pension – Page 2 – RI Future

October 16, 2013

Report: Pew, Arnold working together to slash pensions

A new report singles out Rhode Island for favoring pension cuts over eliminating tax expenditures. It also suggests John Arnold, the former Enron investor who largely bankrolled Engage RI, and the Pew Charitable Trust, the supposedly non-partisan organization the General Assembly and Gina Raimondo had explain pension math and actuarial science to elected officials and members of the public and press, are working together to convince governments to transfer wealth from pensioners to Wall Street.

David Sirota wrote a report for the liberal think tank Institute for America’s Future called “The Plot Against Pensions: The Pew-Arnold campaign to undermine America’s retirement security – and leave taxpayers with the bill.” You can also read his synopsis published earlier this week here.

“Pew’s Public Sector Retirement Systems Project and the Laura and John Arnold Foundation are working in tandem on public pension policy to manufacture the perception of crisis and press for cuts to guaranteed retirement income,” the report says. It largely echoes the perspective exposed by Matt Taibbi and Ted Seidle – that pension cuts were driven by Wall Street interests – Governing magazine offers a somewhat favorable analysis of the report.

Sirota also adds to the debate the allegation that Arnold and the Pew Center are working together. This is significant to Rhode Island because both Arnold and the Pew Center were central players in Rhode Island’s pension legislation. Arnold funded the Engage RI, a 501c4 that refused to name its donors and spent millions lobbying for pension cuts. The Pew Center was brought in by the General Assembly and Gina Raimondo in a non-partisan capacity to educate law makers and the public.

According to Sirota:

…at the same time one branch of Pew was rightly sounding this moderate non-ideological alarm to shore up retirement security, and Pew’s Economic Development Tax Incentives Project was warning of states’ wasteful tax subsidies, a more political branch of the organization was working in tandem with controversial Enron billionaire John Arnold to begin championing an ideologically driven plan to make the retirement problem far worse.

This Pew-Arnold partnership began informally in 2011 and 2012 when both organizations marshaled resources to try to set the stage for retirement benefit cuts in California, Florida, Rhode Island and Kansas. With legislative success in three of those four states, Pew and Arnold created a formal partnership in late 2012 that targeted another three states, Arizona, Kentucky and Montana. This formal partnership continues today, with the organizations issuing joint reports and conducting joint legislative briefings advocating cuts to guaranteed retirement income.

Sirota also alleges that pension cuts served a political interest beyond just pension politics. He writes that pension cuts are being offered up to distract emphasis from tax expenditures, or tax breaks generally given to powerful companies and other corporate interests.

The goals of the plot against pensions are both straightforward and deceptive. On the surface, the primary objective is to convert traditional defined-benefit pension funds that guarantee retirement income into riskier, costlier schemes that reduce benefits and income guarantees, and subject taxpayers and millions of workers’ retirement funds to Enron’s casino-style economics.

At the same time, waging a high-profile fight for such an objective also simultaneously helps achieve the conservative movement’s larger goal of protecting profligate corporate subsidies.

Perhaps the most famous illustration of the pervasiveness of this deceptive argument comes from Detroit, Michigan. When the city recently declared bankruptcy, much of the media and political narrative around the fiasco simply assumed that public pension liabilities are the problem. Few noted that both Detroit and the state of Michigan have for years been spending hundreds of millions of dollars on wasteful corporate subsidies.

But as outrageous as the blame-the-pensioners mythology from Detroit is, it is the same misleading mythology that is now driving public policy in states across America. In Rhode Island, the state government slashed guaranteed pension benefits while handing $75 million to a retired professional baseball player for his failed video game scheme.

The report contains a special section on Rhode Island, and how it ignored tax expenditures while focusing on pension cuts.

Though Rhode Island faces a $7 billion pension shortfall over 30 years, that’s nothing compared to what it gives away to corporations and the wealthy.

As The New York Times reports, the state spends $300 million in annual tax expenditures – or more than $9 billion over 30 years. Those include the infamous expenditure that gave Boston Red Sox pitcher Curt Schilling a whopping $75 million worth of taxpayer monies to finance his failed video game scheme.

Additionally, Rhode Island’s tax system is famously regressive, allowing the wealthiest 1 percent of its population to pay a tax rate half that of the poorest 20 percent. So the state clearly has plenty of ways to reform tax rates and end subsidies as a way to raise the revenue it owes to its public pension funds.

Here’s the New York Times article Sirota references that says Rhode Island gives away “$356 million per year on incentive programs.” This is more than most nearby states, I wrote when the Times piece was published. According to the Economic Progress Institute in Rhode Island, the state gave away $1.7 billion in tax expenditures in 2009. The state’s annual pension contribution has been slashed “from roughly $400 million to $242 million, according to Raimondo’s office,” WPRI reported this week.

October 9, 2013October 9, 2013

On pensions, political hypocrisy worse than football

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“It is time to stop using pensions as a political football,” said the person who has used pensions as a political football more and more successfully than perhaps any other human being this century.

While many loath Gina Raimondo’s vociferous Wall Street-over-Main Street approach to finance and politics, there’s also her sheer hypocrisy to dislike too. After riding the pension political football to millions of dollars in donations, reams of positive publicity and praise from some of the most pro-Wall Street people, political organizations and news outlets in the nation, she all of a sudden thinks we should change the topic.

Who can blame her. Even fellow Wall Street Democrats such as Frank Caprio, who works for an investment firm and considered running as a Republican, are critiquing her hedge fund heavy approach to pension investment.

On the other hand, changing the truth isn’t the same as changing the subject. Raimondo also told the Providence Journal:

“If the General Assembly had not passed the reform legislation, it is likely that some cities and towns would have gone bankrupt and that down the road pensions would have to be severely cut.”

I don’t believe state pension cuts saved any cities (and certainly no towns!) from filing for bankruptcy. Gene Emery?

October 7, 2013

Pensioners pay more taxes than hedge fund managers

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Regardless of whether you worship at the church of Rolling Stone or the Manhattan Institute, Matt Taibbi brings up a very good point about transferring wealth from local public sector retirees to hedge fund managers in his second critique of Rhode Island pension cuts.

Not only are states like Rhode Island paying millions in fees to outrageously expensive money managers, but those millions will be taxed at a rate far below what the teachers and police and sanitation workers who are being forced to swallow cuts in those states pay on their dwindling incomes. This is thanks in large part to a tax loophole preserved for years by cowardly Wall Street-supplicating politicians hailing, as Henn correctly notes, from both parties, Republican and Democrat.

Sam Bell, of the Rhode Island Progressive Democrats, tackles the part about Taibbi going soft on Democrats here:

Most out of state pundits forget this, but the legislature that so gleefully passed the pension cuts is the same legislature that passed a voter ID law. These are the people who gave us a D+ rating from NARAL Pro-Choice America–the worst of any solid blue state. It was these so-called Democrats who pushed through the steep 2006 tax cuts for the rich that blew up the budget in the first place. The top four leaders of the Democratic caucus in our state legislature–House Speaker Gordon Fox, Senate President Teresa Paiva-Weed, House Majority Leader Nick Mattiello, and Senate Majority Leader Dominick Ruggerio–have each taken thousands of dollars from the NRA. And I believe those contributions were illegal. (The Board of Elections is still deliberating on my complaint.)

