Businessweek reported New York City Mayor Michael Bloomberg and a coalition of 24 local leaders yesterday urged state legislators to support a plan proposed by Governor Andrew Cuomo to raise the retirement age from 62 to 65 and “allow for a voluntary 401(k)-type retirement plan.” Cuomo and his supporters say that no change in the pension plan will result in a jobs cut, but public-worker unions and Comptroller Thomas DiNapoli, the trustee of the pension fund, oppose changes.

Currently, state and local governments in New York are borrowing $750 million from the same $140 billion pension fund to which they owe money and will likely borrow $1 billion more in the next year, according to the New York Times. DiNapoli defended his stance saying the current pension plan gives “you help right now, not 30 years from now.”

While overall U.S. manufacturing grew less than forecast in February, manufacturing in Philadelphia grew at the fastest rate in four months and in New York at the fastest rate since June 2010.BA

As Americans sit down to file their federal tax  returns, a simple question comes to mind — what’s a “fair share” to give the  federal government in taxes?

For half the working population, fair means paying  almost no income taxes at all.

“The top 10 percent income earners pay about 70  percent of federal income taxes,” says Will McBride of the Tax Foundation. “The  bottom 50 percent of tax filers have, they pay almost no federal income  tax. They pay about 3 percent of federal income taxes.”

President  Obama’s phrase that everyone should “pay our fair share of taxes” has become  something of a political mantra. He has used the expression in dozens of  speeches, beginning back in his State of Union address in January. More  recently, he told University students in Virginia, “we do expect everyone to do  their fair share.”

But for many of the people who pay no taxes, the  government also allows tax credits, which end up providing refunds.

“Close to a hundred billion in checks sent out by  the IRS (go) to folks who have no tax liability,” McBride said. “So the IRS is  becoming a spending agency.”

Arthur Brooks, head of the American Enterprise  Institute, put it this way: “Half of the people who don’t pay anything in  federal income taxes — about half of them pay less than zero.”

But Brooks says the system is tilted even more  toward those in the middle class and below because they also get services from  the federal government. As a result the per capita value of government spending  exceeds what those individuals pay in federal taxes.

“Right now about 70 percent of Americans take more  out of the tax system than they put into it, according to the Tax Foundation,” Brooks said.”That’s something that  should really alarm a lot of Americans.”

The policies that left so many people paying no  income taxes have been supported by presidents of both parties, and despite what  Americans tell pollsters they believe is fair, that’s not how it shakes out.

“The interesting thing is that about two-thirds of  Americans think that everybody should pay something,” Brooks said, “so they  remember that our government isn’t free.”

Read more: http://www.foxnews.com/politics/2012/02/20/analysis-fair-share-in-taxes-not-by-numbers/#ixzz1n22ejgav

Here’s a roundup of this morning’s must-read budget and economic stories:

According to ABC News Radio, Republicans used their weekly address to call on Congress to get the nation’s “fiscal house in order.”

The Wall Street Journal reports that the Senate will likely vote on a $50 billion infrastructure spending plan that will be paid for through tax increases on the wealthy.

Politico says more than 200 lobbyists have contacted the debt super committee in efforts to defend their points of view.

The Washington Times reports that the Senate voted Friday to cut agriculture subsidies for farmers that earn more than $1 million.

Politico looks at the debate over cutting defense spending.

The Washington Post examines failed federal efforts to boost the U.S. housing market. The New York Times and The Wall Street Journal say the Obama Administration will announce new plans to help the market today.

The Economist looks at underfunded public and private pensions systems in the U.S.

On the opinion pages: The Wall Street Journal says the federal government should stop guaranteeing loans for McMansions.

This OpEd by Gretchen Hamel, executive director of Public Notice, as seen in The Northwest Herald.

Imagine for a moment you and your spouse or closest family member are sitting down to outline the household budget. You’re trying to balance the outlays — the rising cost of gasoline and groceries, the mortgage and car payments, and savings for kids’ college — with the revenues that you’re earning. Just when the numbers have balanced, your partner drops a bombshell: a year ago he or she received a credit card with a zero percent introductory interest rate and they’ve been dining (and shopping and entertaining) out on it ever since. The bill has now come due.

That is what’s happening in the federal government, as well as in state and local governments all over the United States. Lawmakers are struggling to balance the annual discretionary or general revenue budgets, cutting everything from education to law enforcement and maybe even raising taxes, to do so. Meanwhile, out there hangs another budgetary albatross: the unfunded liabilities these governments owe current and future retirees. At the federal level these liabilities are primarily Social Security and Medicare. At the state and local levels, it’s pension and health care costs for government workers.

