Teacher Tenure/Unions/Government/Pensions

[macrockett]

I just can't let this cnbc video go, especially the comments by the AFSCME representative who, imo, is clueless about the compounding of returns on assets.

www.cnbc.com/id/15840232?video=1608773672&play=1

Simple example: Illinois assumes a compounding of 8.5% right? So that means every year assets, on average, are growing at 8.5%. So, lets take a 10 year example starting with $1:

So the math looks like this:

1
1.085
1.177225
1.277289125
1.385858701
1.50365669
1.631467509
1.770142247
1.920604338
2.083855707
2.260983442 at the end of ten years.

However, we know that over the last 10 years assets, on average, have grown less than that across the board. The estimates are from a little under 4% to a little over 5% depending on the pension fund you are talking about. Illinois' funds were under 4%. So using 4% compounding it would look like this:

1
1.04
1.0816
1.124864
1.16985856
1.216652902
1.265319018
1.315931779
1.36856905
1.423311812
1.480244285

So the shortfall on expected returns is 1.48/2.26 or over 34%. What does that mean? The money expected to be there is underfunded by about 34%, not based on underfunding by the State, but underfunding by the State and the employee. This isn't rocket science. It is simple math.

When you are guaranteeing returns that are no longer achievable in today's world (without taking great risk) you're doing nothing more than creating a transfer of wealth that no one contemplated and that is patently unfair.

I have learned that if you sit quietly and do nothing you get what you deserve, nothing. In fact you deserve to get taken to the cleaners because there are those who will, unfortunately, play by a different set of rules than most of us play by.

We live in a world where growth (in economic terms, GDP) is moving from the developed world to the emerging markets (the BRICs and others). Therefore, to the extent the assets in pension funds remain predominately in developed world assets (the G7 countries), returns will be lower.

In addition, in a deleveraging environment (getting debt back in line with incomes and cashflow), where interest rates remain depressed, the other component of investing (fixed assets) will also be lower.

The net result, unless you take more risk either in riskier assets or using leverage (borrowed money) to enhance returns, the expected return on assets will be lower. That is why these pension assumptions are suspect at best. That is why Pimco, Blackrock and nearly every other credible group says the assumption must be lowered.

Listen to these guys explain the environment:
www.cnbc.com/id/15840232?video=1608790324&play=1

[southsidesignmaker]

Big Mac,

Nice representation of compound interest. I suspect the last 10 years may be on the low end when comparing 35 to 50 year spans. Never the less 8.5% seems a bit unrealistic and even more realistic when noting how under funded many defined pension plans are currently.

Over the mid and long term many of these plans will have to be converted out of defined guaranteed benefit plans. The tax payer will not stand for the increasing cost of these plans.


Unfortunately many politicians have no spine to change these plans, it will take the "domino affect of insolvency" to address this ever growing problem. For Illinois this insolvency is right around the corner.

[macrockett]

Oct 9, 2010 10:37:29 GMT -6 southsidesignmaker said:

Big Mac,

Nice representation of compound interest. I suspect the last 10 years may be on the low end when comparing 35 to 50 year spans. Never the less 8.5% seems a bit unrealistic and even more realistic when noting how under funded many defined pension plans are currently.

Over the mid and long term many of these plans will have to be converted out of defined guaranteed benefit plans. The tax payer will not stand for the increasing cost of these plans.


Unfortunately many politicians have no spine to change these plans, it will take the "domino affect of insolvency" to address this ever growing problem. For Illinois this insolvency is right around the corner.

Couldn't disagree more SSSM.

The returns achieved prior to the 2000s were based on an environment where the developed world ruled, giving them high returns based on margins, the ability to use more leverage (because returns were more predicable) and a lack of competition (allowing more sales).

In addition, consumption in America over the last 30 years has been masked as well by the use of leverage to sustain the consumption. As the tide was slowing turning, with labor shifting overseas to the emerging markets, compensation in America began to plateau and the leverage increased. We all know where that ended up. American continue to sit on a great deal of debt as a percentage of assets. Take a look at the Feds quarterly flow of funds.

Finally, GDP in the U.S. and other developed countries is slowing relative to the emerging markets. What is happening, imo, is an equalization of incomes of employees and parity in terms of competition. Both of these will compress margins and lower returns.

It is an inevitable outcome imo. The expectation of 8.5% returns is an illusion without a great deal of risk in making bets on types of assets to invest in or getter leverage to juice returns. Large pension funds will not make bet, imo, as approximately 1/3 of their assets are in bonds that will be hard pressed to provide returns over 3% on average. That means the rest of the assets in the fund have to yield well over 8% to provide the required return (as Chas Cocke, of Investure says in the video)

[southsidesignmaker]

Big Mac,

You note that "Finally, GDP in the U.S. and other developed countries is slowing relative to the emerging markets. What is happening, imo, is an equalization of incomes of employees and parity in terms of competition. Both of these will compress margins and lower returns".

I eel you are absolutely correct, going forward there are a billion people each in India and China. Many of these folks will become much more "capable consumers" in the near future. This will bring about prosperity on the international front. I do suspect that much of the future ROI will be dependent on emerging markets.

