|
Post by macrockett on Sept 4, 2009 21:18:10 GMT -6
No, I'm not talking about D204, at least not yet. In due time though. This is the big picture debt for those who, for whatever reason, haven't been paying attention the the federal scene.
The Wall Street Journal SEPTEMBER 4, 2009, 10:20 P.M. ET
Warning: The Deficits Are Coming! The former head of the Government Accountability Office is on a crusade to alert taxpayers to their true obligations.
By JOHN FUND
Washington, D.C.
David Walker sounds like a modern-day Paul Revere as he warns about the country's perilous future. "We suffer from a fiscal cancer," he tells a meeting of the National Taxpayers Union, the nation's oldest anti-tax lobby. "Our off balance sheet obligations associated with Social Security and Medicare put us in a $56 trillion financial hole�and that's before the recession was officially declared last year. America now owes more than Americans are worth�and the gap is growing!"
His audience sits in rapt attention. A few years ago these antitax activists would have been polite but a tad restless listening to the former head of the Government Accountability Office, the nation's auditor-in-chief. Higher taxes is what hikes their blood pressure the most, but the profligate spending of the Bush and Obama administrations has put them in a mood to listen to this green-eyeshade Cassandra. "He's so unlike most politicians," says Sharron Angle, a former state legislator from Nevada, "his message is clear, detailed and with no varnish."
Mr. Walker, a 57-year-old accountant, didn't set out to be a fiscal truth-teller. He rose to be a partner and global managing director of Arthur Anderson, before being named assistant secretary of labor for pensions and benefits during the Reagan administration. Under the first President Bush, he served as a trustee for Social Security and Medicare, an experience that convinced him both programs are looming train wrecks that could bankrupt the country. In 1998 he was appointed by President Bill Clinton to head the GAO, where he spent the next decade issuing reports trying to stem waste, fraud and abuse in government.
Despite many successes, he was able to make only limited progress in reforming Washington's tangled bookkeeping. When he arrived he was told the Pentagon was nearly a decade away from having a clean audit, or clear evidence that its financial statements were accurate. When he left in 2008, he was told the Pentagon was still a decade away from that goal. "If the federal government was a private corporation, its stock would plummet and shareholders would bring in new management and directors," he said as he retired from the GAO.
Although he found the work fulfilling, Mr. Walker said he decided to leave last year with a third of his 15-year term left because "there are practical limits on what one can�and cannot�do in that job." He became president and CEO of the Peter G. Peterson Foundation, a group seeking to educate the public and policy makers on the need for fiscal prudence. Although it accepts private donations, its own future is secure given that Mr. Peterson, a former head of the Blackstone private equity firm and secretary of commerce under Richard Nixon, has endowed it with a $1 billion gift.
We met to hash over current events in his tastefully appointed office just off of New York's Fifth Avenue. Mr. Walker, a lean man with an unflappable demeanor, welcomed me with the observation that he's never been in more demand as a speaker "but it's only because everyone is so worried for our future."
His group calls itself strictly nonpartisan and nonideological, and that seems to limit how tough and specific it can be. Last year, it released a documentary "I.O.U.S.A.," that followed Mr. Walker as he toured the country on his fiscal "wake up" tour. The solutions the film proposes for the debt crisis are either glib or gray: The country should save more, reduce oil consumption, hold politicians accountable and get more value from health-care spending.
But in its diagnosis of the problem the film scores a bull's-eye. Among the fiscal hawks featured in the film is Rep. Ron Paul, who memorably tells Alan Greenspan that if doctors had the same success rate in meeting his goals as the Fed has had, patients would be dead all over America.
Mr. Walker's own speeches are vivid and clear. "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease."
Mr. Walker identifies the disease as having a basic cause: "Washington is totally out of touch and out of control," he sighs. "There is political courage there, but there is far more political careerism and people dodging real solutions." He identifies entrenched incumbency as a real obstacle to change. "Members of Congress ensure they have gerrymandered seats where they pick the voters rather than the voters picking them and then they pass out money to special interests who then make sure they have so much money that no one can easily challenge them," he laments. He believes gerrymandering should be curbed and term limits imposed if for no other reason than to inject some new blood into the system. On campaign finance, he supports a narrow constitutional amendment that would bar congressional candidates from accepting contributions from people who can't vote for them: "If people can't vote in a district not their own, should we allow them to spend unlimited money on behalf of someone across the country?"
Recognizing those reforms aren't "imminent," Mr. Walker wants Congress to create a "fiscal future commission" that would hold hearings all over America to move towards a consensus on reform. It would then present Congress with a "grand bargain" on entitlement and budget-control reforms. Its recommendations would be guaranteed a vote in Congress and be subject to only limited amendments. I note that critics have called such a commission an end-run around the normal legislative process. He demurred, saying that Congress would still have to approve any recommendations in an up-or-down vote�much like the successful base-closing commission created by GOP Rep. Dick Armey in the 1980s.
What kind of reforms would Mr. Walker hope the commission would endorse? He suggests giving presidents the power to make line-item cuts in budgets that would then require a majority vote in Congress to override. He would also want private-sector accounting standards extended to pensions, health programs and environmental costs. "Social Security reform is a layup, much easier than Medicare," he told me. He believes gradual increases in the retirement age, a modest change in cost-of-living payments and raising the cap on income subject to payroll taxes would solve its long-term problems.
Medicare is a much bigger challenge, exacerbated by the addition of a drug entitlement component in 2003, pushed through a Republican Congress by the Bush administration. "The true costs of that were hidden from both Congress and the people," Mr. Walker says sternly. "The real liability is some $8 trillion."
That brings us to the issue of taxes. Wouldn't any "grand bargain" involve significant tax increases that would only hurt the ability of the economy to grow? "Taxes are going up, for reasons of math, demographics and the fact that elements of the population that want more government are more politically active," he insists. "The key will be to have tax reform that simplifies the system and keeps marginal rates as low as possible. The longer people resist addressing both sides of the fiscal equation the deeper the hole will get."
I steer towards the fiscal direction of the Obama administration. He says his stimulus bill was sold as something it wasn't: "A number of people had agendas other than stimulus, and they shaped the package."
As for health care, Mr. Walker says he had hopes for comprehensive health-care reform earlier this year and met with most of the major players to fashion a compromise. "President Obama got the sequence wrong by advocating expanding coverage before we've proven our ability to control costs," he says. "If we don't get our fiscal house in order, but create new obligations we'll have a Thelma and Louise moment where we go over the cliff." Mr. Walker's preferred solution is a plan that combines universal coverage for all Americans with an overall limit on the federal government's annual health expenditures. His description reminds me of the unicorn�a marvelous creature we all wish existed but is not likely to ever be seen on this earth.
As I prepare to go, Mr. Walker returns to the theme of economic education. Poor schools often produce young people with few tools to help them realize the extent of the fiscal trap their generation is going to fall into.
One way the Peterson Foundation wants to change that is to bring big numbers down to earth so people can comprehend them. "Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income�so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to." As for this year's likely deficit of $1.8 trillion, Mr. Walker suggests its size be conveyed thusly: "A deficit that large is $3.4 million a minute, $200 million an hour, $5 billion a day," he says. That does indeed put things into perspective.
Despite an occasional detour into support for government intervention, Mr. Walker remains the Jeffersonian he grew up as in his native Virginia. "I view the Constitution with deep respect," he told me. "My ancestors and those of my wife fought and died in the Revolution, and I care a lot about returning us to the principles of the Founding Fathers."
He notes that today the role of the federal government has grown such that last year less than 40% of it related to the key roles the Founders envisioned for it: defense, foreign policy, the courts and other basic functions. "What happened to the Founders' intent that all roles not expressly reserved to the federal government belong to the states, and ultimately the people?" he asks. "I'm pleased the recent town halls show people are waking up and realizing it's time to pay attention to first principles."
With that we parted, as he had to get back to work. Today's Paul Revere is hard at work on a book due out in January from Random House that will be called, "Come Back America."
Mr. Fund is a columnist for WSJ.com.
|
|
|
Post by macrockett on Sept 4, 2009 21:23:04 GMT -6
And why do we have those deficits? Read on....