October 6, 2013

Taibbi is still missing the real story

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I want to thank Matt Taibbi. Unlike many national journalists, he admits when he goes far too easy on Rhode Island Democrats. On Friday, he published a new article acknowledging Raimondo’s party affiliation and tying her to the national trend of conservative Democrats in the Wall St. camp. If you ignore a glaring and egregious spelling error, it’s a great piece. Taibbi ends with my favorite line, “Readers, if I’m missing something, please let me know.”

That’s an invitation I can’t turn down.

There is still much that bothers me about Taibbi’s approach of going soft on Rhode Island Democrats. I wish, for instance, that he wouldn’t use the deceptive right-wing phrasing “pension reform” to describe the pension cuts. But I have a much more foundational critique. He is missing the bigger story–what has happened to the General Assembly.

Raimondo, as Taibbi rightly notes, is very similar to a number of conservative Democrats around the country with strong ties to the finance industry. But this sort of pro-finance attitude is a fairly common feature of the modern Democratic party. Sadly, the conservatism of General Assembly Democrats takes on an entirely different character.

Most out of state pundits forget this, but the legislature that so gleefully passed the pension cuts is the same legislature that passed a voter ID law. These are the people who gave us a D+ rating from NARAL Pro-Choice America–the worst of any solid blue state. It was these so-called Democrats who pushed through the steep 2006 tax cuts for the rich that blew up the budget in the first place. The top four leaders of the Democratic caucus in our state legislature–House Speaker Gordon Fox, Senate President Teresa Paiva-Weed, House Majority Leader Nick Mattiello, and Senate Majority Leader Dominick Ruggerio–have each taken thousands of dollars from the NRA. And I believe those contributions were illegal. (The Board of Elections is still deliberating on my complaint.)

Down the line, the policies the General Assembly’s leadership has enacted have not been the policies of ordinary Wall St. conservative Democrats. They have been the policies of Republicans.

As Ann Clanton famously put it when she was Executive Director if the Rhode Island Republican Party, “We have a lot of Democrats who we know are Republican but run as a Democrat–basically so they can win.”

Raimondo is not as extreme. When leadership wanted to skip a pension payment during the recent budget battle, Raimondo and some of the more moderate conservatives in the House balked. I don’t know how true this is, but she does claim that she opposed one of the more odious components of the pension cuts.

On social issues, Raimondo makes a cleaner break from the extremists in the General Assembly. She is pro-choice. Unlike the leaders of the General Assembly, she is not an NRA Democrat. Although she never issued a full divestment statement, she did pressure a distributor to stop distributing assault weapons, and she did send out a press release saying she would look into divestment. (Full disclosure: I led an unsuccessful calling campaign to try to get her to issue a formal divestment statement.)

Let me be clear. I am no fan of Raimondo. I plan on voting against her in the primary. But I understand that she is not as conservative as the nominally Democratic leadership in the General Assembly.

I trust Rhode Islanders to stand firm against the money tsunami and vote Raimondo out of politics this September. In a gubernatorial race, there is enough press scrutiny that it is very hard for this sort of conservative to win. But in tiny, low-turnout Democratic primaries for General Assembly seats, where politics has more to do with personal connections and money than issues, candidates far more conservative than Raimondo routinely win easily. That’s the core problem Rhode Island faces. And that’s the story I wish Matt Taibbi would cover.

October 3, 2013October 3, 2013

Renn: ‘Innuendo not evidence’ for me but not for thee

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’ll admit it. I love Urbanophile blogger Aaron Renn. He never fails to entertain and often makes some good points. But his hit job on Rolling Stone writer Matt Taibbi was profoundly deceptive.

If you clicked on the link or pay close attention to the local news cycle, you probably know I wrote my lede in a way to tease Renn. (Welcome to RI, Aaron!) But also to prove a point. My lede is virtually identical to the lede Wrenn wrote when he tried to discredit Taibbi’s blockbuster Rolling Stone article in GoLocalProv yesterday, I just switched Taibbi for Renn and Raimondo for Taibbi! Now, I will systematically discredit Renn’s reasoning in the same way he tried to do to Taibbi’s.

But before I do, like Renn, I will disclose that I too have worked for an entity with a profound stake in pension politics. While Renn has done some freelance work for the Manhattan Institute and I’ve done some work for the union-backed cable access show Labor Vision and organized labor sometimes (though not as often as it should!) advertises with RI Future. If you think my previous relationships somehow matter more than Renn’s, then either you are trying to influence politics yourself – as me and Renn are clearly doing! – or I would like to invite you to invest in the hedge fund I am starting later this afternoon (full disclosure, you may lose your money)

Here goes:

Renn says Taibbi blames Wall Street for Rhode Island pension cuts and lets Dems off the hook, including Providence Mayor Angel Taveras because he never worked on Wall Street.As a factual matter, this is not why Mayor Taveras does not reap the same treatment as does Raimondo. It’s well-known that Taveras cut pensions by sitting down and negotiating with labor while Raimondo fist-pumped at rallies and pushed through severe cuts that union leaders vociferously and publicly opposed. He’s just wrong on this point.As far as blaming Wall Street rather than Rhode Island Democrats. Yes, local liberals deserve much fault, and I would love to see a Rolling Stone article or MSNBC segment about how often Ocean State Democrats side with Wall Street interests over local retirees. (I believe we are still the only state in the nation to have a law that guarantees bondholders get paid before retirees.) But again Renn is wrong when he asserts that Taibbi says Wall Street and/or its shibboleths are “responsible” for pension cuts in Rhode Island. Rather Taibbi says they helped fund a campaign to do so and that they benefited from it.

“Where’s the evidence,” writes Renn. Taibbi “only makes two actual attempts to link Raimondo to a hedge fund plot.” There it is, the evidence! Oh wait, only two pieces of evidence. Nevermind. Does journalism critical of Wall Street require at least three? Or just at least one more than the author can dig up?What’s even more rich is that Renn does absolutely nothing to discredit the evidence!!First, he offers the ridiculous false equivalent of noting that labor supported Raimondo too, so they must be in on the scam as well. I don’t believe Renn believes that. Labor bet that Raimndo could do less damage to their interests than Kerry King – a bet they lost in spectacular fashion, I might add. I’m sure most union members wish they backed Tom Sgouros rather than Raimondo to run for treasurer. Wall Street, on the other hand, I would guess is pretty happy with how it worked out.Secondly, he says Taibbi’s evidence falls flat because he “quotes a third party.” Not only is quoting a third party more commonly referred to as “sourcing” information in the act of journalism, but Renn doesn’t even try to discredit Taibbi’s source.

