The Week in Public Finance: Pension Drama, Open Data and Pregnant Teens
A roundup of money (and other) news governments can use.
Combating teen pregnancy
Washington, D.C.’s Mayor Vincent Gray announced on May 14 it is becoming the first jurisdiction in the country to try using Social Impact Bonds (SIBs) as a way to lower the problematic teen pregnancy rate in D.C. The District is working with Social Finance US, a nonprofit intermediary, to develop and launch its first SIB. The city’s teen pregnancy rate is 54.5 pregnancies per thousand girls aged 15 to 19 years old, according to D.C.’s health department. Nationally, the rate is 34.3 births per 1,000 women aged 15 to 19.
Also called “pay for success” contracts, social impact bonds have become increasingly popular in the public and nonprofit sectors in recent years. They are a public-private partnership where cities have contracts with private organizations to achieve certain outcomes. The government pays investors back, usually with the money that the program saved the government, when the program's goals are met. The bonds are considered experimental, but they’re gaining steam and was named as an issue to watch by Governing this year. In 2012, Goldman Sachs loaned $9.6 million to Rikers Island jail in New York with the goal of reducing recidivism among teens, and the firm launched a second $4.6 million project last year aimed at helping children from low-income families in Utah prepare for kindergarten.
Social Finance will release a Request for Qualifications to identify programs to improve teen pregnancy and education-related outcomes for high-school-aged youth in the District. Those selected will be asked to submit a proposal that will have “clear and measurable outcomes, a strong and research-tested evidence base, a need for significant up-front capital investment, a well-defined target population, and an ability to generate significant savings to the taxpayers.”
Another chink in the pension armor
The Center for Retirement Research has released a new brief on changes made to cost-of-living-adjustments (COLAs) for public employee pensions that concludes defined benefit promises in the public sector are not as secure as many thought. Since the 2008 financial crisis, 17 states have reduced, suspended, or eliminated COLAs, a response the brief’s authors call “surprising as current employees and retirees tend to be legally shielded from benefit cuts.”
The brief calculates that eliminating a 2-percent annual COLA reduces lifetime benefits by 15-17 percent while eliminating a 3-percent COLA reduces lifetime benefits by 22-25 percent. Still, courts have largely upheld COLA cuts under the rationale that – unlike core benefits – they are not part of a contractual right.
The Stockton saga continues
Stockton, Calif.’s bankruptcy trial was supposed to wrap up this week but is now scheduled to conclude on June 4 with closing arguments. Judge Christopher Klein is expected to rule on a plan that would reorganize more than $900 million in long-term debt. The lone objector among the city’s major creditors is Franklin Templeton Investments, which is being offered 1 cent on the dollar for a $35 million loan. The firm says the Northern California city’s plan is unfair because it is taking a huge hit while the city is not proposing cutting its debt owed to the California Public Employee Retirement System. When Klein asked CalPERS, the nation’s largest pension fund, what would happen if it was forced to take losses along with other creditors, those officials said retirees could suffer benefit reductions and employees may quit.
Connecticut an open book
Comptroller Kevin Lembo this week launched Open Connecticut 2.0, an update to the online hub of state financial information that he first launched early last year. The revamp has been improved to include an “Open Checkbook” section with far greater detail and nightly updates in the state’s ongoing effort to centralize public access to information about state revenue and spending.
The improved site allows users to search real-time revenue flow by source and export datasets of their choice. Real-time expenditure details can be viewed by fiscal year, fund, government function, agency, department, line item and account.