While the federal issues of Social Security and Medicare have been a national media issue for decades, local and state pension issues are just now getting the attention they deserve. It’s about time: state workers and taxpayers alike deserve a fact-based conversation about this crisis, and the spending problems that produced it, and promise to exacerbate it if steps toward reform are not taken.

The Government Accountability Office recommends public pension systems maintain a funding-to-liability ratio of 80 percent. According to a recent report from Pew Center for the States state pension funds were about 78 percent funded in 2010 — down considerably from 84 percent in 2008.

Some states are far worse off than this average (Pew says 31 states are below the 80 percent threshold). Illinois has the most dire situation. Pew estimates the Illinois pension system is only 51 percent funded with unfunded liabilities totaling about $86 billion, more than double the $35 billion in unfunded liabilities the state estimated just nine years ago. When retiree health care liabilities are added, total unfunded liabilities will reach $140 billion by the end of the current fiscal year.

These problems are the result of years of overspending (in general) and neglect (ignoring the burgeoning pension problems by shifting funds around to mask the dire situation). Jeremy Gold, a pension expert and New York-based consulting actuary recently told the Chicago Tribune,  “Illinois is a poster child for pension abuses … One of my colleagues calls this child abuse because our children must pay for our fiscal irresponsibility.”

He’s right and without reform the pensions of about 175,000 retirees who currently depend on Illinois’ pension and retirement health care system and another 276,000 current state employees who will eventually depend on this cracking system will be at risk.

Illinois must reform its pension and retiree health care systems — now. The risks of doing nothing, or too little, are extremely high: funding for the system will crowd out spending on other important budget items like law enforcement and education; or seniors who rely on their state pensions will not receive payments; or interest and tax rates on Illinois state debt will skyrocket, killing the economy and job creation in the state.

Illinois, as well as all other states in our country, cannot renege on its promises to its retirees. It also cannot tax its way out of this problem. The numbers are stark, and the situation will not get any better unless lawmakers take action. For the benefit of current and future retirees, and for the benefit of Illinois taxpayers in general, it’s time lawmakers stop hiding from this problem, and work to fix it.

Gretchen Hamel is the executive director of Public Notice, an independent, nonpartisan, non-profit dedicated to providing facts and insight on the economy and how government policy affects Americans’ financial well-being.

Every week Gretchen Hamel joins Crane Durham, host of Nothing But Truth, to discuss the latest fiscal issues affecting Americans. This week they discussed how our dangerously high levels of debt will impact everyone, due to broken promises multiple states are facing bankruptcy, and the looming debate on Capital Hill over the United States debt ceiling. LISTEN NOW

Interview Highlights:

In a recent Pew Research Study, eight states have been given failing scores when it comes to their  pension management; they are calling Illinois’s unfunded pension obligations the largest of any state in the nation.

Hamel weighed in, “You’ve got states that are facing pension crises that are going to bankrupt them. States can’t go bankrupt; they can’t borrow. Right now you have people who are going to have to make some tough political choices across the nation.”

As Congress returned to Capital Hill this week the debt ceiling debate started to catch fire again. Earlier this week Treasury Secretary Tim Geithner sent a letter to Congress indicating the government is on track to hit the current ceiling by May 16, though we can keep the country out of default until August 2.

“Congress just wants to extent the amount of its credit limit which will just offer them a blank check. And right now we don’t need that. We need to look at what the problems are that we’re seeing and what can we can do to reform the spending problems and what we can do to cut spending. So if we do raise [the debt ceiling], reforms need to be implemented along with it, spending cuts need to be implemented along with it, and we need to have a real plan to put this nation back on track,” said Hamel.

Crane asked, hypothetically, if you were chief negotiator what is the one thing that you would do in order to have the debt ceiling raised?

Hamel answered,”I think it would be to bring spending back to its historic levels, which would encourage an across the board cut for everyone.

“We need to return to [20 percent of GPD]. We need to restrain spending, bring it back to its historic levels. Revenues are returning back to historic levels, and I think we will see things start to become more stable.”

On Tuesday, the Pew Center for the States released a report highlighting states’ severely underfunded pensions. Up from $1 trillion, state budget shortfalls grew some 26 percent in 2009, from $1 trillion in FY 2008 $1.26 trillion in FY 2009.

The Washington Post highlighted the causes for the funding gap:

Pew officials said the growing shortfall was driven by inadequate state contributions, an aging population and market losses that accompanied the recession.