Behind FHA Strains, a Push to Lift Housing Worry Mounts That Federal Agency, a Mortgage Insurer, Will Need a Bailout as Its Cash Dwindles and Role in Market Grows
By NICK TIMIRAOS
As it tried to help shore up the ailing housing market during the past year, the Federal Housing Administration increased its exposure, particularly to mortgages in high-cost states that have also seen some of the sharpest price declines.
Now concerns are mounting that the agency -- and the U.S. taxpayer -- may have to pay the price.
The FHA insures loans secured with down payments as low as 3.5%. But values in many markets in which it has been increasing its activity have fallen far more than that in the past year. The result: A growing number of homeowners with FHA-backed loans owe more than their homes are worth and are more likely to default.
Officials worry that the resulting losses will help push the FHA's reserves below the level required by Congress. The value of those reserves will be revealed in the agency's annual review due Sept. 30. If they have fallen below the minimum, that could prompt a new round of questions about the role government should play in stabilizing the housing market.
David Stevens, the FHA's new commissioner, said on Friday that the agency will continue to support the housing market and isn't in danger of needing a taxpayer bailout. But some housing analysts warn that, if home prices decline much further, the agency would require taxpayer assistance for the first time in its 75-year history.
At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago.
The prospect of yet another taxpayer bailout has put under the spotlight an agency that largely sat out the housing boom. It was created to serve first-time buyers and others with spotty credit. But during the boom, the FHA's rules on such matters as documenting income drove borrowers to lenders with looser standards.
As private lenders sharply curtailed credit when boom turned to bust, the FHA became one of the only places to turn for buyers who couldn't afford big down payments or who wanted to refinance but had little home equity. The number of loans backed by the agency has soared, and its market share reached 23% in the second quarter, up from less than 3% in 2006, according to Inside Mortgage Finance.
The FHA's growing role has been cheered by economists, the real-estate industry and members of Congress who felt that it prevented the housing collapse from being worse.
Even as the FHA tightened lending standards moderately last year, Congress allowed the agency to make much larger loans, up to $729,750 in the highest-cost markets. Previous loan limits, at $362,000, had kept the FHA out of more expensive markets, including some of the hardest hit during the housing bubble. In July, California accounted for 13% of the FHA's mortgages, up from 1.5% in 2006.
Mounting losses have eaten into the FHA's cash cushion. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
FHA officials have refused to comment on whether the reserves would fall below the 2% level, but say that even if that happens, the agency is adequately capitalized.
The release of the annual review will be an early trial-by-fire for Mr. Stevens, a well-regarded housing-industry veteran who took the top FHA job in July. Mr. Stevens already has begun boosting oversight and reining in risk. Last month, he suspended Taylor, Bean & Whitaker Mortgage Corp., the third largest FHA lender, from making FHA-backed loans, sending a clear signal about the agency's newly aggressive posture. Taylor Bean ceased operations and later filed for bankruptcy protection.
The agency is expected to announce measures this fall to improve oversight of its lenders and will name a chief risk officer, which it has never had.
Some housing analysts believe that deep losses could spur even tighter restrictions. "It absolutely changes the political dynamic once you have to ask taxpayers" for money, said Lisa Marquis Jackson, vice president at John Burns Real Estate Consulting in Irvine, Calif.
Last month, the consultancy wrote in a note that mounting losses could lead to an "imminent pullback" from the FHA, and the firm has been warning investor and home-builder clients: "Be prepared for this to happen in some way, shape or form."
Members of Congress have voiced concerns over the agency's reserves. But many may balk at raising new hurdles for borrowers.
Write to Nick Timiraos at nick.timiraos@wsj.com --------------------------------------------------------------------------- On 9/15 added this update about the FHA's massive entry into the mortgage market.
* The Wall Street Journal
* SEPTEMBER 15, 2009
No Easy Exit for Government as Housing Market's Savior
By DEBORAH SOLOMON and JON HILSENRATH
WASHINGTON -- After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector. It doesn't look that way to Peter Lansing, president of mortgage firm Universal Lending.
The Denver home lender sees every day how dependent the housing market has become on the government. At the height of the boom, just 20% of Universal's mortgages were backed by the Federal Housing Administration, an arm of the government that guarantees loans to borrowers who can't afford big down payments. Today, the FHA accounts for more than 80% of his business. For Mr. Lansing, this represents a new way of life -- more government, more paperwork, but also a lot of sales that wouldn't have happened otherwise.
"Over 29 years in business, we've always thought of ourselves as being in the free-enterprise system. Today I think of myself as a government contractor," Mr. Lansing says. "My business strategy is to get more of my employees to embrace that idea. Plan B would be to sell pencils on the corner."
In a speech on Wall Street a year after Lehman Brothers collapsed, President Barack Obama said Monday the need for the government to keep stabilizing the financial system "is waning." His administration released a 51-page report detailing rescue programs that are slowly being scaled back. But the Treasury Department, author of the report, noted that housing is one area where it's too early to exit.
Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.
To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loans and guarantees. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government's various mortgage arms and an additional $300 billion in Treasurys, which set the benchmark for home lending.
And to boost sales, the government also is offering $8,000 tax credits to first-time home buyers.
Those efforts appear to have had the intended effect of braking the housing market's plunge. They prompted Jonathan Swinton and his wife, Annie, to plunge into the market ahead of schedule. The couple plans to close on a $226,000 home in a suburb of Salt Lake City in the coming weeks.
"We had always wanted to buy a home, but we had been planning to wait a couple of years," says Mr. Swinton, who recently completed course work for a Ph.D. in family therapy at Kansas State University and is now working at a mental-health facility in Salt Lake City. "The low interest rates and the tax credit were the two primary factors that motivated us to buy this year." [No Easy Exit for Government as Housing Market's Savior]
Signs of a housing-market bottom have emerged. Sales of new homes are up more than 30% from lows reached early this year, and sales of existing homes are up nearly 17%. Shares of companies that build homes have turned higher, inventories of unsold new homes are down and home prices have ticked up after steep declines.
The government's efforts are the primary reason the housing market is functioning at all, economists and housing experts say. Despite the signs of improvement, the housing market is still a shell of what it was during headier times. U.S. home prices are back around 2003 levels, having fallen by about one-third since their peak in the second quarter of 2006, according to Standard & Poor's. Sales of distressed homes still account for about one-third of existing home sales, and prices continue to fall in some markets such as the Sun Belt states. In addition, relatively few "jumbo" loans are being made -- those above the limits of what Fannie and Freddie will buy or guarantee.
"At least for the next two years, and possibly longer, it is not possible that the government would say: 'The U.S. mortgage market no longer needs our support,'" says Dwight Jaffee, an economics professor at the University of California Berkeley's Haas School of Business. "Were they to say that, the mortgage market and the housing market would almost surely crash."
Promoting homeownership has been a stated goal of Republican and Democratic presidencies for decades. The Obama administration recognizes it will need -- at some point -- to rethink broadly the government's role in housing and mortgages. Administration officials also acknowledge that moment won't come soon.
"Every government in the world takes a role in its country's housing market," says Lawrence Summers, Mr. Obama's top economic policy adviser. "What that role should be when normal conditions return is a crucial question we'll all be considering in coming months and coming years." He added: "It's clearly going to take time."
The government's role in housing has a long pedigree. The 1930s gave birth to Fannie Mae and the FHA, which traditionally insured loans aimed at low-income borrowers. Freddie Mac was created in 1970. Since the housing crash, these players are in some spots the only game in town.
Their backing means private lenders are assured of repayment -- by the government, if not the borrower. The size of loan that can be guaranteed is capped in most parts of the country at $417,000, but can reach as high as $729,750 in high-cost areas such as parts of California, New York and Washington, D.C.
Loans above those levels are hard to obtain. Steve Walsh, a mortgage broker in Arizona, said he recently tried to arrange a mortgage for a married couple who wanted to buy a $1.5 million home in Mesa. The couple offered a down payment of $400,000, but the lender wanted $600,000, or 40%, in part because the couple had opened a law firm and didn't have two years of tax returns. That's double what was considered standard before the boom. The pair walked away, said Mr. Walsh.
The government temporarily raised the size of the loans Fannie and Freddie can guarantee in February 2008 and is unlikely to ever return to previous levels. The higher levels have been extended once, and the mortgage industry is lobbying to keep them high.
