The Week in Public Finance: Shutdown Prep, We (Sorta) Love Teachers and Recession Recovery
A roundup of money (and other) news governments can use.
For previous editions of The Week in Public Finance column, click here.
As the federal government closes out its fiscal year at the end of this month, some forecasters have a warning for October. In a report out this week, Standard & Poor’s (S&P) credit rating agency said state governments “need to brace for the possibility of another federal government shutdown” as the president and lawmakers on Capitol Hill remain divided over a 2016 budget.
Nearly two years ago, a more than two-week shutdown closed national parks and halted federal funds for key human services and education programs like Head Start. Concern over another possible federal shutdown occurs as a moratorium on some limits to federal spending, put in place in December 2013 for fiscal years 2014 and 2015, is set to expire -- meaning that federal spending will tighten absent additional legislation.
Although S&P said a government shutdown would impact all states' economies, the impact would likely be uneven. Some are more vulnerable to federal cutbacks because federal spending represents a significant portion of their economy. These states, where federal spending comprises between 10 and 19 percent of a state's GDP, are: Kentucky, Alabama, Alaska, Maine, Mississippi, Hawaii, New Mexico, Maryland and Virginia. States least affected by federal spending, according to S&P, are: Oregon, Delaware, Illinois, Wyoming, Minnesota, Indiana, New Jersey and Kansas.
S&P analyst Gabe Petek said that “most states can likely maintain their current rating levels with the slower economic growth rates that would result from a temporary shutdown." But, he added, the economic effects of a federal shutdown could leave state finances less able to absorb other shocks like spillover from the slowdown in China.
Apples Are Nice But Pensions Are Better
Two new research briefs this week fuel the argument that public pensions are only practical for the small portion of workers who stick around in one place for their whole career. Nationally, fewer workers, particularly Millennials, are staying with a company for most of their careers. The research was conducted by TeacherPensions.org, Bellwether Education Partners and the Urban Institute and looks at how current pension plans in all 50 states serve short- and medium-term working teachers.
While it’s a common assumption that public-sector teachers trade lower salaries for higher job security and more generous benefits, the briefs argue that trade only works well for the small minority of teachers who actually stick around until retirement. “Most teachers get the worst of both worlds -- they earn lower salaries while they work and they forfeit retirement savings when they leave,” the researchers said.
The first brief, Hidden Penalties, looks at short-term workers, or those who don't stay long enough to qualify for any pension. About half of all new teachers fall into this group and they forfeit thousands of dollars their employer contributed on their behalf.
The second brief, Negative Returns, looks at medium- and longer-term teachers. It found that because of the back-loaded nature of pensions benefits (meaning they ramp up in the final years of service), a teacher in the median state must serve 25 years before qualifying for a pension worth more than their own contributions. “Recent pension reforms, focused mainly on cutting costs, generally make this situation worse and force new teachers to work even longer before they benefit from their pension plans,” the brief said.
Location, Location, Location
Lush, green Portland, Ore., and dry, dusty Reno, Nev., are probably about as different as can be but here’s one more reason: Since 2008, Portland has enjoyed the nation’s largest increase in economic output at 36 percent while Reno has suffered the largest decrease -- a 10 percent shrinkage in economy. It’s also no coincidence that Portland ranks 48th on personal finance website WalletHub’s list of 2015’s Most & Least Recession-Recovered Cities and Reno ranks almost dead last at 140. WalletHub compared the nation’s 150 largest cities across 17 key economic indicators like median home price, poverty rate, number of businesses and influx of college educated workers. Indicators weighted the most heavily were: whether the city had filed for Chapter 9 bankruptcy, labor force participation rate and unemployment rate.
The top five cities on the list were, in order: Lubbock, Texas; Denver; Corpus Christi, Texas; Anchorage, Alaska; and Houston. The bottom five starting with the least-recovered were: San Bernardino, Calif; Tucson, Ariz.; North Las Vegas, Nev.; Henderson, Nev.; and Glendale, Ariz.
Among some of the other notable findings: Brownsville, Texas, experienced the largest decrease (6 percent) in its poverty rate while Detroit experienced the largest increase (9 percent). And New Orleans registered the highest home-price appreciation, at a whopping 84 percent. On the other end, Detroit registered the highest depreciation with an average 61 percent loss in value.