A new study published by Pioneer Institute finds that issuing pension obligation bonds (POBs) to refinance $360 million of the MBTA Retirement Fund’s (MBTARF’s) $1.3 billion unfunded pension liability would only compound the T’s already serious financial risks.
With POBs, government entities deposit revenues from bond sales into their pension funds and use the money to make investments they hope will deliver returns that outpace borrowing costs.
“Virtually every study of POBs finds that timing and duration of the bond issues are critical,” said E.J. McMahon, author of “Rolling the Retirement Dice.” “Bonds floated at the end of a bull market are the most likely to lose money, and that makes this idea a wrong turn at the worst possible time.”
If investments don’t meet a pension fund’s assumed rate of return, it could be left with debt service costs in addition to the pre-existing unfunded liability. In 2015, the Government Finance Officers Association bluntly warned that “State and local governments should not issue POBs.” It reaffirmed its guidance last year.
The economic harms of the gross receipts tax (GRT) were well understood by the early 20th century. Not only is the tax inequitable, but it is also inefficient and distortionary. That is why most states abandoned GRTs in the early 1900s, as states developed the capacity to administer less harmful taxes. Unfortunately, some policymakers in Massachusetts want to turn back the clock.
Today, only a handful of states levy any variation of the GRT. Those that still rely on them as a significant source of revenue (like Texas, Nevada, Ohio, and Washington) typically do so in lieu of one or more alternative taxes. None of these states imposes a corporate income tax, and Ohio repealed several other business taxes as well when it adopted its GRT.
Some Massachusetts policymakers, however, want to layer a GRT atop the state’s existing corporate income tax. If H.2855 becomes law, it would reduce the competitiveness of the Bay State and increase prices for consumers on already expensive goods and services. To make matters worse, Bay Staters would be asked to shoulder the added tax burden at a time when inflation is already eroding purchasing power at a rate not seen 1982.
Massachusetts’ $95.7 billion state pension fund has preliminarily approved a plan to invest up to $1 billion in emerging-diverse managers over the next two years. The move is part of the Massachusetts Pension Reserves Investment Management (PRIM)’s initiative to abide by the state’s investment equity law, which contains a target of at least 20% diversity among PRIM’s vendor base.
“The PRIM team, by investing $1 billion into its emerging-diverse managers program, is taking important steps in addressing the inequities endemic in the financial services sector,” State Treasurer Deborah Goldberg, who is also the chair of PRIM’s board, said in a statement. “This is real and tangible progress that will reduce barriers and expand opportunities for diverse investment managers.”
We call it the “Zombie Index” based on the work of Edward Kane, a prolific and respected finance professor at Boston College. Back in 1985 and 1989, Ed wrote two books warning about taxpayer exposure to losses from bank deposit insurance schemes, before we knew what hit us in the savings and loan crisis. Ed coined the term “zombie bank” to identify effectively-insolvent banks that were allowed to remain open by regulators and others. Deceptive accounting principles greased the wheels for regulatory forbearance, making “zombies” appear to be solvent.
Zombies had incentives, in Ed’s terms, to “gamble for resurrection.” Insiders could capture the upside of riskier investments, while prospective losses could be socialized through the government’s sponsorship (and ultimately, bailout) of deposit insurance systems. These incentives ended up magnifying taxpayer losses during the 1980s deposit insurance crisis. Those losses ran in the hundreds of billions of dollars and helped set the stage for the massive financial crisis of 2008-2009.
According to statistics from The Associated Press, the five states with the highest percentage of a fully vaccinated population are all in New England, with Vermont leading, followed by Connecticut, Maine, Rhode Island and Massachusetts. New Hampshire is 10th.
Case counts in Vermont, which has continually boasted about high vaccination and low hospitalization and death rates, are the highest during the pandemic. Hospitalizations are approaching the pandemic peak from last winter and September was Vermont’s second-deadliest month during the pandemic.
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.
Opposition is mounting on a bill that seeks to boost pension payouts for public employees who went to work throughout the pandemic at the expense of billions to taxpayers despite widespread support from lawmakers on both sides of the aisle.
The Pioneer Institute, a government watchdog, sounded the alarm with a public statement that estimates the cost of the “broadly” worded bill “would be in the billions of dollars.”
The bill would let public workers cash in on three extra years of service for their pensions when they retire if they worked — or volunteered to work — outside their home anytime between March 10 and Dec. 31 of last year, according to the legislation filed by state Rep. Jonathan Zlotnik, D-Gardner, and Sen. John Velis, D-Westfield. Sen. Nick Collins, D-Boston, filed a companion bill in the Senate.