At the Fed, the question of whether to start dismantling the scaffolding is a dominant one. Since the beginning of the year, the Fed has purchased $836 billion of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, the federal body that securitizes FHA loans. The purchases have helped push down interest rates on mortgages guaranteed by the firms from more than 6.5% last October to 5.15% today, according to HSH Associates, which tracks the mortgage market.
That seems to have helped to put a floor under housing sooner than many officials expected. At the same time, it has created distortions in the market.
When the Fed buys up to $30 billion in mortgage securities every week, regardless of price, "it makes it very difficult for the market to find its own equilibrium," says Ajay Rajadhyaksha, head of U.S. fixed-income research at Barclays. He said investors are trading instead in Treasury securities, where activity is less skewed by central bank purchases, and pushing rates lower in that market, too.
The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March and taper off the buying gradually. Some Fed officials will likely argue for stopping sooner, even as soon as next week's regular policy meeting.
If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays's Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the market.
The Fed will face a challenge managing its portfolio of mortgage-backed securities even after it stops buying the securities. When it bought the securities, it effectively flooded the financial system with cash. Officials at some point will need to find ways to drain that cash from the financial system. If they move too slowly, it could lead to inflation. If they move to aggressively, it could damage the fragile mortgage market. Fed Chairman Ben Bernanke has laid out plans that he says will allow him to do it and to raise interest rates as needed.
The tax credit for first-time home buyers, which provides up to $8,000 for individuals earning up to $75,000 and couples earning up to $150,000, is set to expire in November. It was originally included in the $787 billion stimulus bill passed in February. Congress, increasingly preoccupied with mounting deficits, will have to decide whether to extend it. Deutsche Bank estimates the credit has helped generate 350,000 sales, about half the increase in single-family home sales in the past six months.
The tax credit's effectiveness depends largely on its longevity. That's because many of the home sales analysts think it has spurred have been stolen from the future, luring buyers into the market who might not otherwise have bought until next year or beyond. When the credit expires, that demand will disappear, too.
"All it does is move demand forward in time," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. "The last six months, we've seen signs of a housing bottom. We could easily see that disappear."
Tom McCormick, president of Astoria Homes, a private home builder in Las Vegas, says the government's efforts to prop up the housing market are making a difference, but says his own business remains very fragile. "The tax credit is what we think got people off the fence," he says. "Once that money came in back in February, the market literally jumped 10% to 20%."
But, he says, most home buyers are buying existing or foreclosed homes, meaning the new home market has barely budged. At his peak in 2005, he built more than 1,000 homes. This year, he expects to do fewer than 100. "It is just real dark right now," he says.
Yet more uncertain is the future of Fannie Mae and Freddie Mac, an already difficult policy question exacerbated by the passions the pair evoke. When they were placed under government control last year, officials described the move as a "timeout" while they find a permanent solution. Fed Chairman Ben Bernanke has floated the idea of turning them into a public utility or privatizing them and offering government insurance on their bonds for a fee.
The Obama administration has put off wrestling with that question until next year. It expects to issue a proposal by March 2010.
"We don't feel like the world is anywhere close to us being able pull back our support," one administration official says.
The FHA brings its own tough issues. The agency, which has insures private lenders against defaults on certain home mortgages, has seen its balance sheet take a hit as risky borrowers default on those loans and is already in danger of falling below a level of reserves mandated by Congress. Yet it remains a key facilitator of loans.
Teri Gifford, who runs a mortgage brokerage serving Kentucky and Ohio, says 95% of her business involves getting clients loans backed by the FHA. "It's all government loans," says Ms. Gifford, whose firm, EZ Mortgage Loans Inc., Hillsboro, Ohio, brokers between $30 million and $35 million in loans each year. "That's all that can be done anymore."
Ms. Gifford fears that the U.S. will pull back if the loans it's backing start going bad. "I'm worried what the future could hold if we put all the eggs in one basket," she said.
Write to Deborah Solomon at deborah.solomon@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com.
|
|
|
Post by refbasics on Sept 5, 2009 10:40:51 GMT -6
No, I'm not talking about D204, at least not yet. In due time though. This is the big picture debt for those who, for whatever reason, haven't been paying attention the the federal scene. The Wall Street Journal SEPTEMBER 4, 2009, 10:20 P.M. ET
Warning: The Deficits Are Coming! The former head of the Government Accountability Office is on a crusade to alert taxpayers to their true obligations.
By JOHN FUND
Washington, D.C.
David Walker sounds like a modern-day Paul Revere as he warns about the country's perilous future. "We suffer from a fiscal cancer," he tells a meeting of the National Taxpayers Union, the nation's oldest anti-tax lobby. "Our off balance sheet obligations associated with Social Security and Medicare put us in a $56 trillion financial hole—and that's before the recession was officially declared last year. America now owes more than Americans are worth—and the gap is growing!"
His audience sits in rapt attention. A few years ago these antitax activists would have been polite but a tad restless listening to the former head of the Government Accountability Office, the nation's auditor-in-chief. Higher taxes is what hikes their blood pressure the most, but the profligate spending of the Bush and Obama administrations has put them in a mood to listen to this green-eyeshade Cassandra. "He's so unlike most politicians," says Sharron Angle, a former state legislator from Nevada, "his message is clear, detailed and with no varnish." Mr. Walker, a 57-year-old accountant, didn't set out to be a fiscal truth-teller. He rose to be a partner and global managing director of Arthur Anderson, before being named assistant secretary of labor for pensions and benefits during the Reagan administration. Under the first President Bush, he served as a trustee for Social Security and Medicare, an experience that convinced him both programs are looming train wrecks that could bankrupt the country. In 1998 he was appointed by President Bill Clinton to head the GAO, where he spent the next decade issuing reports trying to stem waste, fraud and abuse in government.
Despite many successes, he was able to make only limited progress in reforming Washington's tangled bookkeeping. When he arrived he was told the Pentagon was nearly a decade away from having a clean audit, or clear evidence that its financial statements were accurate. When he left in 2008, he was told the Pentagon was still a decade away from that goal. "If the federal government was a private corporation, its stock would plummet and shareholders would bring in new management and directors," he said as he retired from the GAO. Although he found the work fulfilling, Mr. Walker said he decided to leave last year with a third of his 15-year term left because "there are practical limits on what one can—and cannot—do in that job." He became president and CEO of the Peter G. Peterson Foundation, a group seeking to educate the public and policy makers on the need for fiscal prudence. Although it accepts private donations, its own future is secure given that Mr. Peterson, a former head of the Blackstone private equity firm and secretary of commerce under Richard Nixon, has endowed it with a $1 billion gift. We met to hash over current events in his tastefully appointed office just off of New York's Fifth Avenue. Mr. Walker, a lean man with an unflappable demeanor, welcomed me with the observation that he's never been in more demand as a speaker "but it's only because everyone is so worried for our future." His group calls itself strictly nonpartisan and nonideological, and that seems to limit how tough and specific it can be. Last year, it released a documentary "I.O.U.S.A.," that followed Mr. Walker as he toured the country on his fiscal "wake up" tour. The solutions the film proposes for the debt crisis are either glib or gray: The country should save more, reduce oil consumption, hold politicians accountable and get more value from health-care spending. But in its diagnosis of the problem the film scores a bull's-eye. Among the fiscal hawks featured in the film is Rep. Ron Paul, who memorably tells Alan Greenspan that if doctors had the same success rate in meeting his goals as the Fed has had, patients would be dead all over America. Mr. Walker's own speeches are vivid and clear. "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease." Mr. Walker identifies the disease as having a basic cause: "Washington is totally out of touch and out of control," he sighs. "There is political courage there, but there is far more political careerism and people dodging real solutions." He identifies entrenched incumbency as a real obstacle to change. "Members of Congress ensure they have gerrymandered seats where they pick the voters rather than the voters picking them and then they pass out money to special interests who then make sure they have so much money that no one can easily challenge them," he laments. He believes gerrymandering should be curbed and term limits imposed if for no other reason than to inject some new blood into the system. On campaign finance, he supports a narrow constitutional amendment that would bar congressional candidates from accepting contributions from people who can't vote for them: "If people can't vote in a district not their own, should we allow them to spend unlimited money on behalf of someone across the country?"