Investing in US and old world economies will limit future earnings as these markets could be considered mature (and frought with debt).

[macrockett]

Oct 10, 2010 14:53:53 GMT -6 southsidesignmaker said:

Big Mac,

You note that "Finally, GDP in the U.S. and other developed countries is slowing relative to the emerging markets. What is happening, imo, is an equalization of incomes of employees and parity in terms of competition. Both of these will compress margins and lower returns".

I eel you are absolutely correct, going forward there are a billion people each in India and China. Many of these folks will become much more "capable consumers" in the near future. This will bring about prosperity on the international front. I do suspect that much of the future ROI will be dependent on emerging markets.

Investing in US and old world economies will limit future earnings as these markets could be considered mature (and frought with debt).

The problem, I think, is our incomes will go down faster than China and India's incomes will rise, reaching an overall lower wage world wide.

One reason for that is we just don't need 2+ billion workers in the first place and second, we can't sustain world wages at anywhere near what they are in the developed countries.

After all, the way those wages were reached in the first place is a result of workers of the developed countries supplying most of the goods and services to the rest of the world.

Gradually, each industry has shifted to emerging markets due to lower costs, primarily wages. Appliances, TVs, large appliances, autos, parts, various airplane components, computers and so on.
Seems to me, the end result is a lower standard of living for everyone along with lower growth here, initially, then eventually world wide.

[macrockett]

www.ft.com/cms/s/0/7adbf6e8-d58b-11df-8e86-00144feabdc0.html

US cities face big public pension deficits

By Nicole Bullock in New York

Published: October 12 2010 05:04 | Last updated: October 12 2010 05:04

Big US cities could be squeezed by unfunded public pensions as they and counties face a $574bn funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000bn in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.

The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.

The combination has raised concern that defaults, which are historically rare in the $2,800bn municipal bond market where local governments obtain money, could now rise.

“The bondholders would be competing with the pension beneficiaries for scarce government resources,” Mr Rauh said.

Current pension assets for plans sponsored by Philadelphia can only pay for promised benefits through 2015, while Boston and Chicago would deplete their existing funds by 2019.

Cincinnati, Jacksonville, Florida and St Paul have current pension assets that can only pay for promised benefits through 2020.

Local governments use unique accounting methods that many, such as Mr Rauh, believe understate obligations. Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied.

“Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015,” Mr Rauh said, assuming an 8 per cent annualised return, the most common benchmark for municipal plans.

In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000.

Taxpayers in these areas risk not only local tax increases and service cuts to pay for benefits, but potentially some of the bill for the $3,000bn unfunded obligations at the state level, the researchers say.

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation,” Mr Rauh said.

The research examines 77 pension plans sponsored by 50 major cities and counties and covering about 2m workers, which is estimated to be two-thirds of workers covered by local pensions. Researchers then extrapolated the results – an unfunded liability of about $5,300 per worker – to come up with the total estimate of $574bn.

Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

----------------------------------------------------------------------------------
www.kellogg.northwestern.edu/News_Articles/2010/municipal-pension-systems.aspx

www.kellogg.northwestern.edu/faculty/rauh/research/NMRLocal20101011.pdf (the study)

Dire outcomes predicted for municipal pension systems

Associate Professor Joshua Rauh estimates that cities and counties add $574 billion to the $3 trillion in unfunded liabilities from the states


10/12/2010 - Prior research by the Kellogg School of Management has found $3 trillion in unfunded legacy liabilities from state-sponsored pension plans. However, new research finds additional liabilities from municipalities that magnify the growing public pension crisis.

Municipal Pensions
click to see full size chart
In a new report issued today by the Kellogg School, economists estimate an additional $574 billion in unfunded liabilities from pension plans at the city and county levels.

The paper, “The Crisis in Local Government Pensions in the United States,” is co-authored by Joshua Rauh of the Kellogg School and Robert Novy-Marx of the University of Rochester. In this latest study, Rauh and Novy-Marx calculate the aggregate unfunded liabilities and forecast the number of years assets will last for 77 defined pension plans sponsored by 50 major U.S. cities and counties. The sample represented all non-state municipal entities with more than $1 billion in pension assets, covering 2.04 million local public employees and retirees. Rauh will present the paper at the Brookings Institution on Oct. 15 in Washington, D.C.

“This new paper calculates the present value of local government employee pension liabilities for about two-thirds of total local government employees, and estimates the unfunded obligation for the remaining one-third of workers covered by municipal plans not in our sample,” said Rauh, associate professor of finance at the Kellogg School. “In total, we estimate that municipal plans in the U.S. are carrying $574 billion in off-balance-sheet debt in the form of unfunded pension obligations.”

In many cities, these unfunded promises will be a long-standing and substantial burden for municipal revenues. For example, even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made.

Six major cities have current pension assets that can only pay for promised benefits through 2020: Philadelphia, Boston, Chicago, Cincinnati, Jacksonville and St. Paul. An additional 18 cities and counties, including New York City, Detroit, Cook County in Illinois and Orange County in California would be solvent through 2020 but not past 2025.

“Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015 — less than five years from now,” Rauh said.

Rauh and Novy-Marx estimate that each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties they studied, only including the unfunded portion of benefits that have already been promised based on work performed. In New York City, San Francisco, and Boston, the total is more than $30,000 per household. In Chicago, the total is more than $40,000 per household.

To read the full study, click here

“The situation is especially dire for taxpayers in these areas,” Rauh said. “In addition to being exposed to the prospect of severe local government tax increases and spending cuts, they also will be called upon to pay for their share of the $3 trillion unfunded liabilities at the state level.”

According to Rauh, it is clear that state and local governments in the U.S. are not far from the point where these pension promises will impact their ability to operate. Once the funds themselves are liquidated, the extent to which promised pension payments are competing with other local resources will skyrocket, eroding a large portion of many municipal budgets.

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation,” he explained.

“What is yet to be seen is how this burden will be distributed between state and local governments, and whether the federal government will be called upon for bailouts. If these issues are left unresolved, fiscal crises on the state and local levels may translate into significant losses for municipal bondholders,” he concluded.

MORE INFORMATION: To arrange an interview with Professor Rauh or to request a copy of “The Crisis in Local Government Pensions in the United States,” contact Aaron Mays. Professor Rauh can be followed on Twitter via @joshrauh.

------------------------------------------------------------------
www.bloomberg.com/news/print/2010-10-12/philadelphia-chicago-and-boston-are-university-study-s-worst-off-pensions.html

Philadelphia, Chicago and Boston Are University Study's Worst-Off Pensions
By Tim Jones - Oct 12, 2010

Philadelphia will run out of money by 2015 to pay pension obligations with existing assets, and Chicago and Boston by 2019, a study by economists at Northwestern University and the University of Rochester forecasts.

The report, “The Crisis in Local Government Pensions in the United States,” warns that mounting liabilities threaten “the ability of state and local governments to operate.”

The study examines 77 of the largest municipal defined pension plans, covering 2 million public employees and retirees, roughly two-thirds of the nation’s total. The estimated liability of all municipal retirement funds is $574 billion, according to economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Rochester.

Chicago residents face the highest individual burden for pension liabilities from seven municipal retirement plans, amounting to nearly $42,000 per household. New York City residents face the second-highest per-household burden, just under $39,000.

These amounts are in addition to the estimated $3 trillion in unfunded liabilities that taxpayers will shoulder from state retirement systems, which Rauh and Novy-Marx examined in a 2009 report.

Urban Concentration

“The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation,” wrote Rauh and Novy-Marx.

The combined per-household liability for state and municipal pension underfunding for Chicago homeowners would total $71,000, or about $76 billion total, the report said.

The average household obligation for unfunded state and local pension debt is $41,165, the study said.

Philadelphia will be the first to run out of money from existing assets. Rauh said the “day of reckoning” for that city and others may arrive sooner if pension funds do not earn the anticipated 8 percent return on equity that most funds hope for.

Mayor Michael Nutter said last month that he plans to end the city’s defined benefit retirement system, which promises a set level of pension payments to retiring employees based on their pay and length of time on the job.

“We’re the last bastion of defined-benefit plans, which are unsustainable,” Nutter said of government systems at the Bloomberg Cities & Debt Briefing in New York. “Pensions are the fastest growing part of our budget.”

Hiding the Bill

Government pension accounting requirements effectively obscure the true costs of pension promises, Rauh said. The combination of underfunding and poor investment returns presents a growing financial threat, he said.

The study calculates that by 2015, Philadelphia’s expected pension-benefit payments will compose 19 percent of the city’s anticipated revenue. In Boston, benefits will consume 27 percent of 2019 revenues. And in Chicago, promises will gobble up 53 percent in 2019.

If all other spending were shut down, the report said, Chicago would have to dedicate about eight years of tax revenue just to cover pension promises.

Six large cities are listed as most vulnerable -- Philadelphia; Boston; Chicago; Cincinnati; Jacksonville, Florida; and St. Paul, Minnesota -- because they are projected to run out of money from existing assets no later than 2020. Another 36 cities and counties are projected to be in similar trouble by 2030.

Going to Washington

As the financial problems deepen, political pressure will build for a government bailout, first with cities going to states for help, followed by states going to Washington, Rauh predicted.

“Without fundamental reform of the compensation systems that these state and local governments are using, we are headed to a debt crisis of some kind for some subset of U.S. state and local governments, on a five to 10 year horizon,” Rauh, an associate professor of finance at Kellogg, said in an interview.

States will “cease to be able to function” because the accumulation of debt will prevent some of them from borrowing money, Rauh said.