The report, which is based on state financial reports, found that states faced a $660 billion pension funding gap. Meanwhile, retiree health-care liabilities — which most states handle on a pay-as-you-go basis — totaled $604 billion, the report said.

Even as they face increasing liabilities, the report said, many states are not making pension contributions in amounts recommended by their actuaries as they juggle retiree and other costs against a backdrop of weak revenue.

Bloomberg noted that the recession is not solely to blame for state woes:

“The states dug themselves a big hole before the recession ever hit,” Susan Urahn, the managing director of the Pew Center in Washington, said in a conference call with reporters yesterday. “We can see how the Great Recession and states’ severe budget problems made a serious problem even worse.”

Some states have fared better than others. Bloomberg continues:

The biggest unfunded pension liabilities in 2009 were in Illinois, which had just 51 percent of what it needed to pay for promised benefits, and West Virginia, with 56 percent, according to the report.

New Hampshire was 58 percent funded, while New Jersey and Ohio both had just two-thirds of what they needed.

On the other end of the spectrum, the pension plans in New York and Wisconsin were fully funded.

Today, the Chicago Sun-Times featured an editorial that makes clear how severe Illinois’ pension problems are:

Illinois is dead last. Again.

Illinois had just 51 percent of the $126 billion it needed in 2008-2009 to pay promised pensions, according to the Pew Center on the States. This was the largest shortfall in the nation, as Illinois’ was in the previous year.

Few dispute the main factor driving this shortfall: the state’s repeated and prolonged failure to contribute what it owes to its pension systems. Meanwhile, state employees and teachers have faithfully kicked in their share paycheck after paycheck.

The state’s annual pension bills, along with accumulated debt, are so high they will soon gobble up resources needed for core state functions, including educating our kids, treating the sick and staffing our prisons.

So, is there a solution? There does appear to be, according to The Washington Post:

If states calculated their investment returns the same way that private firms are required to for their pensions, their obligations would balloon to $1.8 trillion, the report said. If states pegged their returns to 30-year Treasury bonds, an even more conservative standard, the liability would be $2.4 trillion.

Concern about underfunded pensions has prompted at least 29 states to either reduce pension promises to new employees or require workers to contribute more toward their retirement benefits, according to a separate report by Pew.

Additionally, the Chicago Sun-Times adds:

Ouch. It is time for Illinois to tackle its pension problem.

This means changing the pensions of current employees. Not the retirement benefits already accrued, but changing benefits going forward.

Nibbling at the edges won’t cut it.

Two good places to start: Raising the amount employees contribute toward their pensions and/or raising the retirement age. Workers closest to retirement should be exempt.

Something has got to give, and now is the time for all sides, particularly Gov. Quinn, to make it happen.

Missouri’s State Auditor, Tom Schweich, released an audit that found state agencies failed to properly monitor federally awarded funds. As noted by the St. Louis Business Journal, the audit reviewed $13.46 billion in federally awarded expenditures; including $2.57 billion that stemmed from the stimulus. The audit found that: the Department of Health and Senior Services could not determine that Medicaid payments were only made on behalf of eligible persons, the Department of Higher Education had no monitoring policies that ensured colleges and universities complied with regulations and the Department of Social Services lacked adequate controls to ensure payments were proper and benefiting only eligible clients.

Lawmakers in Texas are looking at gambling as a potential means to close the state’s budget gap, as detailed by The Texas Tribune. The Texas Gaming Association asserts that Texas could see a potential $1.3 billion increase in annual tax revenue if gaming was expanded within the state.  It’s estimated that Texans spend $4 billion in nearby Oklahoma, Louisiana, New Mexico and Nevada casinos. Texas’ projected FY 2012 projected budget shortfall is $13.4 billion.

New York lawmakers approved Gov. Andrew Cuomo’s budget on Thursday, which is the first time the Legislature passed an on time budget in five years, as highlighted by The Wall Street Journal. The $132.5 billion budget will cut year-to-year spending for the first time in more than a decade and will also eliminate the state’s $10 billion deficit. Notably, the newly adopted budget contains no major tax increases or significant borrowing.

Colorado’s revenue forecast just received a $75.5 million boost – from an accounting glitch in March’s forecast. As reported by The Denver Post, an incorrect accrual accounting formula caused the error. The “extra” $75.5 million will be used to offset education cuts and to bolster the state’s general-fund reserve.

By KEVIN G. HALL
McClatchy Newspapers