Recognizing those reforms aren't "imminent," Mr. Walker wants Congress to create a "fiscal future commission" that would hold hearings all over America to move towards a consensus on reform. It would then present Congress with a "grand bargain" on entitlement and budget-control reforms. Its recommendations would be guaranteed a vote in Congress and be subject to only limited amendments. I note that critics have called such a commission an end-run around the normal legislative process. He demurred, saying that Congress would still have to approve any recommendations in an up-or-down vote—much like the successful base-closing commission created by GOP Rep. Dick Armey in the 1980s. What kind of reforms would Mr. Walker hope the commission would endorse? He suggests giving presidents the power to make line-item cuts in budgets that would then require a majority vote in Congress to override. He would also want private-sector accounting standards extended to pensions, health programs and environmental costs. "Social Security reform is a layup, much easier than Medicare," he told me. He believes gradual increases in the retirement age, a modest change in cost-of-living payments and raising the cap on income subject to payroll taxes would solve its long-term problems.
Medicare is a much bigger challenge, exacerbated by the addition of a drug entitlement component in 2003, pushed through a Republican Congress by the Bush administration. "The true costs of that were hidden from both Congress and the people," Mr. Walker says sternly. "The real liability is some $8 trillion."That brings us to the issue of taxes. Wouldn't any "grand bargain" involve significant tax increases that would only hurt the ability of the economy to grow? "Taxes are going up, for reasons of math, demographics and the fact that elements of the population that want more government are more politically active," he insists. "The key will be to have tax reform that simplifies the system and keeps marginal rates as low as possible. The longer people resist addressing both sides of the fiscal equation the deeper the hole will get."
I steer towards the fiscal direction of the Obama administration. He says his stimulus bill was sold as something it wasn't: "A number of people had agendas other than stimulus, and they shaped the package." As for health care, Mr. Walker says he had hopes for comprehensive health-care reform earlier this year and met with most of the major players to fashion a compromise. "President Obama got the sequence wrong by advocating expanding coverage before we've proven our ability to control costs," he says. "If we don't get our fiscal house in order, but create new obligations we'll have a Thelma and Louise moment where we go over the cliff." Mr. Walker's preferred solution is a plan that combines universal coverage for all Americans with an overall limit on the federal government's annual health expenditures. His description reminds me of the unicorn—a marvelous creature we all wish existed but is not likely to ever be seen on this earth.As I prepare to go, Mr. Walker returns to the theme of economic education. Poor schools often produce young people with few tools to help them realize the extent of the fiscal trap their generation is going to fall into. One way the Peterson Foundation wants to change that is to bring big numbers down to earth so people can comprehend them. "Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income—so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to." As for this year's likely deficit of $1.8 trillion, Mr. Walker suggests its size be conveyed thusly: "A deficit that large is $3.4 million a minute, $200 million an hour, $5 billion a day," he says. That does indeed put things into perspective.Despite an occasional detour into support for government intervention, Mr. Walker remains the Jeffersonian he grew up as in his native Virginia. "I view the Constitution with deep respect," he told me. "My ancestors and those of my wife fought and died in the Revolution, and I care a lot about returning us to the principles of the Founding Fathers." He notes that today the role of the federal government has grown such that last year less than 40% of it related to the key roles the Founders envisioned for it: defense, foreign policy, the courts and other basic functions. "What happened to the Founders' intent that all roles not expressly reserved to the federal government belong to the states, and ultimately the people?" he asks. "I'm pleased the recent town halls show people are waking up and realizing it's time to pay attention to first principles."
With that we parted, as he had to get back to work. Today's Paul Revere is hard at work on a book due out in January from Random House that will be called, "Come Back America." Mr. Fund is a columnist for WSJ.com. --------------------------------- this guy knows his stuff... i've read about him in the past. i don't know if this program was set up in the right way... but i am going to hope that having people on their meds will be less costly, in the long run, then going without them, and ending up in the hospital for countless stays.
|
|
|
Post by southsidesignmaker on Sept 5, 2009 15:13:40 GMT -6
Warning the deficits are here! What comes next is a train wreck.
|
|
|
Post by asmodeus on Sept 5, 2009 23:47:39 GMT -6
Here is the most important and relevant part of that post:
"...elements of the population that want more government are more politically active..."
Did you know that the top 1% of taxpayers now pay more income taxes than the bottom 95%? Let that sink in for a minute. And where are most of the new voters coming from? The bottom 95%...many of whom do not contribute to the country but rather take from it and drain it. Yet they will be the ones driving future policy in this country. They will have the votes, period.
|
|
|
Post by refbasics on Sept 7, 2009 13:49:34 GMT -6
Here is the most important and relevant part of that post: "...elements of the population that want more government are more politically active..." Did you know that the top 1% of taxpayers now pay more income taxes than the bottom 95%? Let that sink in for a minute. And where are most of the new voters coming from? The bottom 95%...many of whom do not contribute to the country but rather take from it and drain it. Yet they will be the ones driving future policy in this country. They will have the votes, period. ----------------------- then you might say that it's in the interest of the 'top 1%' to ensure that the 'bottom 95%' understands and is a participant in the capitalist system.
|
|
|
Post by macrockett on Sept 8, 2009 9:31:34 GMT -6
chicagotribune.com TRIBUNE WATCHDOG Chicago State gets $40 million surprise State lawmakers plan funding for a West Side campus that the struggling school didn't request
By Angie Leventis Lourgos
Special to the Tribune
August 31, 2009
The president of Chicago State University was scanning the newspaper before an executive staff meeting when he did a double-take. Frank Pogue learned his South Side school would be building an extension campus on the West Side, and state lawmakers were allocating $40 million for it.
"Quite frankly, I was not informed," said Pogue, who served as interim president for the 2008-09 academic year. "I don't recall seeing a plan for the project in the year that I was president."
Legislators -- not academics -- proposed the Chicago State West Side campus, which became part of a huge public works program signed into law this summer by Gov. Pat Quinn.
State Sen. Rickey Hendon (D-Chicago) championed the project, citing a need for more higher education and economic opportunities on the West Side, which he represents. Asked for details about the campus, such as a budget, enrollment and academic offerings, he said they're up to the university.
"I appropriate the money. I don't tell the campus what they're going to do," Hendon said. "The West Side has always been treated like the stepchild. We're not going to accept second-class status."
No site has been announced because Hendon said he's waiting for funds to be released.
Funding for the public works projects depends on new revenue from video poker and taxes on liquor and candy and other items slated to go into effect Tuesday. But since communities are beginning to mobilize against video poker and the taxes have been challenged in court, it's uncertain when -- or if -- the money will materialize.
Three Chicago State leaders -- the provost, associate provost and spokesman -- would not comment on the new campus, referring all questions to incoming President Wayne Watson, who doesn't officially start until Oct. 1.
Chicago State has had a tumultuous past year or so. A recent audit revealed accounting troubles. Former university president Elnora Daniel left under fire in June 2008 for questionable spending practices.
Faculty and students protested the selection of Watson, former head of the City Colleges of Chicago. In April, the faculty senate asked the governor to remove the Board of Trustees, which he did not do.
The proposal for a new West Side campus bypassed the vetting process for most higher education developments. Typically, state college and university leaders submit an annual "wish list" of capital requests to the Illinois Board of Higher Education, and the projects compete against one another to be placed on a master list. The General Assembly uses that as a guide to determine what public projects get funded.
Chicago State did not request funding for the West Side campus in its 2010 priority list. The higher education board has no reports on the expansion project, only a letter indicating the school's desire for a satellite campus.
"To my knowledge, they haven't done any studies that compel them to say this is an important project for us," said Don Sevener, spokesman for the Illinois Board of Higher Education.
It's not unheard of for lawmakers to push higher education projects on their own, as the final expenditures are at the discretion of the legislature and governor. But the examples cited by Sevener -- new buildings on an existing campus or the emergency replacement of infrastructure -- were much smaller, simpler projects.
A second Chicago State campus had been discussed in previous years by an advisory committee of politicians and university officials. A panel formed by trustees also explored the issue. University memos and minutes of meetings contain numerous options for degree offerings and projected costs and locations, but no final decisions. Documents also say the school would not be able to pay most day-to-day costs or any unforeseen expenses, leaving them to the state.
A 2007 feasibility study indicated strong community and prospective student support for a satellite campus. Enrollment projections vary in different reports, but 2,000 students seems to be the maximum.
In 2008, $10 million was set aside for a campus, but the money never came through, according to the state education board.