Renn’s big picture isn’t all that big. In fact, it read like what one might call “innuendo, not evidence.””Taibbi seems to think if the government is spending money on anything he doesn’t like, from hedge fund fees to the bone-headed state investment in video game company 38 Studios, then the state cut the pensions specifically to fund those bogus expenditures,” he wrote.
My favorite part is when claims that smaller risks are illogical. Vegas should hire Renn as a consultant for roulette players. Though maybe the Manhattan Institute pays better to convince taxpayers to bet big on Wall Street.

October 2, 2013October 2, 2013

Math versus morality

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“The pension reform debate is … a dispute over which members of society will have to make sacrifices and which ones will not,” Rolling Stone magazine’s Matt Taibbi tells GoLocalProv.

Long before Ted Seidle parsed pension cuts as a wealth transfer from Rhode Islanders to hedge fund managers, this was the non-labor left’s biggest issue with the struggle to save public sector retirement security by taking money away from public sector retirees. It is inherently wrong to ask the people who played by the rules (labor) to fit the bill for those who didn’t (management).

I would argue that Raimondo’s star power, bolstered by anonymous out-of-town money and an adoring local media unwittingly conspired to make a very regressive pension reform proposal seem the only sensible thing to support. There is math component to the political problem that is pension reform in that a deficit exists. But the morality part is what we do about that. All too often in today’s political climate, very powerful people spend a lot of money saying the way to fix this deficit is to take from the poor and give to the rich.

Personally, I’d much prefer to live in a financially bankrupt society than a morally bankrupt one and by foisting all the responsibility on retirees, Rhode Island legislators may have made prudent moves away from the former, but they also made foolish leaps toward the latter.

Here’s Taibbi’s response in GoLocal:

For the record, I appreciate Treasurer Raimondo’s thorough response. I understand this is a tough issue and there are heated opinions on all sides. She was gracious enough to speak to me at some length before the article came out, and she did so probably knowing that the article was going to be critical. She clearly believes she is pursuing the correct policies and the fact that she was and is willing to openly engage critics in discussions about those policies is absolutely to her credit.

However, nothing in the response released by her spokesperson Joy Fox yesterday makes me believe that we got the story wrong.

Raimondo dismisses me and her union critics as politically and ideologically motivated, which is fine and understandable. But she doesn’t acknowledge that her own decisions and policies are similarly political and ideological. She presents herself as merely a technocrat who “puts politics aside” to do what’s best for Rhode Island.

But this is wrong on its face. The pension reform debate is the ultimate political and ideological argument. It’s a bitter fight over resources, a dispute over which members of society will have to make sacrifices and which ones will not.

The advocates of pension reform, not just in Rhode Island but across the country, believe that ordinary public workers — teachers, police, firemen — are inherently overcompensated, politically over-empowered by unions, and receive unsustainably high incomes and benefits. They also believe that the solution to the nation’s fiscal problems lay in asking these workers to make the first financial sacrifices — something Raimondo (like other politicians in other states) often describes as “making tough choices.” (By coincidence, these tough choices also seem quite often to involve privatizing large amounts of public retirement money into the hands of the financiers who stand behind these politician-advocates of pension reform.)

All of this falls in line with certain trends in political thought nationwide. A lot of people these days genuinely believe we must invest in employers first and foremost, and that ordinary wage-earners, public or private, are essentially drains on the bottom line, whose benefits especially are luxuries we can’t afford.

It would be silly to deny that a lot of people find this ideology convincing. But it’s certainly an ideology. That’s why it’s disingenuous when Treasurer Raimondo describes my article as political propaganda, when she had no such reservations about the public relations efforts of organizations like EngageRI and the Manhattan Institute, groups that not only supported her politically, but which have clear financial interests in this debate. But this a common tactic, dismissing critics of pension reform as ideologues clouded by frustration and unreason, while pension reform itself — well, that’s just math.

Having interviewed public workers in Rhode Island and in many other states, I know that state employees on the whole are absolutely willing to make sacrifices, if they’re needed to help states get out of fiscal crises. What they resent is being told they’re the cause of these crises and that the size of the sacrifices they must make is beyond debate and just mathematical fact. Time and again, when they ask questions about the reform plans, they’re dismissed as recalcitrant ideologues unwilling to accept reality. This is condescending and I think they’re right to be angry about it. Talking about omitting facts, most of these people haven’t been told even part of the story about the widespread crime and fraud in the mortgage/finance sector that caused the crash and put the retirement savings of people all over the country in jeopardy. Going forward, they were also not told about things like high management fees, the role of consultants and placement agents, and other such dubious nooks and crannies of pension reform.

All of which is a long-winded way of saying that I think politicians like Raimondo would do better to stop pretending that pension reform is somehow not about politics. This whole thing is political, on all sides.

And here is the comment from Raimondo’s spokeswoman Joy Fox he was responding to:

This is clearly a political propaganda piece driven by the critics of pension reform, including those who are paid by local labor leaders to discredit the state’s reforms and its investment policies. The author does not appear to have a clear understanding of the 2011 pension process and its goals, and conveniently omits many important facts.

The Treasurer stands by the work of the General Assembly to provide retirement security for hardworking public employees and retirees.

This story also unfortunately glosses over what actually happens to people when leaders do not make tough choices. The retirees of the City of Central Falls saw their pensions cut in half. Leaders do not want the same to happen again to public employees and retirees in the state system.

In 2011, Rhode Island had a choice. It could have done nothing and been dishonest about its problem. Instead, Rhode Island leaders came together, courageously put politics aside, and made the tough decision to protect the retirements of hard working public employees and retirees.”

It is important to remember:
– The treasurer fought to always keep a defined benefit pension, and always respected collective bargaining.
– Reform passed overwhelmingly in a Democrat-controlled General Assembly
– There were countless hours of labor-attended pension advisory group meetings, legislative hearings and town hall-style meetings with the Treasurer and Governor
– All but one vote to approve the hedge funds were unanimous. The only vote to approve hedge funds that was not unanimous was due to one abstention – again, showing strong SIC support to execute this investment strategy.

August 28, 2013

The ProJo opinion: Stop saying things we don’t want to hear

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I get that the Providence Journal editorial board (read: Ed Achorn) really doesn’t like union workers, and feels very strongly that public sector retirees should bare the brunt of elected officials’ overly-optimistic and/or irresponsible plan for dealing with future employee expenses, but I think that calling for a judge to chide the governor for speaking to the media is more than a little bit of an extreme reaction from Rhode Island’s paper of record.

“On Latino Public Radio Saturday, Governor Chafee brazenly ignored a judge’s gag order, imposed for the benefit of all parties,” read this morning’s editorial.