Massachusetts Fiscal Alliance spokesman Paul Diego Craney echoed Pioneer’s concerns, saying lawmakers “are attempting to boost some of their own pensions in a bill framed as crediting essential workers that risked their health in the earlier days of the pandemic.”
The bill has gained the signatures of more than 100 lawmakers from both sides of the aisle.
Massachusetts Republican Party Chairman Jim Lyons also denounced the proposal on Monday, calling it a “slap in the face” to anyone who lost their job or their livelihood due to COVID-19 emergency regulations.
The text of the bill, H. 2808/S. 1669, is brief. All employees of the state, its political subdivisions, and its public colleges and universities, a bonus of three years “added to age or years of service or a combination thereof for the purpose of calculating a retirement benefit,” if, at any point between March 10, 2020 and December 21, 2020, they had “volunteered to work or who [had] been required to work at their respective worksites or any other worksite outside of their personal residence.”
In subsequent reporting, government watchdog group The Pioneer Institute voiced its opposition. In a statement posted on their website, they criticized the broad coverage — acting as an unfunded mandate for municipalities, including workers even if they had worked outside their home for a single day, encompassing both blue collar and white collar workers. They estimate the bill’s cost at “in the billions of dollars” and point to a massive boost even for a single individual, the president of the University of Massachusetts, whose lifetime pension benefit would increase by $790,750.
And left out of Zlotnik’s proposal is a recognition that the state’s main retirement fund is 64% funded, and the teachers’ fund, 52%, as of 2019.
Koch claims that this new plan and bond will save the city lots of money each year and set a consistent expectation of expenses for pension payments. Quincy’s pensions and health insurance are the largest fixed costs the city has that change annually, so Mayor Koch wants these issues to be top priorities when it comes to discussing the city budget. The proposal was sent on Monday and city councilors sent it to the council’s finance committee, which has yet to schedule a hearing for the proposal.
On August 4, 2010, Massachusetts passed “An Act Relative to Pension Divestment from Certain Companies that Invest in the Republic of Iran.” The act directs the Massachusetts public pension funds to divest from certain companies “providing goods or services deployed to develop petroleum resources in Iran.”
In an effort to avoid conflict with federal policy, the Massachusetts act has two features. First, it exempts from state divestment “any company” that the US “affirmatively declares to be excluded from” federal sanctions. Second, the act has a sunset provision. The act expires if (1) the US “remov[es] Iran from its list of state sponsors of terrorism and certify[ies] that Iran is no longer pursuing a nuclear capability in violation of its international commitments and obligations,” or (2) the president “declar[es] that [the Massachusetts act] interferes with the conduct of the United States foreign policy.”
The Massachusetts Iran boycott has a long pedigree. In New England and other colonies, the founding generation considered the boycott of English tea and other products to be a wise alternative to war. Prior to the Civil War, Massachusetts abolitionists urged private boycotts of Southern goods. In the 1980s, Massachusetts was one of scores of states and cities to enact divestment and selective purchasing laws regarding South Africa. In 1996, Massachusetts restricted state purchasing from companies doing business in Burma, though the act was later struck down by the Supreme Court. Massachusetts today maintains laws restricting state investment or procurement with Sudan, China, and Northern Ireland.
COVID-19 vaccination, particularly the disparity of rates between racial and ethnic groups, takes up much of the current talk about the pandemic. The Massachusetts Department of Public Health (DPH) publishes vaccination data every day, for municipalities, tracking rates by age group, racial and ethnic groups, and by gender.
Pioneer is proud to present a new vaccine tracker, the newest tool in our COVID-19 tracking project. Pioneer distilled the vaccination data down to those who are either fully vaccinated or partially vaccinated, by all the demographic categories published by the DPH. Use the new tool below to compare rates among groups, by municipality and by county. We will update the data every week.
Week 1 Monday, May 10: (General) Actuarial Transformation: Trends & Insights across Data, Processes, Models, and People
Tuesday, May 11: (Life) Consolidated Appropriations Act, 2021: Changes to IRS code Section 7702 Wednesday, May 12: (General/Professionalism) Emerging Professionalism Issues in 2021 Thursday, May 13: (Investments) Macro Economic & Market Update
Thursday, May 13, 4pm EDT: (General) Networking Session Friday, May 14: (Health) The Role of Behavioral Health‐Now and in the Future
Week 2 Monday, May 17, 9am EDT: (General) Actuaries Working in International Landscape Tuesday, May 18: (Health) Health Technology, Consumerism and the Explosion of Telehealth Wednesday, May 19: (Pension) New Pension Relief under ARPA: Its Implications for Pension Plans Thursday, May 20: (Life/Annuities) Mortality Differential by Socioeconomic Categories in the US Friday, May 21: (Life/Annuities) Life Reinsurance 101 Panel Discussion