Some faculty and students question whether Chicago State -- a 7,000-student university plagued by leadership turmoil, struggling to improve its 16 percent graduation rate -- can handle a second campus. Opponents fear the university's political strife and past accounting troubles might be duplicated on the West Side and that it would siphon resources needed elsewhere.
Student Renee Brown in a November 2007 letter to the university Board of Trustees complained about bureaucracy, poor customer service and failing campus infrastructure.
"I have also heard of plans to form a campus on the West Side of Chicago," she said in the letter, which was included in meeting minutes. "While these operations are certainly exciting, they are not appropriate given the conditions of the already existing facilities on campus."
Professor Phillip Beverly said he fears the project is motivated by politics and the economic needs of one neighborhood, at the expense of quality higher education.
"This is about contracts. This is about cronyism," he said. "I'm a little tired of the university being used as a pass-through for this kind of cronyism."
Even some trustees initially rejected the project. At a meeting in September 2007, one trustee "reiterated that the board is not in support of a West Side campus, and that the board has been in opposition to such [an] initiative since the proposal was presented," according to meeting minutes.
Chairman Leon Finney at the same meeting questioned the need for expansion "given the fiscal challenges facing the state, as well as the documented $55 million unmet needs of the university."
But Finney reversed his stance at a January 2008 meeting, saying he supported the project after being assured it would not drain resources from the South Side campus. Finney did not respond to calls for comment.
The board unanimously approved the project in March 2008, before Pogue started. After that, the idea seems to fall off Chicago State's radar. It's barely mentioned again in board minutes, university reports or memos.
Trustee Peggy Montes, the only board member to respond to requests for comment, said she didn't have specific details about the new campus. But Montes said she favors the project because there's a pressing need for a four-year school on the West Side. Roughly 700 university students already live in that area, according to 2006 data.
Chicago State has had campuses on the West Side before. In 1957, the university shared space with Crane High School and Junior College. Ten years later, that extension was replaced with a campus called the "West Center" at 500 N. Pulaski Rd., which initially served about 600 students, according to the university's archives. The West Center closed when the existing campus at 9501 S. King Drive was built in 1972.
Recently, the university has offered some courses at Malcolm X College on the West Side as a pilot program. And a university-commissioned 2007 survey of current and prospective students indicated high interest in attending a four-year school in that area.
"I had a great experience, but the commute was crazy," one student responded. "CSU should open a West Side campus, and I would definitely attend."
Ald. Ed Smith (28th) said a university would help those on the West Side advance their education and careers. He said he has faith that Watson will bolster the school's reputation and help build a great extension campus.
"I would love to have a university on the West Side with the credentials of Oxford," Smith said. "But you take what you can get and you work to embellish it, working to make it the best that it can be."
Yan Searcy, president of the faculty senate, said professors were not consulted about the expansion project. Beverly, also a faculty senate member, wondered whether existing professors would be expected to teach on the West Side, and he said the issue could become contentious in September contract negotiations.
Faculty members also are concerned that expansion will hinder efforts to raise academic standards and graduation rates.
"Now we're going to open up another campus, when we can't take care of what we already have?" Beverly said.
Pogue, whose interim term ended in June, said the birth of the West Side campus was the strangest process he's witnessed in his 46-year career. While not against the concept of expansion, he said academic leaders should be involved in the planning. Success will rely on shrewd recruitment, curricula and admissions decisions, he said, adding that otherwise the university could be left with impressive buildings it can't properly operate.
"During these days, I can see that a university would appreciate getting support from anywhere it can," he said. "On the other hand, one must always be prudent about starting new projects."
Copyright © 2009, Chicago Tribune -------------------------------------------------------------------
Undoubted just one of many examples of how our state politicians do business. Waste money on projects considered unnecessary by most and pay for it with money we don't have...
|
|
|
Post by Arch on Sept 8, 2009 9:42:55 GMT -6
Wow, it just never stops...
|
|
|
Post by southsidesignmaker on Sept 8, 2009 20:00:31 GMT -6
How about we earmark some funds for U of I Chicago Campus (old Circle campus). The building are dilapidated and the engineering department is inadequate for this era. FIX WHAT WE HAVE at the college level!!!
|
|
|
Post by macrockett on Sept 9, 2009 22:37:10 GMT -6
If you watched the President tonight, regarding his health care proposals, he explained the cost as $900 billion over 10 years. While I believe he is well meaning, when it comes to projections or running programs, our federal government has proven itself to be almost incompetent (to be gracious).
Over the next day or so I will add some of the articles I have read concerning Medicare/aid, FDIC, PBGC, Freddie and Fannie, Amtrak, the Post office, and the FHA. I have already included a current article on how the FHA is in trouble (see above). Of course the trouble with the FHA pales in comparison to the issues at Freddie and Fannie, which will knock your socks off.
|
|
|
Post by macrockett on Sept 9, 2009 22:47:19 GMT -6
First, we can start with the recent article on the Post Office in the WSJ:
A Better Way to Go Postal SEPTEMBER 9, 2009, 11:05 P.M. ET
The justification for the Postal Service's monopoly is long past. Whatever possessed President Obama to mention the travails of the post office while discussing health care the other day, his timing was certainly apt. The Postal Service is headed toward a loss of $7 billion this year and another $7 billion in 2010. Naturally, Congress is planning another bailout rather than the kind of reform that would recognize how technology has transformed modern communications. Most mail today is delivered electronically via email. Traditional postal mail volume has fallen by nearly 20% since 2000, and the average household gets one-third fewer letters than a decade ago. But this is only the first stage of the decline. The transition to Internet communications means that the Postal Service's core business—from paying bills, to sending birthday greetings, to delivering magazines—is slowly vanishing. This is on top of the package business that has already been transformed by Federal Express and UPS. Not that the Postal Service has ever been a paragon of efficiency. If the cost of a postage stamp had risen at merely the rate of inflation since 1950 when a stamp cost two cents, today you could send a first-class letter for 30 cents. Instead the cost rose in May to 44 cents from 42 cents.
These higher prices have corresponded with worsening service. The mailman used to deliver twice a day in urban areas, but now Postal Service Chief Executive John Potter says he wants to stop Saturday service to reduce costs. No private business in America could continually raise prices, lose billions of dollars and then hope to win back customers by promising poorer service.winsome.cnchost.com/MAC/ED-AK048_1posta_NS_20090821135621.gifHere's a secret Washington doesn't want to admit: That 14 cent per letter cost hike after inflation over the past 60 years imposes a $20 billion a year toll on the U.S. economy. The government mail system is essentially a $20 billion annual income transfer from businesses and households to the postal unions.
About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for Fed Ex and UPS). What that means is that if you want to cut costs at the post office, you have to slash labor expenses. Mr. Potter has reduced Postal Service employment to 650,000 from 800,000 the past four years, largely through attrition. But he still employs 650,000 workers who have among the best wages and benefits in all of American life.
Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. Mr. Potter has to set aside $5 billion a year just to pay for health insurance. Postal management now wants to "save" money by not advance-funding those obligations, and Congress is likely to say yes. But that doesn't save a dime; it simply creates even larger unfunded liabilities down the road. The four biggest postal-carrier union contracts come up for renewal in 2010 and 2011, and Congress and the Obama Administration can best serve the public by using the negotiations to promote a major restructuring. One priority should be closing thousands of obsolete post offices around the country; many post offices now serve towns with fewer than 250 people. This is something Mr. Potter has long wanted to do, but thanks to Congressional meddling, closing a small town post office can be harder than shutting a military base.
The most overdue reform is to strip away the Post Service's monopoly on first-class mail and bulk mail. Competition is the key ingredient to innovation, low prices and good service. This was Mr. Obama's insight at his recent health-care town hall when he noted that "UPS and FedEx are doing just fine, right? No, they are. It's the Post Office that's always having problems." The argument has been made for 200 years that the postal monopoly is necessary to "bind the nation together." Once that was at least plausible. But today the Internet delivers to the most remote corners of Alaska and the Badlands at one-one-hundredth the cost of snail mail. The sooner Congress requires the Postal Service to shrink and adapt to this reality, the smaller will be the losses imposed on taxpayers. Corrections & Amplifications: The price of a first-class stamp in 1950 was three cents. This editorial misreported the cost at two cents.
|
|
|
Post by macrockett on Sept 9, 2009 22:59:18 GMT -6
Post office cited by GAO as a troubled agency GAO lists Postal Service as a troubled agency in need of immediate action
By Randolph E. Schmid, Associated Press Writer On Tuesday July 28, 2009, 6:05 pm EDTWASHINGTON (AP) -- The Government Accountability Office on Tuesday added the Postal Service to its list of high-risk federal agencies in need of change.