As journalists first, Achorn, et al should be more weary of siding with secrecy, even when it suits their special interest. But that’s their prerogative as chief ProJo philosophers. It’s a journalism high crime, however, for their editorials to so pervasively misrepresent reality for what read like cheap political pot shots. For example, does anyone believe the Journal when it writes that Chafee leaked this “brazenly?” I suspect “accidentally” or “clumsily” might be more accurate adverbs.

More importantly, today’s editorial misstated the situation it was ostensibly explaining. The governor “publicly pitched his hopes to ‘make the unions happy’ with concessions that he asserts will not cost taxpayers too much money,” according to the piece.

Well, not exactly. Or, more precisely, not at all. What Chafee actually said, according to the Providence Journal, was, “There might be some room for something that won’t cost the taxpayers a whole lot of money but will make the unions happy.”

One has to wonder if the Projo takes issue with the statement or the sentiment. I so highly doubt there would have been a similar opinion offered from the Providence Journal if Gina Raimondo said there was a potential solution that was going to make George Nee and Bob Walsh really sad.

The editorial then asks the judge to give the governor a little talking to for the breach, and cautions Chafee about his legacy. I’d be concerned if I were Governor Chafee, too. After all, the so-called paper of record is saying things about him that aren’t true.

August 15, 2013

ALEC loves Raimondo

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The pro-big business bill mill known as ALEC released a report this week that not only praises Gina Raimondo and local legislators for what they did to retirees in 2011, but also uses Raimondo’s Rhode Island model for why and how to downsize public sector pension plans.

The new ALEC overview even uses Raimondo’s emotionally compelling words as a visual graphic in its executive summary. Furthermore, the 45-page report is also the same exact game plan she used to sell the state on her plan.

“Legislators should move defined-benefit systems to properly designed alternatives, such as defined-contribution, cash balance, and hybrid plans,” suggests the summary. “They offer increased predictability for the employer and an increased likelihood for the employee that the money promised will actually be set aside.”

ALEC’s report is called “Keeping the Promise” and Raimondo’s legislation was called the “Rhode Island Retirement Security Act.” Both names imply that the effort is on behalf of the employee, but both ALEC and Raimondo are known for championing a much different demographic.

The crux of both is that a defined contribution plan, which is more management-friendly, is more sustainable than a defined benefit plan, which is more retiree-friendly. Rhode Island switched from a defined benefit plan to a hybrid plan.

Using the same pretense of being retiree-focused, the report also cites Central Falls fiscal problems as an example of why pension cuts can be needed.

More than anyone else, though, public retirees suffer from ill-funded plans. For example, in August 2011, the city of Central Falls, RI, filed for bankruptcy protection and went into receivership. As a result, some retirees saw their monthly payments cut in half.

It’s the second reference to financially-struggling cities benefiting from pension cuts. The first page of the executive summary says, “In the most extreme cases of fiscal distress induced by poorly managed pensions, some cities have had to go to court to seek bankruptcy protection and restructuring.”

National media briefly concerned itself with this same topic last summer when Joe Nocera of the New York Times wrote a column saying Woonsocket’s budget problems were more closely related to conservative government-shrinking efforts than to pension obligations. Josh Barro, a conservative columnist who then worked for Bloomberg, quickly fired back that pensions are to blame.

This is at least the second ALEC report to laud Rhode Island for its pension cuts. “Perhaps the biggest pension reform success last year came from Rhode Island,” reads ALEC’s 2012 Rich State Poor State report.

Another local connection to the two ALEC reports: Jonathan Williams, a contributor to the local ALEC-aligned small government group the Center for Freedom and Prosperity, is listed in the acknowledgements of this year’s report and was a co-author of the previous report.

Something else worth noting: Last year (when Raimondo was still known as a “pragmatic progressive” rather than a “Wall Street Democrat”) only RI Future published a report on ALEC’s thoughts on Rhode Island’s pension cuts. This year, it was covered by at least two TV stations, one radio station and the Associated Press. At least three local reports used the word “praise” to describe what ALEC thinks of Rhode Island’s pension cuts. None of the reports call the changes to state’s pension system a “reform.”

August 5, 2013August 5, 2013

Hedge fund investment good, but for who?

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There is a difference between a thing having a good effect and a thing being a net good.

Take hedge funds, for example. They do produce a good outcome, in that they manage against investment risk. But that doesn’t mean that investing in hedge funds is a net good for the state’s pension fund. Mike Stanton’s Sunday blockbuster on Rhode Island’s hedge fund gamble points out that there are lots of competing goods going on here.

Hedge funds do manage investment risk, there’s no doubt about that. But this management strategy has required a massive divestment from our workforce and a transfer of that wealth to Wall Street.

Ted Seidle writes, “paying huge pension fees to Wall Street hasn’t hurt the Treasurer’s campaign fundraising efforts.”

It’s reasonable to assume hedge fund managers would be willing to underwrite pension reform if reform means they make tons of money on the deal. Billionaire hedge fund manager John Arnold underwrote pension reform in Rhode Island with massive donations to Engage RI and now he is investing in pension reform in California, Reuters reports.

June 26, 2013June 26, 2013

Budget hinges on moral obligation to the rich or retirees

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The biggest debate of the budget process turned out not to be about a moral obligation to Wall Street but rather a moral obligation to Rhode Island retirees.

While the local media (this site included) focused on the debate concerning a $2.5 million payment to 38 Studios bondholders, the bigger debate during last night’s marathon budget session concerned a $12.9 million payment to the state pension program.

Defecting from House leadership, a wide spectrum of Democrats and Republicans struck down a proposal that would have eliminated an extra payment to the pension system negotiated into the landmark pension reform process of 2011.

“I feel like we are going back on our word and that’s not how I like to operate,” said Rep. Jared Nunes.

For those of you who don’t understand the concept of a moral obligation outside of the bond market, this pretty well sums it up in layman’s terms! Many lawmakers, however, put the pension payment in the exact parlance of a moral obligation (a meta-concept RI Future has dedicated many pixels to championing).

“If 38 studios is a moral obligation, what is this?” said progressive Rep. Larry Valencia, of Richmond, according to the Providence Journal. “I contend this $12.9 million is a moral obligation as well.”

While I don’t like this specific law (I wrote about it last week here) for the same reasons I don’t like the law that guarantees bondholders get paid before pensioners – it sets up a tiered system of budget priorities – I do also understand it as a moral obligation.

“We hurt people’s pensions,” said Joe Trillo, a Republican who supported pension cuts in 20111 and paying the $12.9 million this year. To then go back and nix a silver lining would add insult to injury.

Much more than I take umbrage with the law, I love the debate it has inspired as the 2013 legislative session winds down. The idea that the state has a moral obligation to retirees was unmistakably the theme of the debate last night and RI Future has been publishing posts about this for months now.

This is not only as big victory for the labor movement, but also for the wider progressive movement: a moral obligation has morphed from being a strictly financial concept to being a political and philosophical concept in our marketplace of ideas. In the financial markets, a moral obligation literally means you don’t have to do it, but it may cost you money in the long run. In real life a moral obligation is something you do whether it’s in your own self interest or not.