To contact the reporter on this story: Tim Jones in Chicago at [e-mail]

To contact the editor responsible for this story: Mark Tannenbaum at [e-mail]

[macrockett]

www.cnbc.com/id/15840232?video=1613508212&play=1 (cnbc video on the Kellogg study plus more discussion of Illinois' pension woes)

www.cnbc.com/id/39624700/print/1/displaymode/1098/

New Study Predicts Dire Outcomes for Pension Systems in Major U.S. Cities and Counties Kellogg School of Management professor estimates that cities and counties add $574 billion to the $3 trillion in unfunded liabilities from the states
PR Newswire
| 12 Oct 2010 | 12:01 AM ET

EVANSTON, Ill., Oct 12, 2010 /PRNewswire via COMTEX/ -- Prior research by the Kellogg School of Management has found $3 trillion in unfunded legacy liabilities from state-sponsored pension plans. However, new research finds additional liabilities from municipalities which magnify the growing public pension crisis. In a new report issued today by the Kellogg School, economists estimate an additional $574 billion in unfunded liabilities from pension plans at the city and county levels.

(Photo: photos.prnewswire.com/prnh/20101012/CG80192) (Photo: www.newscom.com/cgi-bin/prnh/20101012/CG80192) The paper, "The Crisis in Local Government Pensions in the United States," is co-authored by Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Rochester. In this latest study, Rauh and Novy-Marx calculate the aggregate unfunded liabilities and forecast the number of years assets will last for 77 defined pension plans sponsored by 50 major U.S. cities and counties. The sample represented all non-state municipal entities with more than $1 billion in pension assets, covering 2.04 million local public employees and retirees. Rauh will present the paper at the Brookings Institution on Oct. 15 in Washington, D.C.

"This new paper calculates the present value of local government employee pension liabilities for about two-thirds of total local government employees, and estimates the unfunded obligation for the remaining one third of workers covered by municipal plans not in our sample," said Rauh, associate professor of finance at the Kellogg School. "In total, we estimate that municipal plans in the U.S. are carrying $574 billion in off-balance-sheet debt in the form of unfunded pension obligations." In many cities, these unfunded promises will be a long-standing and substantial burden for municipal revenues. For example, even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made.

Six major cities have current pension assets that can only pay for promised benefits through 2020: Philadelphia, Boston, Chicago, Cincinnati, Jacksonville and St. Paul. An additional 18 cities and counties, including New York City, Detroit, Cook County in Illinois and Orange County in California would be solvent through 2020 but not past 2025.

"Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015 - less than five years from now," Rauh said.

Rauh and Novy-Marx estimate that each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties they studied, only including the unfunded portion of benefits that have already been promised based on work performed. In New York City, San Francisco, and Boston, the total is more than $30,000 per household. In Chicago, the total is more than $40,000 per household.

"The situation is especially dire for taxpayers in these areas," Rauh said. "In addition to being exposed to the prospect of severe local government tax increases and spending cuts, they also will be called upon to pay for their share of the $3 trillion unfunded liabilities at the state level." According to Rauh, it is clear that state and local governments in the U.S. are not far from the point where these pension promises will impact their ability operate. Once the funds themselves are liquidated, the extent to which promised pension payments are competing with other local resources will skyrocket, eroding a large portion of many municipal budgets.

"The fact that there is such a large burden of public employee pensions concentrated in urban metropolitan areas threatens the long-run economic viability of these cities, as residents can potentially move elsewhere to escape the situation," he explained.

"What is yet to be seen is how this burden will be distributed between state and local governments, and whether the federal government will be called upon for bailouts. If these issues are left unresolved, fiscal crises on the state and local levels may translate into significant losses for municipal bondholders," he concluded.

MORE INFORMATION: To arrange an interview with Professor Rauh, or to request a copy of "The Crisis in Local Government Pensions in the United States," contact Aaron Mays or Betsy Berger at the contact information listed below. For more information about the Kellogg School of Management at Northwestern University, visit www.kellogg.northwestern.edu. Professor Rauh can be followed on Twitter via @joshrauh.

[macrockett]

www.washingtonpost.com/wp-dyn/content/article/2010/10/12/AR2010101205658_pf.html

Michelle Rhee resigns; Gray huddles with her successor

By Tim Craig and Bill Turque
Washington Post Staff Writers
Wednesday, October 13, 2010; 5:37 PM

Presumptive mayor-elect Vincent C. Gray introduced Kaya Henderson on Wednesday as the interim chancellor of D.C. public schools and vowed that reforms launched under Michelle A. Rhee would continue when he takes office in January.

"We cannot and will not return to the days of incrementalism," said Gray, appearing at a news conference with Rhee, Henderson and Mayor Adrian M. Fenty, who will formally appoint Henderson at Gray's request.

Later in the day, Gray, the D.C. Council chairman, met privately with Henderson for more than 90 minutes in his office in the John A. Wilson Building. They were joined for part of the time by Chief Financial Officer Natwar Gandhi, perhaps signaling that Gray and Henderson are already grappling with issues related to the District's large budget shortfall.

Gray and Henderson hugged as the meeting broke up. Gandhi declined comment as he left, and Henderson said she needed "fifteen minutes to breath."

"A lot has happened today," she said, adding she will begin formal media interviews within a few days.