The post office has been struggling with a sharp decline in mail volume as people and businesses switch to e-mail both for personal contact and bill paying. The agency is facing a nearly $7 billion potential loss this fiscal year despite a 2-cent increase in the price of stamps in May, and cuts in staff.
"There are serious and significant structural financial challenges currently facing the Postal Service," the GAO said."New technology is profoundly affecting services in both the private and public sectors, including traditional mail delivery. Compounded by the current recession, the volume of mail being sent is dropping substantially," Gene L. Dodaro, acting comptroller general, said in a statement. The report called on the Postal Service to work with Congress and other organizations to develop and implement a restructuring plan. The post office issued a statement saying: "The GAO High Risk List announcement accurately reflects our current financial reality. Securing the fiscal stability of the Postal Service will require continued review of retiree health benefit prefunding, as well as gaining flexibility within the law to move toward five-day delivery, to adjust our network as needed, to develop new products the market requires and to work with our unions, mailers, stakeholders and Congress to meet the challenges ahead."The Mailers Council, which represents businesses and organizations that mail large volumes of material, supported GAO's action. Pending legislation in the House and Senate would offer short-term help, but "that can only postpone the inevitable insolvency of the Postal Service. We firmly believe the Postal Service will be unable to meet its financial obligations in the near future without fundamental structural change," council executive director Robert C. McLean said. He said that "every major postal policy, from employee pay, to days of delivery, to the closing of postal facilities must be on the table. Without major change, the day will soon come when the Postal Service will be unable to pay its bills...." Congress is considering a bill to change the way the post office funds its retiree health benefits over the next two years that could save it $2 billion annually. The post office also filed a petition with the independent Postal Regulatory Commission indicating that managers are looking at closing many post offices to save money. In addition, Postmaster General John Potter has asked Congress for permission to reduce mail deliveries from six days-a-week to five. Last year, mail volume fell by 9.5 billion pieces to a total of 203 billion pieces. It is expected to fall by 28 billion pieces this year to a total of 175 billion pieces. The GAO report said the key short-term goal is to cut expenses quickly enough to offset mail volume and revenue declines to avoid running out of cash to pay its expenses. Postal officials have said the agency could run out of cash in September. GAO report: www.gao.gov/cgi-bin/getrpt?gao-09-937sp
|
|
|
Post by macrockett on Sept 9, 2009 23:12:43 GMT -6
Next is the PBGC: Basically, after having been burned badly over the years by underfunded Corporate Pension Plans Congress is finally learning a lesson and being proactive in getting Corporations to shore up their pension funding. (as a result of the provisions in the Worker, Retiree and Employer Recovery Act of 2008.) But now the industry is saying they can't meet those funding standards and need relief...and so it goes.
Corporations and PBGC square off Plans and government go toe-to-toe over need for funding relief By Doug Halonen Source: Pensions & Investments Date: June 15, 2009
Pension plan officials and lobbyists are battling the Pension Benefit Guaranty Corp. over the need for legislation on additional plan funding relief.
Officials of the American Benefits Council and the ERISA Industry Committee, both in Washington, have insisted since late last year that significant additional relief is needed beyond what was included in the Worker, Retiree and Employer Recovery Act of 2008. They argue that recession-ravaged companies need the added help to save defined benefit plans and jobs — and even to help get the nation's economy back on track.
“The fact of the matter is this is a jobs issue,” Lynn Dudley, ABC senior vice president, policy, said in an interview. “It is a no-brainer.”
“We're fighting to inject a sense of urgency into this with members of Congress,” said Judy Schub, managing director of the Committee on Investment of Employee Benefit Assets, Bethesda, Md. “Anything that implies that this isn't urgent is very troubling.”
“PBGC has questioned whether or not the case has been made as to whether additional relief is necessary,” said Kyle Brown, retirement counsel at Watson Wyatt Worldwide, Arlington, Va. “There are plenty of us who believe the case has been made.”
In a series of meetings with Capitol Hill committee aides — and through a widely circulated talking-points paper — executives at the PBGC claim pension plan officials and lobbyists haven't made a credible case for additional relief.
“All we have is a handful of carefully selected anecdotes (about the impact that funding obligations might have on some companies), which does not provide a sound basis for making policy decisions affecting nearly 30,000 pension plans,” C. David Gustafson, PBGC chief policy actuary, said in an interview.
Earlier this year, the benefits council was publicizing on Capitol Hill a study by Watson Wyatt that showed required pension contributions for U.S. employers would almost triple in 2009 to $108.7 billion, from $38 billion last year.
The PBGC responded with an agency-generated study that projected the funding relief provided by the Worker, Retiree and Employer Recovery Act — enacted last December — would result in a total of $84 billion in minimum pension plan contributions this year, down from an annual average of $88 billion from 2002 through 2006. The act allowed pension plans to smooth the value of pension assets over 24 months.
The Watson Wyatt study, issued in January included a projection that minimum pension plan contributions for 2009 could fall to $90.8 billion, with the relief provided by the WRERA and some additional funding relief that since has been provided by the IRS, said Watson Wyatt's Mr. Brown.
“It appears as if the WRERA relief has done the job — it has reduced expected contributions for 2009 back to what they were prior to the financial turmoil of 2008,” according to a PBGC supplement to the talking-points paper for a March 11 meeting with staffers of the Senate Health, Education, Labor and Pensions Committee.
The PBGC paper also argues that many plans have credit balances available to “offset some, or all, of the 2009 funding requirement.” Also, executives at struggling DB plans can apply to the Internal Revenue Service for a hardship waiver of funding requirements under existing law, allowing them to postpone their funding obligations and make up the shortfall over the subsequent five years.
Pension industry groups contend that Mr. Gustafson is focused on keeping plan funding as high as possible to reduce the PBGC's potential liability exposure if plans fail.
“We can't get wrapped around the axle of what one actuary at the PBGC thinks about credit balances or any other issue,” said ABC's Ms. Dudley. “We have to face the fact if we don't help companies keep their doors open, the PBGC has much worse problems, because PBGC only takes over plans when companies fail.”
“The PBGC is basically protecting itself, circling the wagons around the PBGC, and, in our view, at the cost of the system,” added Mark Ugoretz, president of the ERISA Industry Committee. “The fact is that this is a recession of historic proportions, and there are a significant number of companies that need relief that the WRERA bill didn't provide. They're not looking for a bailout; they're merely looking to lengthen the amount of time to pay those liabilities.”
Mr. Ugoretz also dismissed the PBGC's suggestion that plans don't need additional relief because they can apply for a funding waiver from the IRS.
“They (plan sponsors) would virtually have to declare bankruptcy to get a funding waiver,” Mr. Ugoretz said. “It's nonsense.”
Responded Mr. Gustafson: “The waiver provisions have been in the law for 35 years, and they have generally worked OK. They provide temporary relief when there is temporary hardship.” Concerns over projections
Pension industry representatives said they are concerned about PBGC's projections on the industry's financial condition, in part because the agency won't allow them to examine its pension insurance modeling system — a sophisticated computer program that uses Form 5500s and hundreds of thousands of other data points to project estimates of the financial condition of both defined benefit plans and the PBGC.
“The trouble is they won't show their PIMS model to anyone, including Congress,” said ERIC's Mr. Ugoretz. “It's a secret; it's a black box.”
Mr. Gustafson said the PBGC plans to share its model with pension industry actuaries and is trying to make it more user-friendly. According to one PBGC source, that sharing possibly could come before the end of this year.
“We're more than willing to share this, but it's going to take awhile,” Mr. Gustafson said.
The overarching concern of pension industry officials is that the PBGC is promoting its own agenda on Capitol Hill at the expense of plan sponsors.
“They're trying to stall,” said ERIC's Mr. Ugoretz. “The longer they can stall, the better off they are, and in the meantime, a lot of jobs are being lost and an increasing amount of 401(k) contributions are being curtailed.”