This gives me hope that our elected leaders will start actually governing instead of simply trying to cut down a spending plan artificially capped by conservative thinking. We have no moral obligation to austerity – though it may or may not be good for our economy; so far it hasn’t shown benefits. We do however have a moral obligation to fully fund our promises.

That didn’t happen last night, though. House leadership, specifically conservative Democrat Nick Mattiello, conceded the goal was a noble one, but said proponents had failed to identify a way to fund it.

“The $12.9 would have to come out of something,” WPRI quoted Mattiello as saying.

This, of course, isn’t true because it assumes the only way to fund government is to cut something else in government (a false choice the many have fallen for during the era of austerity)

Rep. Valencia reminded Mattiello, leadership, the House and those of us watching at home, that in fact both he and Rep. Cimini had income tax increase bills vetted that would raise enough revenue and more.

“A quarter of a Cimini,” would suffice, Valencia said, or a one-fourth of the 2 percent income tax increase the progressive Rep. from Providence proposed on those who make more than a quarter million dollars annually.

The budget debate was put on hold early this morning and continues later today. Whether or not a “quarter of a Cimini” is in play as legislators continue to debate the tax and spend plan will depend on just what kind of moral obligation our elected officials feel they have to the totality of their previous promises.

I know I feel we have a higher moral obligation to keep our word on pension reform than we do to keep in place a tax cut given to the richest Rhode Islanders.

June 20, 2013June 21, 2013

Reports say pension cuts could cost state more money

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Two new reports from the progressive Economic Policy Institute will likely raise three important questions as the state meets in mediation with the labor unions over pension cuts: was the process fair, were RI retirement benefits out of line with other states and did the effort even save the state money?

“Hopefully will make any other state considering cutting their pension think twice,” tweeted anaylst/ author Robert Hiltonsmith today after EPI released his: Rhode Island’s New Hybrid Pension Plan Will Cost the State More While Reducing Retiree Benefits.

Hiltonsmith is a policy analyst for Demos (website / twitter handle).

In the report, he writes:

“Over time, RIRSA will likely lead to a gradual improvement in the Rhode Island pension funds’ funding ratio. However, this improvement can, on net, be entirely attributed to the increase in the retirement age and suspension and reduction of COLA benefits. The change in … plan actually increases costs to state and local governments and taxpayers while making retirement incomes less secure…

Further, the accounts’ exposure to market risk creates the possibility that many individuals’ retirement income will be significantly lower than average.”

In the other paper, Truth in Numbers? A Brief History of Cuts to the Employees’ Retirement System of Rhode Island, Monique Morrissey (site and if you find her on Twitter let me know and I’ll add it) similarly writes that the new “hybrid plan costs taxpayers more than the old system despite providing a less valuable and less secure benefit to workers.”

Both economic analysts also highlight fairness issues with regard to pension politics.

“The shortfall in Rhode Island’s pension plan for public employees is largely due not to overly generous benefits, but to the failure of state and local government employers to pay their required share of pensions’ cost,” Hiltonsmith writes.

He goes on:

The normal cost³ of providing benefits under the old ERSRI system was, on average, 11.4 percent of employees’ salaries (GRS 2011a), of which employees paid a flat rate of 8.75 percent and state and local governments together paid 2.64 percent. However, because of the large hole in the system’s finances, Rhode Island state and local governments combined contributed over $300 million in 2010 in total to the teachers’ and state employees’ pension funds, which is equal to 19.5 percent of employees’ total salaries that year.

Taken together, these findings suggest that the shortfall in Rhode Island’s pension plan for public employees is largely due not to overly generous benefits, but to the failure of state and local government employers to pay their required share of pensions’ cost.

And in her paper, Morrissey writes:

Rhode Island was slower than most other states to fund its pension system. As a result, the Employees’ Retirement System of Rhode Island (ERSRI) had a shortfall even at the peak of the dot-com bubble, despite providing relatively modest benefits. Indeed, workers—many not covered by Social Security—contributed more toward these benefits than their counterparts in other states.

Rhode Island was slower than most other states to fund its pension system. And though workers shouldered most of the cost of current benefits, employers failed to pay their full (smaller) share. As a result, ERSRI had a shortfall even at the peak of the dot-com bubble. Thus, despite a relatively low normal cost of benefits, the total employer contribution for ERSRI was nevertheless large because it had to cover a large unfunded liability. In 2005, the ERSRI funded ratio—the ratio of the actuarial value of assets to the actuarial accrued liability—was 56.3 percent for state employees and 55.4 percent for teachers (GRS 2006). This resulted in amortization rates—the amount (expressed as a share of current payroll) needed to gradually pay down the shortfall—of 19.3 percent for state employees and 20.4 percent for teachers (GRS 2006).

The challenge of paying off this legacy cost was complicated by demographic trends. Rhode Island was one of only two states (the other being Michigan) with stagnant or declining populations between 2000 and 2010 (author’s analysis of U.S. Census Bureau 2011). The public-sector workforce was also shrinking and aging, so there were fewer than 150 active public-sector workers per 100 public-sector retirees in 2005, compared with an average of around 270 workers per 100 retirees for plans in the Public Plans Database (author’s analysis of CRR and CSLGE 2005). Because the amortization rate is conventionally expressed as a share of current payroll, a shrinking workforce can lead to a higher amortization rate even if costs are not rising. This is misleading, because all else equal, a decline in current obligations makes paying down unfunded liabilities easier, not harder.

April 29, 2013April 30, 2013

Raimondo pension/hedge fund beat goes on

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There’s so many news and blog posts being published about hedging our pension investments in hedge funds and venture capital, I decided to make this Storify to try to keep track of all the different strings to this unfolding financial/political drama that has given credence to our claim that Gina Raimondo is a Wall Street Democrat and called into greater question her capabilities and loyalties in running a public sector fund.

I’ll update this Storify as warranted.

April 29, 2013April 30, 2013

What Rhode Island should know about hedge funds, part 1

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What’s the purpose of investing in a hedge fund? Because “hedge fund manager” is almost synonymous with “fabulously wealthy” in the popular press, lots of people think hedge funds are all about high risk and high returns.

Originally, though, hedge funds were thought to provide high returns simply by being consistent, if dull. The idea was that by “hedging” risk with investments whose value fluctuates independently from one another, a good manager could deliver solid but unspectacular results, but do so year after year.

Since the origination of these funds, more than 40 years ago, the industry has transformed from a handful of conservative investor funds in a relative backwater of the investor world to include funds that follow a much wider variety of strategies, and have trillions of dollars under management. In the process, the meaning of the term has changes, and these days, it just means any unregulated investment fund.

What’s that? Unregulated? Well, yes. The SEC, which regulates lots of other Wall Street activity, doesn’t have much to say about hedge funds, except that you have to be a “accredited investor” to invest in one. Essentially this just means you have to be rich enough.

