Portfolios, pension pigeons and the truth

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Portfolios Refuse to Die – Why Am I Not Surprised?

The last issue of the Raleigh Report (available at www.ForFern.com) reported, “By a vote of 71-45, House members supported my amendment, which should, under normal budget rules, mean an end to the portfolio requirement for teacher certification.” Why did I say “under normal budget rules”? Because I don't really expect the current Democrat leadership to pay any attention to any rules or even the state Constitution if the law interferes with their liberal personal agendas.

The question in my mind when I wrote that report was how much the Democrat leaders wanted to centralize control of teacher certification. Now I know. More importantly, their malfeasance is now a matter of record, although the identities of those responsible are a closely guarded secret. Wonder why? Could it be they're embarrassed by their actions?

You see, even though the House rules say that items not in controversy with the Senate should not be changed by the conferees if a bill is sent to conference to work out differences, someone ignored that rule and the will of both bodies (as expressed by the votes of their members) in order to change the elimination of portfolios to a brief suspension while the idea is studied with a view to streamlining the procedure.

But don't blame the conferees. They say they didn't make that change and I tend to believe them. Only those at the top of the power pyramid would dare to make changes in the budget that were not passed by either chamber. The question is, who is responsible? Jim Hunt? Phil Kirk? Mike Easley? The NCAE? Jim Black and Marc Basnight have to take full responsibility as leaders of the House and Senate, but who talked them into ignoring the rules and the votes?

Take a look at House Resolution 1814 which I filed calling on the Speaker to act to correct the rules violation and to disclose the names of those responsible. It appeared on the calendar for the last day of session. Mr. Black ignored it, and we adjourned (what a coincidence), but the issue just won't go away. Unfortunately, more good teachers will.

Pension Pigeons Home to Roost on Democrat Leaders

Every current or retired teacher or state employee should read a review of the actuary's report on their pension fund as soon as possible. According to the actuary, the fund is so low that retirees can only expect a 0.5% cost of living adjustment this year and future adjustments are in doubt. Pension payments are running far ahead of fund contributions, depleting the fund balance at a rapid rate. For details, go to http://www.seanc.org

Please pardon the “Told ya so,” but I've been warning about this. Ever since I was named to the House Pensions and Retirement Committee, I've been questioning the adequacy of the information furnished the committee by the Treasurer's office. At the first meeting of the committee, I asked why, in view of the known weakness of the stock market, the committee was not furnished current financial information. I never received a satisfactory answer, or all the information I requested.

Because I was uncomfortable with the adequacy of plan funding in view of market declines, I opposed the decision of the Democrat leadership to spend on current expenses the funds that the actuary said should be contributed to the pension fund for teachers and state employees. Unfortunately, when I sent forward an amendment to call for making the payment required rather than giving the fund an IOU, the amendment wasn't accepted for discussion or vote. ( See the discussion of Senate Bill 841 in the Raleigh Report of 11/20/01. )

Employees should demand full financial disclosure from the Treasurer. They should demand an end to the practice of putting IOUs instead of cash into their pension fund. They should also demand that the legislature begin repaying the IOUs they have already issued.

Most important, teachers and state employees should go vote, remembering that the Democrat leadership is responsible for the failure to contribute to their pension. If they vote for Democrats who support those leaders, they have only themselves to blame when their pensions fail to keep up with inflation.

The Truth, But Not the Whole Truth . . .The Rest of the Story

Recently the Raleigh News & Observer came awfully close to telling the truth about our state's current economic woes. In an excellent story by John Ryan, they question why “those who should be able to discern what is happening and to alert the populace to the danger . . .seem to ignore the matter, presumably for partisan reasons.”

As they point out, we don't have a revenue problem, since revenue has grown 6.3 percent compounded annually throughout the decade ended June 2001. “Despite the so-called tax cuts in the mid '90s, tax revenues increased significantly in every single year of that decade . . .” In other words, we didn't really cut taxes in the nineties. Some rates were cut, but as Wal-Mart has shown, lower prices can actually increase revenue.

The problem, as the article so accurately states, is that while revenue grew 6.3 percent annually, spending grew at the rate of 8 percent, compounded annually. As most people know, when you persistently spend more than you make, you create some really serious problems.

The article even makes the point that “Lawmakers try to hide the problem from their constituents by using phony revenue estimates . . .and relying on other devious devices.” It makes the point that “In doing so, their behavior is no different. . .from that of the executives at rogue companies such as Tyco, Worldcom and Adelphia who, allegedly, used deceptive accounting devices to fleece their shareholders and employees.”

The closing is even great, an observation that “One can only wonder why the public outcry thus far is directed only toward corporate crooks.” Maybe it is because the press won't identify the legislative scoundrels, like the Democrat legislative leaders who used inflated revenue estimates even after their own Democrat governor told them the estimates were inflated.

Here's the rest of the story. The 8% spending growth is entirely attributable to the years in which the Democrats were in control in both the House and Senate. As reported in the July 15, 2002 issue of the Raleigh Report, when Republicans held the House, spending growth was limited to 4.9%, 3.4%, 8.4% and 6.1%. (I voted against the conference report that led to 8.4% growth in part because I thought it spent too much.)

Incentives and the Broken Window Fallacy

Most people have never heard of the classic economic discussion that centers around the value of a broken window. You see, some people can convincingly argue that a broken window contributes to economic prosperity because it creates jobs . . .for glass makers, for those who provide the fuel for making the glass, for those who distribute the glass, for those who make the repair. While the argument can be seductive, it is also totally misleading, because it ignores opportunity costs.

While it is true that a lot of folks can profit a bit by the repair of the broken window, if the window had not been broken the owner of the building would have the window and the funds that he spends to repair it, and those funds would have been spent for something else. The something else would also have created jobs, and while different people might have profited, society as a whole would have been better off had the window never been broken and replaced. If the window is broken and the owner has to replace it, he misses the opportunity to invest in something else, giving him a window and no more.

That's what a lot of folks in Raleigh miss when they argue for economic incentives. It is true that we can give money to businesses to persuade them to move to NC or to expand in NC. It is true that those businesses and their employees benefit from the state's generosity. It is true that those who make six figure salaries handing out the money benefit from the exercise. It is true that the politicians who authorize the handouts get great photo opportunities and (we suspect) political contributions from those who benefit directly from the handouts.

But what would we have if we invested the incentive funds in infrastructure that benefits everyone, or in lower tax rates that benefit all businesses instead of selected businesses? The states that have tried that approach find that over time they have stronger and more sustainable growth than states that take the handout approach.

How much are taxpayers willing to pay to create photo opportunities for politicians?

If you have questions or comments, please feel free to contact me. My e-mail address is ferns@ncleg.net. My phone number here in Union County is 704-624-2720 and in Raleigh it is 919-733-5602. My Raleigh office is Room 1426 in the Legislative Building, but my preferred mail address is my local office, 106 E Main Street, Marshville, NC 28103. My website is www.forfern.com

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