“He (Mr. Gustafson) has been very critical of the business community; he's been very critical of the industry seeking additional relief,” added ABC's Ms. Dudley. “This is not the time to be worrying that at some time in the unforeseeable future that taxpayers may possibly have to give some amount of money to the PBGC, given what we are experiencing right now.”
But Mr. Gustafson said industry representatives shouldn't make assumptions about his motives.
“Because you present facts that aren't supportive of their (ABC's and ERIC's) position doesn't mean I'm necessarily opposed to their position,” Mr. Gustafson added. “I'm presenting as much information as I can to balance the debate.”
He also describes his mission as educating Capitol Hill staffers, not lobbying — which is expressly forbidden for PBGC staffers.
“The numbers we produce are in response to requests from Hill staffers to tell them what the impact of relief proposals are on all the stakeholders,” Mr. Gustafson said. “We provide our best estimates of not only the impact on employers and the PBGC, but also on participants in plans that will be less well funded and, unfortunately, potentially on taxpayers.”
CIEBA's Ms. Schub said the industry's only recourse is to keep lobbying lawmakers for additional funding relief.
“You have got to keep on keeping on or nothing will happen,” Ms. Schub said. “If you don't try, you certainly don't get anything.”
Reproductions and distribution of the above news story are strictly prohibited. To order reprints and/or request permission to use the article in full or partial format please contact our Reprint Sales Manager at (732) 723-0569.
|
|
|
Post by macrockett on Sept 9, 2009 23:37:57 GMT -6
Trouble for federal agency that backs 44 million pensions
The Pension Benefit Guaranty Corp. faces rising deficits. A big bankruptcy could swamp it. By Ron Scherer | Staff writer/ May 20, 2009 edition, Christian Science Monitor
Reporter Ron Scherer discusses how the federal government's Pension Benefit Guaranty Corporation might help his brother-in-law.
Reporter Ron Scherer
New York
Imagine an insurance company that is facing today a deficit of billions of dollars. But its board of directors has not had a meeting since February 2008.
Meet the Pension Benefit Guaranty Corp., a federal agency that takes over underfunded pension funds from bankrupt companies and pays their retirees.
Going into this year, the PBGC was running a deficit of $10.7 billion as the premiums set by Congress and paid by on-going companies were less than the payments to retirees. Then, on Wednesday it said for the first half of 2009, the deficit had ballooned out to $33.5 billion, the largest in PGBC history. Now Congress, who has oversight over the entity, is worried about what might happen if some really large corporation—think auto industry—dumped pension liabilities on the PBGC. Some outside experts can envision a future deficit as high as $100 billion.
“This is going to blow up, it’s just a question of when,” says Douglas Elliott, a fellow at the Brookings Institution in Washington. “This will cost the taxpayers more in the end than AIG.”
On Wednesday, a US Senate committee, the Special Committee on Aging, headed up by Sen. Herb Kohl (D) of Wisconsin, will begin to look at the underpinnings of the PBGC. The provocative title of the hearing: “No Guarantees: As Pension Plans Crumble, Can PBGC Deliver?”
The problems at the PBGC could have larger ramifications. The retirements of some 44 million Americans under 31,000 separate pension plans are covered by the organization. Congress, which sets the benefit and premium levels, may have to make some tough decisions: increase premiums on business during a recession, lower benefits to workers, or ask taxpayers to pick up the difference.
“Legally, the US does not have to pick up the tab,” says one congressional staff member who works on the issue. “But the political pressure would be immense.”
That pressure could ratchet up even more if General Motors were to file for bankruptcy. Mr. Elliott, in a white paper released Wednesday, estimates GM’s pension shortfall is $20 billion.
“Right now, the bulk of that $20 billion will be paid for by the auto workers and retirees,” he says.
But, he adds, it’s not unusual for companies to stop making contributions while still providing benefits. “It’s not unheard of for an additional 20 percent to be underfunded, and almost all of that would fall on the PBGC,” says Elliott. “For the PBGC, the amount it will have to absorb from GM could go from $4 billion to $24 billion without a lot of crazy assumptions.”
The agency itself publishes what it terms “reasonably possible losses.” At the end of fiscal year 2008, the PBGC estimated those at $36.6 billion for the fiscal years 1987 to 2008.
Underfunded pension plans
Part of the problem is that corporations underfund pension commitments. Elliott estimates that the nation’s defined-benefit pension funds – those based on salary level and years of employment – are about 20 percent short of their requirements. The PBGC estimated that total underfunding for ongoing plans amounted to $500 billion at the end of 2006.
If there is any good news, it is the fact that many companies have changed their retirement plans from defined-benefit programs to more unstructured plans such as 401(k)s, which allow workers to save for their retirements with pretax dollars.
“Over the last 20 years, there has been a growth of alternative retirement approaches, both structured and unstructured, of people putting money away,” says Wayne Cutler, managing director at Novantas, a consulting firm for the financial industry. “The majority of retirement assets are controlled by individuals.”
However, he adds, there remains a multitrillion liability in defined-benefit costs, “and there is clearly a gap and PBGC has insufficient assets to support it if there are more bankruptcies.”
One way to narrow the gap would be to raise the premiums paid by participants. But business groups, especially smaller businesses, complain about the added expense. Of the 44 million people covered by the PBGC, 34 million work for small businesses.
“Until recently, the premium was a tax on small and mid-sized business,” says Kevin Kearns, president of the US Business and Industry Council in Washington.
When a big company went bankrupt, such as Bethlehem Steel Corp., the PBGC absorbed its pension shortfall. “The small guys are paying for these big guys,” complains Mr. Kearns.
But now, Kearns says, the problem is spreading to the medium and smaller businesses. He says companies in such areas as metal bending, electronics, heating elements, and anyone in the auto-parts field are preparing for bankruptcy filings.
“Literally, tens of thousands of small businesses are heading the PBGC way,” he says.
Questions about how assets were managed
In the past, the PBGC has managed its assets in a very conservative fashion. About 30 percent is in the stock market, and the rest in bonds, says Brookings’ Elliott. Congress requires the premium income to be invested in liquid Treasury bills.
But last year, the PBGC’s then-director, Charles Millard, decided to embark on diversification, teaming up with “strategic partners” Goldman Sachs, Black Rock, and JPMorgan to invest $5.5 billion, or 10 percent of the PBGC’s assets, into real estate and private-equity investments. So far, Acting Director Vince Snowbarger says, no money has exchanged hands.
Mr. Millard, who has been subpoenaed, is expected to be asked about the diversification moves at the hearings Wednesday. The inspector general of the organization has alleged that Millard, who is no longer at the PBGC, improperly influenced the procurement process.
The last time Congress looked at the PBGC was in 2006 in the Pension Protection Act, signed by President Bush. Legislation regarding the organization called for “regular” board meetings. Now, according to a congressional staff member, it might specify a quarterly get-together. --------------------------------------------------------------- and another article in the WP: --------------------------------------------------------------- U.S. Pension Insurer May Need Aid as Deficit Soars Shortfall Fed by Flood of Corporate Bankruptcies
By David S. Hilzenrath Washington Post Staff Writer Thursday, May 21, 2009
The federal agency that guarantees corporate pensions was $33.5 billion in the red at the end of March, triple its deficit six months earlier, the agency's head told a Senate committee yesterday.
The recession threatens to add to the strain on the Pension Benefit Guaranty Corp. by pushing more companies into bankruptcy and leaving the struggling agency responsible for their pensions. For example, the agency faces a potential tidal wave of claims from Chrysler and General Motors, whose pension plans are underfunded by an estimated $29 billion, the Government Accountability Office said.
If the PBGC's condition continues to deteriorate, the government could come under pressure to shore it up with taxpayer funds, the GAO said in testimony to the Senate's Special Committee on Aging.
"The committee has grave concerns about the agency's viability," said the panel's chairman, Herb Kohl (D-Wis.).
Despite the deficit, the PBGC will be able to meet its obligations to pensioners for many years, the agency's acting director, Vincent K. Snowbarger, told the panel. That's because the payments it owes are not due all at once; they are spread over the beneficiaries' lifetimes, Snowbarger explained.
Finances aside, the GAO is concerned that the PBGC could have trouble simply handling the added work. The agency suffers from weaknesses in its management and governance, the GAO's Barbara D. Bovbjerg, who oversees workforce and income security issues, said in a statement to the committee.