A mutual fund, open to anyone with a dollar, is regulated by the SEC, and is subject to various kinds of disclosure and reporting requirements. Hedge funds, by contrast, only give their clients (usually referred to as fund “partners”, which sounds chummy, doesn’t it?) the information they want to release. If they want to tell you what their returns were, they can. If they don’t, that’s your problem.

Fees are high, too. Where a mutual fund might charge a service charge of one percent or less to its customers’ accounts each year, the standard in the hedge fund industry is 2%, plus a 20% share of any investment gains. Naturally, they do not share in any losses.

Lack of information and high fees? Such a deal. The reason customers put up with this kind of abuse is the promise of high returns. That’s what makes it so shocking that over the past 20 years, most investors would have made substantially more money by investing in low-interest US government bonds. (This is not just a matter of the 2008-2009 downturn, though that plays a role.)

That’s the message of Simon Lack, whose book, “Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good To Be True“, describes his experiences in the hedge fund industry. Lack, a trader at JP Morgan, spent several years investing in hedge funds on behalf of the bank.

JP Morgan did its part to foster the recent flourishing of the hedge fund industry because in the 1990’s, astute traders there noticed the contrast between the weak returns of the industry and the wealth of the managers. The contrast led them to wonder whether they should try investing in a different way. Lack helped start their Capital Market Investment Program, which provided seed money to fledgling funds in exchange for a share of the fees as well as the investment returns. With one foot on the management side of the business and the other with the customers, Lack has a unique perspective on the business.

What he learned was this: The fabulous wealth of hedge fund managers serves as the best possible marketing tool for hedge funds. Look at me, the private jets and penthouse apartments say. I am successful and if you invest with me, you can be too. But he also asked this: where are the hedge fund investors who have become fabulously rich by trusting their money to such managers? And he’s still looking for them.

In his book, Lack points out that a manager can make money when the fund makes money, but that many managers make even more money when a fund’s early good returns inspire lots more people to invest in it. Taking a couple of percent off the flood of new money each year can be much more profitable than hoping for a fraction of the investment gains, and if the fund grows quickly, your wealth can, too, no matter what the returns. The incentives aren’t to nurture your customers money and make it grow, but to expand the business and bring in lots of new money.

What’s more, for a variety of reasons that Lack described, a fund’s growth usually decreases the rate of its returns. A large fund is somewhat more cumbersome and profitable opportunities are not always to scale. So you have managers becoming absurdly wealthy while overseeing a fund whose growth serves their interests, but not those of their customers.

Lack also puzzles over the problem of reporting investment gains. A fund will naturally report its gains in the most flattering light possible. What you might not realize is how much latitude there is for telling the story a fund manager wants you to hear. When reporting returns, a fund might report the growth of the investment pool. But the investment pool can grow both by getting new customers and by investment gains, so that’s not what will be experienced by any individual investor. Plus the shares of a hedge fund can be very challenging to value, and there’s a certain arbitrary nature to any answer to this question.

If a hedge fund invests in bonds, for example, do you value bonds at the price at which they were bought, or the price at which they can be sold? These prices are different at the very moment the bonds are bought, so we’re not talking about market movements, just about the difference between a bid price and and ask price. Depending on which price the fund manager chooses to use to value the portfolio, it will affect the calculation of the fund returns, though the actual amount of money won’t change.

Furthermore, a customer’s shares might be “worth” some specified net asset value, but they might not be redeemable at that value, due to redemption limitations, withdrawal fees, or some other clause in the “partnership” contract. As I’m sure you can imagine, this is just the beginning of the confusion. The point is that when you buy shares in a hedge fund, you are putting a great deal of trust in the management of that fund, and the management holds all the information in the relationship, and has incentives that are not perfectly aligned with yours. Does that sound like a recipe for success?

Read part II.

April 17, 2013April 18, 2013

Pensions, hedge fund managers, David Boies

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As Rhode Island considers whether Gina Raimondo is making a wise gamble with our money by moving more of public sector retirees’ pension account into risky hedge funds, the New York Times Dealbook blog reports that the S&P 500 stock index outperformed the average hedge fund for the fourth year in a row.

Swashbuckling bets and robust returns are exactly what investors are hoping for — and paying for in outsize fees — when they allocate money to hedge funds. But far too often in recent years, investors have paid hefty fees for lackluster returns.

And last year was no different.

For the fourth consecutive year, most hedge funds failed to beat the market. The average hedge fund gained 6.4 percent last year, according to a composite index that tracks 2,200 portfolios compiled by Hedge Fund Research.

By comparison, the Standard & Poor’s 500-stock index climbed 16 percent when factoring in dividends. In 2011, the average hedge fund lost more than 5 percent, versus a 2 percent gain for the S.& P. 500.

The Dealbook post also listed the 10 highest paid hedge fund managers, according to Institutional Investor Alpha’s annual “Rich List. At least two of whom Rhode Island invests a considerable sum of our pensioners retirement security with:

David Shaw made $530 million last year. According to public documents on the Treasurer’s website, Rhode Island invested $61,453,935 with his hedge fund called DE Shaw Composite Fund LLC.
Dan Loeb made $380 million last year. According to public documents on the Treasurer’s website, Rhode Island invested $62,998,187 with his hedge fund Third Point Partners Qualified L.P.

Loeb was featured in Rolling Stone magazine on April 11 about his crusade to take over more pension plans, and his lack of affinity for defined benefit pension plans.

Dan Loeb, who isn’t known as the biggest hedge-fund asshole still working on Wall Street (only because Stevie Cohen hasn’t been arrested yet), is on the board and co-founder of a group called Students First New York. And Students First has been one of the leading advocates pushing for states to abandon defined benefit plans – packages which guarantee certain retirement benefits for public workers like teachers – in favor of defined contribution plans, where the benefits are not guaranteed.

In other words, Loeb has been soliciting the retirement money of public workers, then turning right around and lobbying for those same workers to lose their benefits. He’s essentially asking workers to pay for their own disenfranchisement (with Loeb getting his two-and-twenty cut, or whatever obscene percentage of their retirement monies he will charge as a fee). If that isn’t the very definition of balls, I don’t know what is.

There’s an interesting connection here between hedge fund managers, public teacher pensions and the so-called ed. reform movement; StudentsFirst was founded by Michelle Rhee and she is also on the board with Loeb and other hedge fund managers.

But there’s another interesting local connection too: David Boies, the high-price super lawyer who is defending Raimondo and her pension plan at a great discount is also on the StudentsFirst board with Loeb and Rhee.

According to a Ted Nesi post from November, Boies agreed to defend in court the pension cuts to state workers and teachers for $50 an hour when he usually charges $960.

April 16, 2013April 16, 2013

Siedle says COLA cuts are paying Wall Street fees

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Forbes.com opinion blogger Ted Siedle has posted another piece highly critical of Gina Raimondo’s so-called reforms to the state pension system.

