According to an audit released May 26 by State Comptroller Tom DiNapoli’s office, the Thruway Authority, which completed a transition to a cashless tolling system in 2020, has “struggled to collect hundreds of millions of dollars in unpaid fees.” The total of uncollected fees is hefty by any standard. As of March, it was $276.3 million in unpaid funds in collection status, with out-of-state drivers accounting for $119 million, or 43% of this amount.
The timing isn’t great for this news. In December, the Thruway Authority proposed that 2024 rates increase by 5% for E-ZPass holders statewide, with a second increase in 2027 of another 5%.
DiNapoli’s audit recommends ways the Thruway Authority could better identify, bill and collect tolls and related fees. The authority agreed with three of the audit’s 11 recommendations, and did not comment on whether it agreed or disagreed with eight others.
According to the audit, the clue as to where the leakage might be found is in the collection process. The audit “found a lapse in the authority’s recouping of unpaid tolls” after the expiration of a contract with the authority’s collections vendor in September 2020. The authority signed a contract with a new vendor in January 2021 but did not send the new vendor any of the remaining unpaid accounts until July 2021, nine months after the prior contract’s expiration.
More than 90% of Thruway revenue comes from tolls and related fees, with the vast majority coming from EZ-Pass users and the rest from toll-by-mail payments. As the audit noted, the Thruway Authority collected $804 million in tolls and related revenues in 2021.
State Farm General Insurance Co. last week became the latest insurer to retreat from California’s homeowners market. The culprit isn’t climate change, as the media claims in parroting Sacramento talking points. The cause is the Golden State’s hostile insurance environment.
The nation’s top property and casualty insurer on Friday said it won’t accept new applications for homeowners insurance, citing “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
In other words, State Farm can’t accurately price risk and increase its rates to cover ballooning liabilities. Other property and casualty insurers, including AIG and Chubb, have also been shrinking their California footprint after years of catastrophic wildfires, which are becoming more common owing to drought and decades of poor forest management.
The Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank, guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets.
This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes.
Wall Street and Silicon Valley were in full panic over the weekend demanding that the Treasury and Fed intervene to save the day. It’s revealing to see who can keep a cool head in a crisis—and it wasn’t billionaire hedge-fund operator Bill Ackman or venture investor David Sacks, both frantic panic spreaders.
The Federal Deposit Insurance Corp. closed SVB, and the cleanest solution would be for the agency to find a private buyer for the bank. This has been the first resort in most previous financial panics, and the FDIC was holding an auction that closed Sunday afternoon.
But there is political risk from a bailout too. If the Administration acts to guarantee deposits without Congressional approval, it will face legitimate legal questions. The White House may choose to jam House Speaker Kevin McCarthy if markets aren’t mollified. But Mr. McCarthy has a restive GOP caucus as it is, and a bailout for rich depositors will feed populist anger against Washington.
The critics have a point. For the second time in 15 years (excluding the brief Covid-caused panic), regulators will have encouraged a credit mania, and then failed to foresee the financial panic when the easy money stopped. Democrats and the press corps may try to pin the problem on bankers or the Trump Administration, but these are political diversions.
Meanwhile, in Congress the Retirement Savings Modernization Act was just introduced to allow cryptocurrency and just about anything short of lottery tickets into America’s 401(k) accounts. The alternative asset industry — private equity, hedge funds, venture capital, real estate, and more — has been trying for years to offer their speculative products — and reap huge fees in the process — through personal retirement accounts as they are already able to do in some public pensions, such as Ohio’s.
There has been no legal barrier to these investments, and the Trump administration’s Department of Labor went so far as to specify that alternative investments could be part of 401(k)s, a decision affirmed by the Biden Administration. But companies administering 401(k) accounts are fiduciaries, and they’ve avoided alternative investments in fear of getting sued for breach of fiduciary duty for offering them to workers. For decades, prudence has prevailed and 401(k) retirement accounts have not allowed high-fee, illiquid funds as a 401(k) option.