In Henderson, Gray inherits someone in tune with Rhee on the fundamentals of education reform, especially the belief that teacher quality is the most important determinant of student success. Rhee and Henderson worked together at the New Teacher Project, a teacher recruiting nonprofit group that Rhee founded and ran before she was appointed by Fenty in June 2007. Henderson was a vice president for the group.

She was Rhee's first appointment and was named her top deputy the day Rhee was introduced to the District. At the time, Rhee made it sound as if they had come to the District as a package.

"I told Kaya, 'I can't do this without you,' " Rhee said at the time. "She's everything you'd want in a leader. She has an ability to motivate people. She's a critical thinker, and she's an innovative thinker."

At the news conference Wednesday, Henderson told reporters, "I'm excited about where we are, and I'm thrilled that the management team has agreed to stay on to continue this process."

Gray said that while he has "no intention of micromanaging DCPS," he asked Henderson to keep the school system's senior leadership in place until at least the end of the current school year. Henderson is regarded within the Gray camp as a potential permanent successor to Rhee.

The group took only a handful of questions from a hotel conference room packed with journalists, and neither Gray nor Rhee shed light on what they called a "mutual decision" to part ways.

In a prepared statement, Rhee said that leaving after nearly 31/2 turbulent years was "heartbreaking," but she said Gray "deserves the opportunity to work toward his goal of 'One City' with a team that shares his vision, can keep progress going and help bridge the divide."

"In short, we have agreed - together - that the best way to keep the reforms going is for this reformer to step aside."

Rhee survived three contentious years that made her a superstar of the education reform movement and one of the longest-serving school leaders in the city in two decades. Student test scores rose, decades of enrollment decline stopped and the teachers union accepted a contract that gave the chancellor, in tandem with a rigorous new evaluation system, sweeping new powers to fire low-performing educators.

But Rhee will leave with considerable unfinished business in her quest to improve teaching, close the worst schools and infuse a culture of excellence in a system that has been one of the nation's least effective at educating students.

At the news conference, Fenty praised Rhee for taking on what he called "the thankless job" of running D.C. schools. He said she had exceeded his highest expectations during her tumultuous tenure. "It's not just the results all of you know so well ... but it's the excitement that she brought to the school system."

Fenty also lauded Henderson, saying, "I have had the opportunity to work with her, and I have as much confidence in Kaya's ability to run the school system as anyone who has ever known her."

The move won immediate support from the Washington Teachers' Union, which has long battled Rhee. "I think leaving sooner is better than later, so there will not be all this speculation," said union head George Parker. "Making a decision will relieve the tension."

But D.C. Council member Mary M. Cheh (D-Ward 3), who endorsed Gray but has generally supported Rhee's initiatives, said: "I'm deeply disappointed.... We always heard it was about the children. I don't think it is good for the children for her to leave in the middle of the fall. I had always hoped that if she wanted to leave she'd be part of a smooth transition."

President Obama's press secretary, Robert Gibbs, commented briefly on the change in leadership of the D.C. schools Wednesday morning, saying that the president did not regret his decision to stay neutral in the mayor's race even though Fenty's loss led to Rhee's resignation.

"I don't think the president regrets not getting involved in a mayoral race," Gibbs told reporters at his morning briefing. "Obviously, the important work people like Michelle Rhee and Arne Duncan are doing needs to continue regardless of the outcome of elections."

Rhee's departure has been anticipated since Gray defeated Fenty in the Sept. 14 Democratic mayoral primary. She campaigned on Fenty's behalf and questioned whether Gray had the political will to make the unpopular decisions she thought were necessary to sustain school improvement.

Two weeks ago, Gray and Rhee met for about 90 minutes to begin talking about her future and the chairman's vision for school reform. Since then, the two have held several private phone discussions, said those familiar with the discussions.

Gray and Rhee agreed that the debate over her future was becoming a distraction for teachers, students and parents, people close to them said.

At the New Teacher Project where she worked with Rhee, Henderson ran the organization's D.C. operation, which had contracts with D.C. public schools to supply teachers. Before that, Henderson worked for Teach for America - where Rhee began her educational career - teaching middle school Spanish in the South Bronx.

At a D.C. Council meeting last year, Henderson recounted her first impressions of the city's struggling school system and her aspirations to change it. "I was stunned at the lack of commitment to ensuring the highest-quality educational force in the country," Henderson said. "The District tolerated people and practices that other school systems would never accept."

At a meeting in August of school principals, Henderson offered a football coach-style motivational talk, reinforcing Rhee's core message: that poverty and other conditions outside the classroom are not an excuse for poor academic achievement.

"Our responsibility is to deliver the goods, no matter what the situations our students are in," she said. "The reform is in the schoolhouse. You are here because we believe you are the right people to deliver this reform. The election is not our concern; the election is not your concern. Go hard, or go home!"

As deputy chancellor for "human capital," Henderson was a key figure in the firing of 98 central office employees in 2008. She was also lead D.C. negotiator on the marathon contract talks with the Washington Teachers' Union, which led to a labor pact that establishes classroom performance - rather than traditional seniority - as the main factor driving job security.

But Henderson was known to have a decent relationship with Parker.

