has filed charges against a state related to public pension funding, though the city of San Diego faced similar charges a few years ago.

“Hopefully,” said Elaine Greenberg, chief of the SEC’s Municipal Securities and Public Pensions Unit, “it will send a message to other states or local governments.”

States, Localities Face Big Fiscal Challenges: GAO

State and local governments, in the absence of policy changes, will have combined shortfalls of about $10 tril-lion over the next 50 years, according to a Government Accountability Office report released on Aug. 13.

To eliminate the deficits, the GAO concluded, states and localities would need to reduce spending by 12.3 percent immediately – or raise taxes by an amount that would be equivalent to that – and maintain the adjustment for the next half-century.

In the short-term, the GAO found that state and local governments are expected to have deficits of $39 billion in 2010 and $124 billion in 2011.

Health care spending is the primary cause of fiscal chal-lenges for governments, having jumped from 12 percent of state and local expenditures in 1978 to 20 percent in 2008 with cost increases expected to continue to outpace GDP growth, according to the report.

The report noted that pension and retiree health care costs represent significant financial demands on states and lo-calities: asset values of public pensions dropped 27.6 per-cent from $3.2 trillion at the end of 2007 to $2.3 trillion at the end of 2008, and unfunded liabilities for non-pension post-employment benefits exceed $530 billion. The report addressed these topics only briefly, though, and mostly repeated previous findings on the subjects.

The report was prepared at the request of Rep. Paul Ryan, R-Wisc., a deficit hawk who is the ranking member of the House Budget Committee. The federal government provided $399 billion to state and local governments in 2008, and “Since many federal programs are implemented with state and local governments, fiscal pressures con-fronting the sector could affect implementation of federal programs and policies,” the report noted.

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Deficit Commission Looks at Taxes, ‘Tax Expenditures’

The panel appointed by President Obama to craft a deficit reduction plan recently examined the U.S. tax code.Members of the National Commission on Fiscal Respon-sibility and Reform heard various suggestions from wit-nesses regarding taxing and spending reforms, including advocacy of a value-added tax, repeal of the 2001 and 2003 tax cuts pushed through by President Bush – with a pos-sible short-term extension until the economy is more stable – and a revision of the mortgage interest tax deduction.

“We have a tax system that really does not fit the circum-stances we confront today, either in terms of generating revenue that is necessary or contributing to the competitive position that is absolutely critical for the country going for-ward,” said committee member Sen. Kent Conrad, D-N.D., the chairman of the Senate Budget Committee.One of the panel’s Republicans, Rep. Dave Camp of Michigan, allowed that tax reducers such as the mortgage interest deduction – which are paradoxically known as “tax expenditures” – “clearly … is something we should look at,” but added, “I don’t think that alone will solve all of our problems.” Camp’s comment is one of very few from GOP members of the panel that indicate a willingness to con-sider tax increases.

Another commission member, Rep. Xavier Becerra, D-Ca-lif., agreed that, “There may be things we have to do with any number of these tax expenditures,” but he stressed that the panel should look at how its recommendations would affect various income groups.

Tax expenditures total more than $1 trillion a year – rough-ly three-fourths of the amount of the federal government’s annual budget deficits and about equal to the amount the government collects in individual taxes.

Witness Barry Anderson, who has worked with the Office of Management and Budget, the Congressional Budget Office, the Government Accountability Office, the Interna-tional Monetary Fund and the Organization for Economic Cooperation and Development, said another of the tax expenditures – the exclusion of employer-provided health insurance from taxation – not only reduces federal rev-enues but also contributes to high health care expenditures in the United States, a position long taken by Republicans. Regarding health care expenses, he also noted that medical and product liability costs are lower in other nations, and that countries with single-payer systems have lower admin-istrative costs.

Anderson recommended that all spending and tax expen-ditures be subject to rules that would implement across-the-board cuts at certain points, a mechanism that he said European countries use.

The 18-member commission is charged with producing a set of recommendations by December that would eliminate the federal budget deficit – not including several hundred billion dollars in debt interest payments – by 2015. Con-gressional leaders have pledged to hold an up-or-down vote on the package before the next Congress is seated in January.

The panel is evenly divided between Democrats and Re-publicans, and 14 votes are needed to send recommenda-tions to Congress. With Republican members of the com-mission opposed to tax increases and Democrats unwilling to cut spending on Social Security and other entitlement programs, it is unclear if the panel will be able to complete its assigned task. Commission Co-Chair Alan Simpson, a former GOP senator from Wyoming, in fact, recently judged the commission’s odds of success to be “rather har-rowing.”

Separately, a new coalition announced on July 29 that it will work to oppose efforts by the commission to reduce spending on Social Security. “Strengthen Social Security” includes more than 50 organizations that argue that Social Security should not be cut, privatized or means-tested, that the retirement age should not be raised, that program shortfalls should be met by “requiring those who are most able to afford it to pay somewhat more,” and that benefits should be increased for those who are “most disadvan-taged.”

“We have a message for the commission: Don’t turn Social Security into the scapegoat for the deficit,” said Gerald McEntee, president of the American Federation of State, County and Municipal Employees, a coalition member. “Social Security is not the problem. Don’t raise the retire-ment age. Don’t tamper with the [cost-of-living allow-ance]. If you break the promise that was made to America’s working families, we’ll hold you accountable.”

At the commission’s July 28 meeting, Co-Chair Erksine Bowles, the White House chief of staff during the Clinton administration, said that the panel “wants to strengthen Social Security, and we want to do it by ensuring that it’s solvent for at least the next 75 years.”

Pete Prior, CPPTChairman

George Farrell, CPPTVice Chairman

Ann Thompson, CPPTSecretary

Steve Aspinall, CPPTTreasurer

Brenda Clanton, CPPTDirector

Gary Clark, CPPTDirector

Joe Liguori, CPPTDirector

Renee Lipton, CPPTDirector Emeritus

Ken Harrison, CPPTDirector Emeritus

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Peter Hapgood, CPPT, Board ChairpersonFPPTA Education Consultant

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Pete Prior, CPPT, ChairpersonHialeah Gardens Police Pension Fund

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Richard Grover, CPPTPensacola Firefighters Pension Fund

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Grant McMurry, CPPTICC Capital Management

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