A report last week by the agency's inspector general alleged that Charles E.F. Millard, during his tenure as a PBGC director, had improper contacts with big Wall Street firms while they were bidding on contracts to help manage PBGC investments. Millard allegedly asked an executive at the financial firm BlackRock how to tailor a contract requirement to winnow the field of bidders. In addition, he allegedly received help with a job search from an executive at another bidder, Goldman Sachs.
Kohl and the agency's acting director recommended that the contracts, worth a total of $100 million, be canceled.
Millard, who served under President George W. Bush, declined to answer questions at yesterday's hearing, invoking his Fifth Amendment right not to give testimony that might incriminate himself.
Millard previously asserted that he complied with all legal and ethical obligations. "I acted in what I believed to be the best interests of the PBGC to implement desperately needed reforms of PBGC investment policy," Millard said in a letter to the inspector general.
Millard dismissed speculation that he was trying to advance his prospects of landing a post-government job at a large financial services firm. "This was ridiculous, as I already had numerous contacts at such firms and had worked in senior roles at two of them in the past," he wrote.
The PBGC is overseen by a three-member board, but the members have not met face-to-face since February 2008, according to the GAO. The board includes the secretaries of the Commerce, Labor and Treasury departments, who have many other demands on their time.
The PBGC takes over the pension assets and obligations of companies that are no longer able to bear the burden themselves. Like the Federal Deposit Insurance Corp., which insures bank deposits, the PBGC funds itself by collecting insurance premiums from the companies it backstops.
Workers and retirees whose pension plans are taken over by the PBGC can face a reduction in their pensions, because there are limits to the benefits the agency guarantees. For plans that fall into the PBGC's hands this year, the maximum guaranteed benefit is $54,000 per year for payouts beginning at age 65, Snowbarger told the Senate panel.
If the PBGC inherits the Chrysler and GM pension plans, autoworkers could face a major loss of retirement income. For the auto sector as a whole, pensions are underfunded by an estimated $77 billion, of which the guaranteed benefits total only $42 billion, Snowbarger said in written testimony.
To avoid such a blow to retirees, and to avoid unsustainable increases in the premiums the PBGC charges corporations, the government could be called upon to support the agency, the GAO's Bovbjerg wrote.
The tripling of the PBGC's deficit from $11 billion as of Sept. 30 to about $33.5 billion as of March 30 was mainly the result of a decline in interest rates and an increase in the number of pension plans the agency must manage. Declining interest rates imply that the agency's investments will grow more slowly. The deficit is an estimate of the gap between the agency's assets and what it would need to cover its obligations stretching into the future.
Another potential source of trouble for the PBGC is legislation passed in December granting corporations relief from the economic crisis. The legislation allowed some companies to make smaller contributions to their pension funds, thus leaving the plans more underfunded, according to the GAO.
View all comments that have been posted about this article.
|
|
|
Post by doctorwho on Sept 10, 2009 5:47:49 GMT -6
Trouble for federal agency that backs 44 million pensions
The Pension Benefit Guaranty Corp. faces rising deficits. A big bankruptcy could swamp it. By Ron Scherer | Staff writer/ May 20, 2009 edition, Christian Science Monitor
Reporter Ron Scherer discusses how the federal government's Pension Benefit Guaranty Corporation might help his brother-in-law.
Reporter Ron Scherer
New York Imagine an insurance company that is facing today a deficit of billions of dollars. But its board of directors has not had a meeting since February 2008.
Meet the Pension Benefit Guaranty Corp., a federal agency that takes over underfunded pension funds from bankrupt companies and pays their retirees.
Going into this year, the PBGC was running a deficit of $10.7 billion as the premiums set by Congress and paid by on-going companies were less than the payments to retirees. Then, on Wednesday it said for the first half of 2009, the deficit had ballooned out to $33.5 billion, the largest in PGBC history. Now Congress, who has oversight over the entity, is worried about what might happen if some really large corporation—think auto industry—dumped pension liabilities on the PBGC. Some outside experts can envision a future deficit as high as $100 billion.
“This is going to blow up, it’s just a question of when,” says Douglas Elliott, a fellow at the Brookings Institution in Washington. “This will cost the taxpayers more in the end than AIG.”
On Wednesday, a US Senate committee, the Special Committee on Aging, headed up by Sen. Herb Kohl (D) of Wisconsin, will begin to look at the underpinnings of the PBGC. The provocative title of the hearing: “No Guarantees: As Pension Plans Crumble, Can PBGC Deliver?”
The problems at the PBGC could have larger ramifications. The retirements of some 44 million Americans under 31,000 separate pension plans are covered by the organization. Congress, which sets the benefit and premium levels, may have to make some tough decisions: increase premiums on business during a recession, lower benefits to workers, or ask taxpayers to pick up the difference.
“Legally, the US does not have to pick up the tab,” says one congressional staff member who works on the issue. “But the political pressure would be immense.” That pressure could ratchet up even more if General Motors were to file for bankruptcy. Mr. Elliott, in a white paper released Wednesday, estimates GM’s pension shortfall is $20 billion. “Right now, the bulk of that $20 billion will be paid for by the auto workers and retirees,” he says. But, he adds, it’s not unusual for companies to stop making contributions while still providing benefits. “It’s not unheard of for an additional 20 percent to be underfunded, and almost all of that would fall on the PBGC,” says Elliott. “For the PBGC, the amount it will have to absorb from GM could go from $4 billion to $24 billion without a lot of crazy assumptions.” The agency itself publishes what it terms “reasonably possible losses.” At the end of fiscal year 2008, the PBGC estimated those at $36.6 billion for the fiscal years 1987 to 2008. Underfunded pension plans Part of the problem is that corporations underfund pension commitments. Elliott estimates that the nation’s defined-benefit pension funds – those based on salary level and years of employment – are about 20 percent short of their requirements. The PBGC estimated that total underfunding for ongoing plans amounted to $500 billion at the end of 2006. If there is any good news, it is the fact that many companies have changed their retirement plans from defined-benefit programs to more unstructured plans such as 401(k)s, which allow workers to save for their retirements with pretax dollars. “Over the last 20 years, there has been a growth of alternative retirement approaches, both structured and unstructured, of people putting money away,” says Wayne Cutler, managing director at Novantas, a consulting firm for the financial industry. “The majority of retirement assets are controlled by individuals.” However, he adds, there remains a multitrillion liability in defined-benefit costs, “and there is clearly a gap and PBGC has insufficient assets to support it if there are more bankruptcies.” One way to narrow the gap would be to raise the premiums paid by participants. But business groups, especially smaller businesses, complain about the added expense. Of the 44 million people covered by the PBGC, 34 million work for small businesses. “Until recently, the premium was a tax on small and mid-sized business,” says Kevin Kearns, president of the US Business and Industry Council in Washington. When a big company went bankrupt, such as Bethlehem Steel Corp., the PBGC absorbed its pension shortfall. “The small guys are paying for these big guys,” complains Mr. Kearns. But now, Kearns says, the problem is spreading to the medium and smaller businesses. He says companies in such areas as metal bending, electronics, heating elements, and anyone in the auto-parts field are preparing for bankruptcy filings. “Literally, tens of thousands of small businesses are heading the PBGC way,” he says. Questions about how assets were managed In the past, the PBGC has managed its assets in a very conservative fashion. About 30 percent is in the stock market, and the rest in bonds, says Brookings’ Elliott. Congress requires the premium income to be invested in liquid Treasury bills. But last year, the PBGC’s then-director, Charles Millard, decided to embark on diversification, teaming up with “strategic partners” Goldman Sachs, Black Rock, and JPMorgan to invest $5.5 billion, or 10 percent of the PBGC’s assets, into real estate and private-equity investments. So far, Acting Director Vince Snowbarger says, no money has exchanged hands. Mr. Millard, who has been subpoenaed, is expected to be asked about the diversification moves at the hearings Wednesday. The inspector general of the organization has alleged that Millard, who is no longer at the PBGC, improperly influenced the procurement process. The last time Congress looked at the PBGC was in 2006 in the Pension Protection Act, signed by President Bush. Legislation regarding the organization called for “regular” board meetings. Now, according to a congressional staff member, it might specify a quarterly get-together. see my compnay is ahead of the curve on this one- they made our pensions go away in 1999 - so I no longer have to worry about is it properly funded - I just have to work until 80 or so...
|
|