"I respect her because she is a collaborative person, but also a very strong reformer," Parker said Tuesday night.

Rhee's goals - higher student achievement, better teachers and greater accountability for their classroom performance - were generally shared by her predecessors. But with new powers putting the struggling school system under mayoral control, Rhee pursued the goals with an unprecedented zeal.

She closed more than two dozen schools, fired teachers by the hundreds and spent more than two years negotiating a labor contract that gives principals new control over teacher hiring while establishing a new performance-pay system that ties compensation to growth in student test scores.

Rhee also dramatically expanded the number of spaces in preschool, pre-K and Head Start, and opened the Early Stages diagnostic center to help flag learning disabilities in children ages 2 to 5. She piloted a program of "wrap-around" support services for at-risk middle school kids and launched a program of "themed" schools focusing on science and technology, world cultures and the arts.

"I'm shocked that she's leaving so quickly," said Ted Trabue, president of the D.C. State Board of Education. "I really thought [Gray and Rhee] would work something out so that she stayed until the end of the academic year. I thought it would have been in the best interests of the students."

Gray has said that he supports an ambitious program of school reform but does not think that change depends on a single person. In an interview with The Washington Post last week, he said that if Rhee left, he would seek a replacement who shares many of her values and is not a veteran who has spent several decades in top school jobs.

He ruled out Rhee's predecessor, Clifford Janey, whose name had circulated as a possible replacement. Aside from Henderson, other prominent names include Robert Bobb, the former D.C. school board president and city administrator who is now the fiscal overseer of the Detroit school system, and former D.C. State Superintendent of Education Deborah Gist, now Rhode Island commissioner of education.

Staff writer Mike DeBonis contributed to this report.

[macrockett]

www.chicagotribune.com/news/local/chicago/ct-oped-1015-zorn-20101015-11,0,5505960.column
chicagotribune.com
Heavy hitter to double dipper?
Enormous pension for Birkett if he becomes an associate Circuit Court judge before Jan. 1

Eric Zorn

Change of Subject

October 15, 2010
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Fifteen months ago, DuPage County State's Attorney Joe Birkett was one of the most prominent Republican politicians in Illinois. He was a two-time party nominee for statewide office and the odds-on favorite to be the GOP candidate for attorney general this year.

And though he dropped out of that race in August of 2009 after Democratic incumbent Lisa Madigan announced she was running for re-election, Birkett remained a powerful and prominent figure — the elected head of the state's second-largest prosecutor's office and frequent presence on television.

Now, halfway through his fourth term, he's said he wants to give it all up for a slightly lower paying job as an entry-level associate Circuit Court judge, the kind who usually hears traffic cases, small claims, divorces and routine misdemeanors.

It's a puzzling abdication until you look at the numbers.

Birkett is covered by a special pension program for elected county officials that's overseen by the Illinois Municipal Retirement Fund.

Because he's now 55, he's eligible to begin receiving a pension of $8,819 a month ($105,828 a year), according to IMRF data, based on a formula that includes the approximately 15 years he worked as an unelected assistant state's attorney.

For those 15 years he contributed 41/2 percent of his salary to the pension fund. But since December of 1998 when he joined the special program for elected officials — which vests more quickly and pays out a greater percentage of former income at the end — he's been contributing 71/2 percent of his income.

There's a cheap sweetener available, however. If he retroactively pays the higher percentage for those first 15 years of pension contributions — IMRF calculates the balance due at $36,798 — then his entire public career will be covered under the special deal for county elected officials and his pension will rise to $11,460 a month ($137,520 a year) which is 80 percent of his current salary.

Put another way, that $36,798 investment will pay itself back in 14 months and then return a $31,692 annual interest payment in perpetuity.

Nice, huh?

Well, it will be even nicer for Birkett if he can secure that demotion before Jan. 1, when pension reforms passed earlier this year in Springfield kick in.

Birkett announced last month that he was filling out an application for the vacancy of retiring DuPage Associate Judge Joseph Bongiorno. All such applications will be carefully considered by the local bar and studied by the sitting judges who will make the final selection.

If they name Birkett to the vacancy and do so by the end of December, he'll be able to start collecting both a judge's salary of $169,893 and that delicious $137,520 pension for his years at the state's attorney's office.

That's $307,413 a year, if you're keeping score at home.

After Jan. 1, however, a new prohibition on so-called double-dipping will prevent government employees from collecting government salaries and pensions at the same time. To Birkett, the cost of a delay — or of simply serving out the term to which he was elected and then running for a judicial vacancy in 2012 — could be close to $2 million if he were to, say, on the bench until age 70.

I wanted to ask Birkett if this enormous cut-and-run bonus inspired his sudden desire to preside over fender-benders and petty squabbles in the same courthouse where he has been prosecuting some of the most high-profile murders in the state. And how he squares his political rhetoric about government waste and our irresponsibly underfunded pension systems with the apparent opportunism of his attempted early exit from office.

Will he join me in urging the DuPage County judiciary to delay any appointment to the Bongiorno vacancy until after the New Year to prevent double dipping?

