For previous editions of "The Week in Public Finance," click here.
Oklahoma's in a Recession
New economic data shows what Oklahoma officials have been fearing: The state has officially entered a recession. Revised federal Bureau of Economic Analysis (BEA) data shows that the state’s gross domestic product was negative for most of 2015.
A recession starts when there are two quarters of economic contraction. Originally, the BEA reported that Oklahoma’s economy contracted in the second quarter, grew by 0.1 percent during the third quarter and contracted again in the last quarter of last year. But the third quarter figure was recently revised downward to -0.6 percent.
Data for the first quarter of 2016 is expected to be released later this month, but according to State Treasurer Ken Miller, the prospects don’t look good.
“General indicators fail to point to any marked economic recovery at this point,” he said in his latest state economic report.
Low oil prices are the primary driver of the state’s recession. Nationally, the mining industry, of which oil and gas are a part, shrank by 10.7 percent during the fourth quarter. That stripped 2.5 percent from Oklahoma’s GDP during the fourth quarter alone, Miller said. Jobs in those industries have fallen 32 percent in Oklahoma over the last year and a half.
The Takeaway: With the data revision, Oklahoma is now mired in a recession along with fellow oil and mining states Alaska and Wyoming. Wyoming’s economy contracted in every quarter last year while Alaska’s contracted during the last six months of 2015. Kansas’ economy has also posted two straight quarters of decline, thanks to a slump in its manufacturing economy.
The data highlights how vulnerable certain states are to some sectors. Most places are growing -- 41 states and the District of Columbia posted a positive GDP during the fourth quarter of 2015. Those that aren't, which also include Iowa, Montana, Nebraska and New Mexico, tend to be vulnerable to energy and farming sectors. In the early post-recession years, these states were generally booming. Looking at the BEA’s map of states today, top performers tend to be in the West, Midwest and Southeast. The current situation is essentially the reverse of what it was half a decade ago.
Higher Ed Winners and Losers
A new analysis of state higher education funding shows a mixed bag for the 2016-2017 school year. Nationally, higher education funding in most places will increase 2 to 4 percent, according to Moody’s Investors Services. Most of that growth is driven by larger and more economically diverse states. Places like California, Florida, New York and Texas “are more insulated from pressures on any one revenue source, which increases the likelihood of fiscal stability and consistent higher education funding gains,” the report said.
Conversely, states with less diversified economies, such as energy states, or those exposed to retiree benefit liabilities are more likely to cut higher education funding. Oklahoma is cutting its higher education funding by 9 percent this year (see above). Kentucky is cutting funding by 4.5 percent while allocating more money for its struggling pensions. And West Virginia is aggressively tacking its unfunded retiree health-care liability, but “it comes at the expense of reduced state higher education funding, which is down 11 percent from fiscal 2013-2016 and is expected to remain at reduced levels for the next several years,” the report said.
The Takeaway: Higher education funding is turning into a case of haves and have-nots.
“With growing fixed and mandated costs in nearly all states,” said Moody’s analyst Christopher Collins, “the future of higher education spending in any given state will be increasingly tied to a state's economic vitality as well as its relative commitment to the higher education sector.”
One outcrop from this era of constrained resources is the rising demand for performance-based funding. Moody’s notes that a full 32 states now tie a portion of funding to performance metrics such as degrees conferred, course completion and minority enrollment.
“As more performance-based funding models take hold, individual universities' year-to-year funding may become more volatile,” the report warned.
Imagination can take you far. It can even take you ... back to reality. That’s the idea behind a new campaign this summer by ICMA-RC, a nonprofit financial services firm that offers retirement plans to public sector employees, to get public employees to start saving more for retirement. Corporation employees are touring the country in a "RealizeRetirement" truck. Anyone can walk up to an iPad outside the truck, punch in a few personal stats and retirement wishes, and then see a personalized video that features them traipsing across the globe or putting their feet up poolside at home -- depending on what the retirement dream is.
It sounds hokey, but the idea is to get people to visualize what they want out of retirement and to start considering whether their pension plan and social security benefits will be enough. The tactic was inspired by a 2011 study that showed people who saw digitally aged images of themselves were more inclined to save for retirement. The truck started in Washington, D.C., this week and will make its away across the country from there.
The Takeaway: A lot of ink has been devoted to the fact that most Americans are ill-prepared for retirement. More than 38 million people, or roughly 45 percent of working-age households, have no retirement savings at all, according to data from the National Institute on Retirement Security.
What's more, many current public-sector employees won’t get the kind of pension today’s retirees have. That’s particularly true of millennials who are more likely to have reduced retirement benefits and less likely to spend their whole career with one employer.
“The reality is, most people who have defined-benefit plans will not retire with their maximum benefit because to do that, they would have to stay 20 or 30 years,” said the corporation’s senior vice president, Gregory Dyson. “There’s going to be a savings gap.”