The proposed bill simply states that alternative investments, despite the higher fees associated with them, are “covered” investments that do not establish fiduciary breach by their presence in a 401(k) plan. The cloak of congressionally created cover for alternative investments is needed because the current commonsense assumption is that the mere presence of these investments is strong evidence fiduciary duty has been breached.
Alarm bells should be ringing about the Ohio Police & Fire Pension following the release of a fiduciary audit of the fund, finished six years after the legal deadline.
Ignoring the law falls on the Ohio Retirement Study Council and their creator, the Ohio General Assembly. But the warnings on investment risk within the OP&F portfolio demand immediate, widespread attention.
The combined pension contribution for police is 31.75 percent of their salary and with firefighters the employer-employee combination is 36.25 percent.
Ohio Police & Fire is “clearly thinking outside the box,” according to Funston Advisory Services. “OP&F is among a very small number of major institutional investors to have adopted a risk parity investment approach across the plan’s entire investment structure,” Funston tells us. Ohio’s police and fire pension is also a pioneer in an investment strategy called “portable alpha.”
In each case, the characteristic that separates OP&F from the rest of the public pension pack is “meaningful use of portfolio leverage.” The Ohio safety forces pension is using one of the riskiest investment strategies in America. The 25 percent of leverage showing on the balance sheet is actually much higher because the alternative investments also include leverage.
The entire portfolio is managed by outside managers, 135 fund managers by our count, who pulled down “mind boggling” fees according to pension expert Richard Ennis. If Mr. Ennis’ name sounds familiar you probably remember he was the expert Ohio turned to for comprehensive analysis of the Coingate scandal at the Ohio Bureau of Workers Compensation. Mr. Ennis gave us an assessment of the OP&F performance over the last 10 years that indicates the pension matched the results of an index fund despite the high fees.
The California Public Employees’ Retirement System reported a negative 6.1% return for the year, which includes a 21.3% positive return on private equity and 24.1% return on real estate as reported through the second quarter of 2022. What will happen if real-estate prices start to fall and some leveraged private-equity buyouts go south amid rising interest rates?
Collective-bargaining agreements limit how much workers must contribute to their pensions, so taxpayers are required to make up for investment losses. Employer retirement contributions—that is, taxpayers—make up 20% of government worker compensation. That amount has soared over the past decade as pension funds tried to make up for losses during the 2008-2009 financial panic.
A recent report by the Equable Institute found that state and local pension plans now are only 77.9% funded on average, which is about the same as in 2008. But some like Chicago’s are less than 40%. Advice to taxpayers in Illinois: Run.
“Between 1990 and 2018,” the paper reports, “the U.S. White-Black life expectancy gap decreased from 7.0 to 3.6 years.” A black person born in the U.S. in 1990 could be expected to live to about age 69, compared to 76 for a white person. In the intervening generation, black life expectancy rose about twice as fast as white life expectancy. A black person born in 2018 could be expected to live just over age 75, compared to just under 79 for a white person.
The drivers, the authors say, are primarily “greater reductions in Black relative to White death rates due to cancer, homicide, HIV, and causes originating in the fetal or infant period.” The most pronounced reductions in black mortality are among children and adults under age 65, rather than the elderly.
“Deaths of despair” (deaths from suicide, drug overdoses, and alcohol-related disease) increased among black and white Americans, especially in the last decade, but took a larger toll on white life expectancy. That accounted for 16.2% of the narrowing of the racial gap. The linear extension of life expectancies for both races stopped after 2012, meaning that it’s hard to see much effect from ObamaCare’s health insurance expansion in the data.
And it doesn’t apply just to state and municipal workers who had to actually go into work during the pandemic; they must only have “volunteered to work… at their respective worksites or any worksite outside of their personal residence.” Employees who went in for a single day would also qualify. So do employees who worked from home but one day when the internet was down went to a family member’s home to work. (They meet the provision that you did your job from a “worksite outside of [your] personal residence.”)
Administrators, accountants, techies, teachers, finance officers, grant writers, trash collectors and all those paid with public dollars are potentially in line for the benefit. As currently written, state legislators are eligible to take advantage of the bill. More than half of the Legislature has signed on to H.2808. Support spans the political spectrum. The bill may provide a jump in pension benefits for those employed during the pandemic who have already retired.