I contacted his spokesman early Thursday with a set of questions — even a few yes or no questions, just to get him on the record. But, darn the luck, came the response, "He's really tied up."

Investment planning, no doubt.

Discuss this column at chicagotribune.com/zorn

Copyright © 2010, Chicago Tribune

[macrockett]

Why do people like an incompetent Quinn get support and Madigan and his partners continue to drive our State into the ground? Look no further. Is this the only problem? No, but in Illinois both at the State level and in Chicago it is a big part of it. Quid pro quo.

OCTOBER 15, 2010

Public Unions Step Up Spending


By DANNY YADRON and JOHN D. MCKINNON

Public-sector unions have remained a bulwark for Democrats this fall while other left-leaning donors have kept their wallets shut, according to a Wall Street Journal analysis of Federal Election Commission data.

Unions have long bankrolled Democratic campaigns, but some of the biggest public unions are spending more this fall than they did during the prior midterm-campaign cycle in 2006.

The National Education Association, the largest U.S. teachers union, has independently spent more than $3.4 million that must be disclosed, including ad buys and direct-mail campaigns, for the key electioneering period from Sept. 1 to Oct. 14. The NEA spent $444,000 during the same stretch in 2006.

The American Federation of State, County and Municipal Employees has nearly matched its 2006 midterm outlays. It has spent $2.1 million on electioneering since the beginning of last month, according to FEC filings for two campaign committees associated with the union. That is just shy of the $2.2 million spent for that period in 2006.

Unions that represent government workers say this year's election is crucial to them, given the uproar over public-sector budget issues. Officials elected this year will face tough choices on matters such as further fiscal assistance for the nation's cash-strapped states and local governments.

The issue of campaign-related spending by public-sector unions has received more attention in recent years, as state and local governments struggle with pensions and other costs. Conservative critics and business leaders have said the unions largely seek to expand their influence at taxpayers' expense. Some states have approved restrictions on political use of union dues, for example requiring unions to obtain permission from workers before spending dues on campaigns.

The American Federation of Teachers, the country's other big teachers union, also has stepped up its outlays. The group had spent about $5.5 million this cycle as of the end of August, according to the FEC. The AFT's total for the same period during 2006 was $4.5 million.

Representatives of AFSCME and the AFT didn't immediately comment on how their political campaigns are funded. A spokeswoman for the NEA said her organization employed both union dues and voluntary contributions in its outreach to members and the public.

Write to Danny Yadron at [e-mail] and John D. McKinnon at [e-mail]


www.aier.org/research/briefs/1550-obama-thanks-his-friends-government-spending-and-union-support

biggovernment.com/cberg/2010/09/25/why-doesnt-obama-worry-about-union-political-spending/print/

[asmodeus]

That Birkett deal is obscene. You would NEVER see something like that in a private pension.

The only good thing is that the Trib is exposing these practices, and hopefully there will be enough outrage to put an end to them.

[macrockett]

www.milkeninstitute.org/pdf/cacenter_pensionshortfalls.pdf (the details)


www.milkeninstitute.org/events/events.taf?speaker=&function=show&cat=allconf&EventID=SOS10&level1=program&level2=agenda&EvID=2516&ID=334

Summary:

It's a looming cloud that can't be ignored much longer: California's largest public pension funds face substantial shortfalls and will likely require capital injections from already-strained state budget coffers. The severity of the liability gap, while subject to debate, is generally assessed at $56 billion, though some observers estimate the figure as high as $425 billion when risk factors are fully adjusted. Closing this gap seems almost insurmountable in the face of California's fiscal morass. Will economic recovery on the horizon help bridge the gap? Can reallocation save the day? Or, as some experts have suggested, do we simply need fundamental changes like raising the retirement age, increasing employees' contribution levels or enrolling new participants in different contribution schemes? Do the benefits promised to public-sector workers need to be brought in line with standards that prevail today in the private sector? This panel will address different perspectives on revamping the system and assess the difficulties of implementation. Panelists will identify key elements that can help put these public funds on a sounder footing.

[macrockett]

With the above posts regarding the public pensions it sounds a lot like Europe. Only it has already hit the fan over there. Today in France, over retirement at 62:

www.npr.org/templates/story/story.php?storyId=130672066

www.cnbc.com/id/15840232?video=1619328859&play=1

Retirement Protests In France Turn Violent

by NPR Staff and Wires

Waves of protesters, some wearing masks, clashed with police and set fires across France on Tuesday as anger intensified against government plans to raise the age for retirement benefits.

Hundreds of flights were canceled, long lines formed at gas stations and train service in many regions was cut in half as demonstrations unfolded in Paris, Marseille, Lyon, Bordeaux and several other cities.

Police used tear gas to disperse one protest in a suburb of Paris. Later, tens of thousands of people marched toward the gilt-domed Invalides, where Napoleon is buried. Officers holding protective plastic shields surrounded the building.

Striking public sector workers were joined by students who have stayed out of school to lend support, ahead of what was supposed to be a Wednesday vote on the retirement legislation, which is now likely to be delayed.