This time he suggests that the amount retirees’ cost of living adjustment was slashed might be just enough to afford the new fees being paid to the venture capitalists and hedge fund managers with whom Raimondo gambled the state’s pension fund.

The so-called “reforms” of the state pension in the Rhode Island Retirement Security Act of 2011, which include slashing the COLA, I’m told are projected to save $2.9 billion over 20 years. Suspension of the COLA is estimated to represent $2.3 billion of that savings.

I can tell you where that COLA savings is going—into the already-stuffed pockets of Wall Street’s most highly-compensated gamblers—almost dollar-for-dollar. By my estimate, $2.1 billion in fees (out of the $2.3 billion in COLA savings) will be paid by the pension to hedge, private equity and venture capital tycoons. That’s some “reform.” No wonder Wall Street is so eager to support this shameless public pension money grab.

Here are his other posts on Raimondo’s pension work:

April 11, 2013

Crucial Questions For Raimondo

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There are many important issues that Ted Siedle of Forbes raises about Gina Raimondo and what he calls her pension overhaul – avoiding the loaded term reform so often used by the local media.

Here are two that I’ve been asking on this blog for some time now.

One is that she is employing a very high-risk strategy that will definitely benefit Wall Street hedge fund managers and venture capitalists and might also be good for Rhode Island – though he and other experts are skeptical. Siedle told Buddy Cianci earlier this week that Warren Buffett has a “very public” $1 million bet that the S&P Index will outperform these more costly and riskier investments – in other words, Warren Buffett thinks Raimondo is wrong. Siedle says the state is paying more to money managers for the right to take this risk.

This is an issue with special resonance for progressives, as most of us strongly feel a giant problem with Rhode Island’s economy and American capitalism in general is that Wall Street comes first and everyone else gets in line according to how well they serve Wall Street’s interest.

The other issue, which has been raised locally, is that some members of Engage RI may have a financial stake in pension reform. See question 18 of his 22 Tough Questions For Rhode Island’s Pension ‘Reform’ Treasurer:

Do any of the contributors to Engage Rhode Island have any financial relationship, direct or indirect, with any of the investment managers of the pension? For example, do any contributors to Engage Rhode Island have assets managed by, or an ownership interest in, any of the pension’s managers or any fund managed by these managers?

These are both uber-important questions that all Rhode Islanders should want answered.

Raimondo doesn’t want these questions answered. Please re-read this post I wrote on December 13. In it, I point out that one the very same day in the Providence Journal, Raimondo tells Mike Stanton that she feels it’s okay for Engage RI members to be anonymous and Kathy Gregg quotes her as saying, “it is more important than ever that [a] treasurer bend over backwards to be transparent and open with our investors.”

So I made a public records request to Raimondo’s office on Jan. 8 asking for all of Raimondo’s communications with Engage RI members. I got a letter from Mark Dingley 15 days later, the treasurer’s legal counsel, informing me they wouldn’t even consider my request, unless I give them $435 first. Here’s what he wrote to me:

I would estimate that Search and retrieval will require thirty (30) hours at Fifteen Dollars ($15.00) per hour with the first hour free. See Rl. Gen. Laws 38-2-463), Accordingly, kindly provide pre-payment of Four Hundred Thirty-five Dolîars ($435.00).

Please be advised that payment does not guarantee that the records you have requested constitute public records (in Whole 0r iu part, i.e., redacted), but only authorizes this Office to conduct its Search and retrieval to determine if responsive records exist, and if so, Whether said records are public records. Should actual Search, retrievàl, and copying fees exceed pre-payment, this office will advise you to seek your authorization before continuing. Should your pre-payment exceed actual Search, retrieval, and copying, you will, of course, be reimbursed.

Given the voluminous nature of your public records request, the time for this office to respond is extended an additional twenty (20) business days as set forth in Rl. Gen. Laws 38-2-3(e). Notwithstanding this extension, the time period for this office to respond to your request is also tolled as ofthe date of this letter pending pre-payment and authorization.

Sadly for me, RI Future doesn’t yet enjoy such access to capital. But if you want to help us get to the bottom of this, please make a donation here. If I’m able to raise the $435, I’ll send Raimondo a check and we can begin the process of getting some answers.

April 4, 2013April 5, 2013

Forbes Trashes Raimondo

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Don’t file this one under Raimondomia as Forbes offers a very harsh criticism of General Treasurer/gubernatorial candidate Gina Raimondo. Ted Siedle writes that Rhode Island’s pension reform, which has attracted many accolades, “will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms.”

And those were among the kinder words he had for Raimondo and her pro-Wall Street prescription for pension reform.

There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits. It’s no surprise that some of Wall Street’s wildest gamblers have backed her so-called pension reform efforts in the state legislature. Former Enron energy trader emerges as a leading advocate for prudent management of state worker pensions? That’s more than a little ironic.

Siedle, who bills himself as “the pension detective,” offers several critiques of how Raimondo is investing Rhode Island’s pension fund, saying her high risk strategy seems designed to benefit the financial industry more than retirees or taxpayers. He also writes, “The pension committed $5 million in 2007 to a Point Judith II venture fund managed by the soon-to-be Treasurer. Someone should take a close look at the merits related to the decision to invest in Point Judith II.”

And he offers particularly harsh criticism of Raimondo’s relationship with Engage Rhode Island:

Any connection, direct or indirect, between the pension and donors to this tax-exempt political organization backing the Treasurer should be investigated, in my opinion. The lack of transparency and regulation related to alternative investments gives rise to almost endless possibilities for abuse and I’ve learned to expect anything.

I thought this was one of his most interesting observations: “‘The cost of public employee benefits in most states and communities is unsustainable,’ says the foundation’s website. Not-so-sure about that; on the other hand, it is well-established that the cost and any short-term outperformance of hedge funds are unsustainable. The cure for unsustainable pensions is unsustainable investing?”

So what does sustainable mean? Is it what taxpayers can afford to spend, or what they want to spend?

March 18, 2013March 19, 2013

Was Labor ‘At The Table’ For Pension Legislation?

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Probably a big point of contention as Rhode Island and its public sector retirees try to mediate a compromise on pension reform will be whether or not organized labor was considered when drafting the legislation.

As few hundred Providence fire fighters, police officers and other public sector union members protested outside a conference for Bond Buyers in downtown Providence today to call continued attention to pension cuts that hurt members’ retirement security, there were some different opinions on this matter.

Inside the conference, General Treasurer Gina Raimondo was telling the room full of bond investors that, “In Rhode Island this was never about Democrat versus Republican, union versus management, labor versus management us, vs them.”

It struck me as odd that Raimondo said pension cuts didn’t pit public sector retirees against taxpayers.

Especially since Paul Valletta, of the Providence fire fighters union, said they are protesting every public event Raimondo appears at because they weren’t at the table.

Here’s what Valletta told me outside:

Inside the conference, Gina Raimondo disagreed with this characterization.