Pioneer estimates that the bill’s cost would be in the billions of dollars. As of this May, the state pension fund, state Teachers’ Retirement System and the Boston Teachers Retirement system were underfunded by a combined $44 billion. Annual payments to the systems are scheduled to rise from the current $3.1 billion to nearly $12.4 billion over the next 15 years, and would be even higher under H.2808. The bill would also further burden over 100 local pension funds in the Commonwealth, many of which are already woefully underfunded.
The Labor Department’s consumer price index surged 5% year-over-year in May, the largest increase since August 2008 when oil was $140 a barrel. But don’t worry, Americans. The Federal Reserve says inflation is “transitory” and that it has the tools to control prices if they start to spiral out of control. Let us pray.
Nobody should be surprised that prices are increasing everywhere from the grocery store to the car dealership. Demand is soaring as the pandemic recedes while supply constraints linger, especially in labor and transportation. As always, this is a price shock largely made by government. Congress has shovelled out trillions of dollars in transfer payments over the past year, and the Fed has rates at zero while the economy may be growing at a 10% annual rate.
The personal savings rate in April was 14.9%, double what it was before the pandemic. Record low mortgage interest rates have enabled homeowners to lower their monthly payments to burn more cash on other things. Congress’s $300 unemployment bonus and other welfare payments for not working have contributed to an enormous worker shortage, which is magnifying supply shortages.
All of this is showing up in higher prices. Over the last 12 months, core inflation excluding food and energy is up 3.8% and much more for used cars (29.7%), airline fares (24.1%), jewelry (14.7%), bikes (10.1%) and footwear (7.1%). Commodity prices from oil to copper to lumber have surged. Higher lumber prices are adding $36,000 to the price of a new home.
Less than half a year into the Biden Presidency, the Internal Revenue Service is already at the center of an abuse-of-power scandal. That news broke Tuesday when ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans.
Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from “an anonymous source” and doesn’t know who provided them, how they were obtained, or what the source’s motives are.
Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their “fair share.” The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade.
This still leaves the real scandal, which is that someone leaked confidential IRS information about individuals to serve a political agenda. This is the same tax agency that pursued a vendetta against conservative nonprofit groups during the Obama Administration. Remember Lois Lerner?
This is also the same IRS that Democrats now want to infuse with $80 billion more to chase a fanciful amount of uncollected taxes. As part of this effort, Mr. Biden wants the IRS to collect “gross inflows and outflows on all business and personal accounts from financial institutions.” Why? So the information can be leaked to ProPublica?
A closer look at the FRS shows that there is no problem to be fixed, leaving SB 84 little more than a vehicle to divert millions that would appreciate over time into alternative — and riskier — investment funds managed by Wall Street firms friendly to Republican politicians.
The Senate’s consternation over Florida’s retirement program might surprise people who actually know something about it. The state’s pension program still has a AAA credit rating and a very manageable liability relative to the size of Florida’s economy. Its funded ratio sits among the nation’s best. Its sizeable returns on investment pay the bulk of retirement benefits.
“I would say overall that we’re in a reasonably good place, and we’re heading in the right direction,” said Ash Williams, executive director and chief investment officer for the State Board of Administration, the body responsible for managing the state’s defined contribution program.
It’s getting harder for the Biden Administration to claim we’re in an economic crisis that demands more spending. It’s closer to the truth to say the economy is growing in a way that calls for spending and monetary restraint.
The latest evidence arrived Monday with the Institute for Supply Management’s news that its March survey for service businesses hit 63.7. That’s an all-time high, and it signifies rapid growth and optimism. The only problem is that many businesses say they can’t find enough workers or supplies to meet their order books.
That follows Friday’s blowout employment report for March, with a net total of 1.07 million new jobs including revisions from the previous two months. Wage gains were bigger than they looked at first glance, given that many returning workers were those in lower-wage services jobs hurt by the pandemic.