French President Nicolas Sarkozy vowed to crack down on "troublemakers" and guarantee public order, raising the possibility of more confrontations after a week of disruptive but largely nonviolent demonstrations.

The chaos has become Sarkozy's biggest challenge since assuming the presidency in 2007. Despite the pressure from the street, he has held firm on his plan to raise the minimum retirement age from 60 to 62, with full pension at 67, not 65, to help prevent the pension system from going bankrupt.

Sarkozy says such a move is necessary because of because of longer life expectancy, and that it is in line with similar changes in other European nations. The bill has already passed the National Assembly, the lower house of Parliament, and was set for a final Senate vote on Wednesday. But amid intense debate, the vote isn't likely to happen before Thursday and could be pushed back to Friday, according to NPR's Eleanor Beardsley.

Demonstrators say the retirement reform is unfair because the working class is being asked to bear the brunt of the burden when there is money to be found elsewhere.

Meanwhile, the streets of Marseille were filling up with garbage, and dozens of oil tankers were stuck at sea waiting for ports to reopen. Sarkozy said Tuesday that blockages at oil refineries that have sparked gas shortages "cannot exist in a democracy."

"There are people who want to work — the immense majority — and they cannot be deprived of gasoline," he said at a news conference in the northern city of Deauville.

Police fired tear gas to break up a demonstration of high school students in Lyon. Dozens of cars in the city were set on fire Tuesday.

Nearly 4,000 filling stations had gone dry as of Tuesday amid the strikes and panic buying, but Prime Minister Francois Fillon vowed that "the situation will be back to normal" with fuel supplies in "four or five days."

The government has begun tapping the country's strategic oil reserves to resupply gas stations.

Francois Bayrou, head of the centrist Modum party, told NPR that the situation is "more dangerous than we've seen in several years." With "the truckers, plus the blocked oil refineries, plus the empty gas stations, plus the high school students, [it is] creating a risky situation that may radicalize," he said.

The protests intensified this weekend as more than a million people marched in the streets across France. One uniting factor seems to be a common dislike of the French president.

"We're here to get rid of Sarkozy right now. We're not even going to wait for elections," a young protester in Paris, Jeanne Baudry, told NPR.

Across the country, 379 high schools were blocked or disrupted Tuesday, according to the Education Ministry. At a high school in the Paris suburb of Nanterre, closed because of earlier violence, a few hundred youths threw stones from a bridge at nearly as many police. Authorities responded with tear gas and barricaded the area.

Young people also pelted riot police with projectiles and torched garbage cans at the Place de la Republique in eastern Paris.

The violence brought back memories of student protests in 2006 that forced the government to back down on a labor law that made it easier for employers to hire and fire young people.

Young members of Sarkozy's party, the Union for a Popular Movement, tried to dissuade students from blocking the entrance to a high school in Paris' 8th arrondissement this week. Pierre Henri Dumond, one of the leaders of the Sarkozy youth movement, talked to several students in an effort to dispel a widely held notion in France: If older people work longer that will mean fewer jobs for young people. Dumond said he's had some success.

"You know, it's very important for us just to come, to explain the reform," he told NPR. "I think they are misinformed."

The Paris airport authority warned on its website and in signs at the airports: "Strike on Oct. 19. Serious difficulties expected in access to airports and air traffic." France's DGAC civil aviation authority said up to half of flights Tuesday out of Paris' Orly airport would be scrapped, and 30 percent of flights out of other French airports, including the country's largest, Charles de Gaulle, would be canceled.

Most cancellations affected short- and medium-haul domestic and inter-European flights. The walkout by air traffic controllers was expected to last one day, with flights expected to return to normal on Wednesday.

Far from the protest movement, Alain David, 65, swept up in his butcher shop. Despite recent polls that show a large majority of the French support the strikers, David told NPR most of them know things have to change. WHY'S THIS GUY STILL WORKING? SHOULDN'T HE BE RETIRED AT 65? OH, RIGHT, HE'S IN THE PRIVATE SECTOR...

"I’m very angry against the unions who are manipulating people," he said. "France has a huge deficit and if we don’t reform our retirement system, we’re going straight into a wall."

Frank Browning and NPR's Eleanor Beardsley reported from Paris for this story, which contains material from The Associated Press

[southsidesignmaker]

The French along with many in the EU have been living in a dream world for better part of a decade. Throw the strikers in jail, get the country back to work, and tell the general populace that these reforms are only the beginning.

It is truly time for many in these countries to get back to production. Next they will be striking about the 32-34 hour work weeks being extended. Ask an average working American how many hours are put in per week.

[Arch]

Oct 19, 2010 18:40:01 GMT -6 southsidesignmaker said:

The French along with many in the EU have been living in a dream world for better part of a decade. Throw the strikers in jail, get the country back to work, and tell the general populace that these reforms are only the beginning.

It is truly time for many in these countries to get back to production. Next they will be striking about the 32-34 hour work weeks being extended. Ask an average working American how many hours are put in per week.

From the other thread about the UAW... 0 and they still get about 70% of their pay.