So I asked Governor Chafee, who also spoke at the Bond Buyers conference, to break the tie.

I attended many of the public meetings Chafee and Raimondo held with labor leaders physically at the table. Those public meetings were not where the substance of the actual pension cuts were crafted. That likely happened behind closed doors between Raimondo and legislative leaders before the special session in November of 2011.

March 8, 2013

The Jilted Spouse

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Here’s a familiar story. A man and a woman get married when they’re young. Time passes, they age, they grow, and, before you know it, 25 years have passed. Then, one day, with no real warning, the man tells the wife that she’s too old. He’s dumping her for a younger woman who doesn’t have the wife’s expensive tastes. The wife protests, pleads, but to no avail. The husband has made up his mind. He’s leaving, selling the house, and moving out, more or less dumping the wife on the street. T0o bad.

This story is so cliche, so hackneyed, that selling it as a book or movie would be very difficult. However, it’s a story that I believe conservatives, libertarians, and–especially–capitalists love. It’s not just a story for them; it’s a paradigm, an ideal, an aspiration. They look for opportunities to do this, they lust over such opportunities to find a younger, less empowered, more pliable partner that can be browbeaten and coerced more easily than the stronger, more mature woman.

Of course, I’m not talking about marriage. It’s a parable, similar to the one told to King David after he’d arranged for the death of Bathsheba’s husband. The king became outraged, and then he was made to realize that he was the culprit.

The news just broke that yet another large, powerful corporation has decided to dump long-serving employees and replace them with younger, cheaper replacements in a warmer climate.

2o years, 3o years of service? Too bad. You’re out. We want younger, cheaper people somewhere that has a lower standard of living. Your loyalty? Who freaking cares?

When I have suggested that corporations behave in such a manner, I’ve been met with howls of protest from the corporate lackeys, who call me a hater, an anti-corporate socialist (somehow, the lowest form of life). When I provide examples, like the one above, I’m called a liar. And yet there are several hundred (the exact number is hard to pin down) families in RI and environs having grim dinner time conversations because the job that’s been there, to which they’ve given their youth and the best years of their life is being pulled out from under them. There was no warning. Just a hastily-assembled meeting or phone call.

And then there will be those howling that this is what companies have to do to take care of their shareholders. What a load of crap. Moves like this, generally, provide a quick bump in stock price, but have almost zero long-term positive effect on stock price. What they do impact are bonuses; the ones who made the “tough choices” are amply rewarded while those suffering the tough consequences are often left twisting in the wind.

And whatever happened to the employer’s loyalty to its employees? I believe that Econ 101 teaches that an employer will nurture its valuable employees because of the value they add. Funny, the people screaming that minimum wage increases will cost jobs because “that’s just Econ 101” must have been hungover and slept through class the day that employer loyalty was discussed. I keep going back to Henry Ford, but the dude was almost violently anti-communist, and this is why he decided to pay his good employees enough to keep them. He knew he was buying their loyalty, and paying them enough to be able to buy his product.

IOW, he took the long-term view, which today’s short-term managers almost never do. For most of today’s managers–and that’s all that CEOs are, for the most part: hired help, not the steely-eyed builders of a business as per the Ayn Rand fantasy world–are all well-schooled in the I’ll Be Gone school of management. This teaches: “loot the company, make your money, and leave before the chickens come home to roost.”

The other issue that conservatives claim is that people who lose their jobs are responsible. So tell me: how do several hundred people all screw up so badly as individually that they get fired collectively? How does that work? Outside of the Ayn Rand fantasy world? All of them? All at once?

No, their collective sin is that they’ve stayed too long. They’ve been loyal employees, through thick and thin, for better and for worse, in sickness (by coming to work instead of taking care of themselves) and in health, through good times and bad. So their collective reward is to be told that the company is moving south; of course, they’re welcome to apply for their old job, but they might end up with a pay cut.

This, so the company can pay people at the lower end of a lower scale, and, not coincidentally, get rid of older employees whose health has perhaps deteriorated–perhaps because they worked when they should have been home sick–and replace them with employees that are not only younger, but in better health. So they won’t cost so much in sick time or disability leave. And of course, the long-service employees will no longer be able to fund the pension that they were guaranteed when they signed on, limiting future pension liability. And of course, the new hires won’t get anything as archaic as pensions, even though the evidence against the efficacy of 401(k) programs is starting to mount. No, grind out your life working until the magic day you drop dead. And, btw, be so kind as to do that sooner rather than later. The corporate overlords thank you for your consideration.

So welcome to the working world, in this brave new millennium. Because this is exactly how things are, my friends. Welcome to the working world–just don’t expect to stay too long.

January 1, 2013January 2, 2013

Let’s Have 2013 Be A Year For Action in Rhode Island

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It’s hard to know, only one sunrise removed, how 2012 will be remembered in Rhode Island. In so many ways, it seems it was a year defined by inaction.

Most notably, we watched as our $75 million investment in a baseball player’s ability to launch a video game company – not surprisingly – went south. The only actions we took toward reversing the recession was rejecting new ideas, neither tinkering with the tax code or the EDC. There were no big upsets in the election. The biggest policy change was the way the legislature dismantled oversight of all public education without a lot of rhyme or reason or even a clear path forward.

With that in mind, how about we make a resolution to get something done in 2013? Here are some ideas:

Let’s restructure our tax code soup to nuts. Everyone seems to agree something needs to be done here. Ideas range from, on the left, steep increases, to, on the right, eliminating sales taxes altogether. More moderate proposals exist too: Gov. Chafee has proposed lowering and broadening sales taxes. Rep. Maria Cimini suggests tying top income tax rate reductions to unemployment, to incentive job creation. Rep. Teresa Tanzi has called for examining existing tax breaks.

Let’s make national news for the way we debate marriage equality at the State House. Let’s have spirited rallies and protests; let’s debate the merits in an open, honest and transparent manner; let’s hear from all sides and respect our cultural and political differences.

Let’s become the first state in the northeast to legalize marijuana. There is across-the-board, bipartisan support for this and virtually no real opposition or drawbacks. Guaranteed, it would generate tens of millions of dollars in brand new revenue, reduce crime and and save state resources, make it harder for kids to get drugs and create jobs in a new, green industry that would compliment existing economic strengths. Meanwhile, one or two cops and drug counselors will testify that it would make their jobs a little bit harder.

I think everyone can agree that 2013 should also be the year we put pension reform politics in the past tense. Let’s come to a compromise that saves money, sustains the system and respects retiree rights. Let’s have Angel Taveras mediate the deal and move on already.

I think we can also agree that we’ve got a pretty good opportunity to have a big picture conversation about education policy. As we reset the boards that oversee public education, et’s talk about what we want to get out of our investment in it – happy workers, high test scores, enlightened minds, employable labor, economic engines? All of the above, right? We can do that!

We can do all of this, and make Rhode Island a way better place to live and do business in as a result.

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