Will Wisconsin’s merit pay for public employees change the system?

In a wildly contentious move in 2011, the Wisconsin legislature voted to end union rights for public workers. Those union rights established pay rates and employment conditions via collective bargaining agreements for most government workers. The new law also ended the deduction for union dues from employee salaries. The Wisconsin State Journal reports how merit raises have replaced automatic annual pay raises:

In the first round of pay increases for Wisconsin state employees since union contracts were invalidated, supervisors delivered an average 6.52 percent boost to 2,757 workers, roughly one in 14 of those eligible.

The payout — totaling $8.2 million — is very different from union-era raises, which were much smaller on a percentage basis but cost tens of millions more because they were distributed to most non-academic employees.

Another difference from the old contractual pay system is that more than half of the merit awards were one-time lump sum payments that didn’t become part the workers’ base salaries.

Within certain constraints, supervisors were allowed to propose extra pay for valued employees who did superior work, were seeking other employment, or were underpaid compared to others in similar circumstances.

Pain for Stockton taxpayers

After proving it was insolvent, the city of Stockton, California entered the municipal bankruptcy process last week. The judge hasn’t yet delivered his formal ruling, but here are some of the most relevant reasons for the city’s insolvency, according to Judge Christopher Klein (page 556 most of which you have read here at MuniLand over the past year):

Excessive public employee compensation levels:

Some of the problems were also the incrustation of a multi-decade, largely invisible or non-transparent pattern of above-market compensation for public employees. Among other things, the City offered generous health care benefits, to which employees did not contribute. Retirees had their entire health bills paid for by the City. The City permitted, to an unusual degree, so-called “Add Pays” for various jobs that allowed nominal salaries to be increased to totals greater than those prevailing for other municipalities.

The enormous explosion of retirement liabilities:

Some of the problems were also rooted in generous retirement practices. The pensions, of course, are themselves a form of implicit compensation. Pensions were allowed to be based on the final year of compensation, and only the final year of compensation, and that compensation could include essentially an unlimited accrued vacation and sick leave. So it was possible to engage in the phenomenon that’s become known as ‘pension spiking,’ in which a pension can wind up being substantially greater than the annual salary that the retiree ever had.

Moderating the infrastructure debate

New York’s mayor Michael Bloomberg has a reputation as a data junkie who uses statistics to manage the city more efficiently. I think I found his doppelganger in Michigan’s governor Rick Snyder. Fitch recently bumped Michigan’s rating to AA from AA-, where it had been since 2007. Bloomberg and Snyder may be national models for the effective use of data at the local, state and federal levels.

I learned about Snyder’s efforts while watching a Council of State Government’s webinar about the American Society of Civil Engineer’s 2013 report on the condition of America’s infrastructure. The report has been panned by many, including Reuters’ Jack Shafer, who says that the proposed spending is just an enormous meal ticket for the nation’s civil engineers and construction firms. The Director of Michigan’s Department of Transportation, Kirk Steudle, used two arguments to rebut Shafer:

1) Most civil engineers are public employees who don’t benefit from an increase in infrastructure spending. In fact, they would be paid the same if they managed three or six projects.

A bad track record for privatizing infrastructure

The poster boy for privatizing U.S. public infrastructure has been Virginia’s governor Bob McDonnell. I wrote last June about McDonnell:

Governor Bob McDonnell might as well have put a for-sale sign on Virginia’s front lawn when he announced that the state’s Office of Transportation Public-Private Partnerships (OTP3) has a ‘pipeline’ of potential privatization projects. The governor and Sean Connaughton, the head of the Department of Transportation, appear to be racing to move as many of Virginia’s public assets into private hands as possible.

How was McDonnell doing this? The Bond Buyer had the story:

In a move that is likely to make Virginia the leading state for public-private partnerships, Gov. Robert McDonnell has announced 22 transportation and infrastructure projects that may be developed as P3s.

Who’s the master of Puerto Rico? Governor Garcia-Padilla or the credit rating agencies?

via Jorge Banilla. Press closed captions for an English translation.

My Twitter thread was abuzz today with tweets about the comments made by Puerto Rico Governor, Alejandro García Padilla about the credit rating agencies (all of whom give PR the lowest investment grade rating of BBB- or Baa3):

Time for Stockton to wrestle with CalPERS

Muniland turned a very big corner today when U.S. Bankruptcy Court Judge Christopher Klein determined that the insolvent city of Stockton, California had met the criteria for municipal bankruptcy. Stockton became the largest city ever to enter Chapter 9 bankruptcy. The admittance of Stockton to the protection of the court does nothing to address the central question of Stockton’s solvency: what can be done with the massive unfunded pension liability owed to CalPERS, the statewide pension system? Stockton itself has done nothing to address the problem. Judge Klein did have one very important thing to say:

With this statement he mirrored the ruling of the Vallejo, California bankruptcy judge, Michael S. McManus, Jr., who specifically said in his 2009 ruling (page 73, clause 3102.1):

Another tax-giveaway goes to a local developer

I write about cities and states doing all kinds of unsound things with their money, but I am shocked as I watch my own very small community get bamboozled by a local developer. Here is the story from our exceptional local paper The Observer:

The developer of a three-story addition to Northern Dutchess Hospital in Rhinebeck is seeking to make the expansion tax-exempt for its first seven years.

Developer Jeff Kane of Kirchhoff Medical Properties explained during a public workshop with village officials Feb. 13 that his company will lease part of the hospital campus from HealthQuest, which owns the hospital, while building the 75,000-square-foot, $30 million addition.

Do dealers have a chokehold on CDS markets?

European competition regulators are examining the coordinated activities of the big dealer banks in the credit derivatives space – a pretty dark part of financial markets. Supposedly, the dealer banks are thwarting competition for these products by using groups like Markit and ISDA (a trade association) to block access for other venues to conduct trading in credit default swaps. Markit’s board of directors includes employees of Bank of America, BNP Paribas, Commerzbank AG, Goldman Sachs, HSBC, JP Morgan and Morgan Stanley, and it has been under investigation by the U.S. Department of Justice since 2009. Bloomberg reports:

Regulators found ‘indications that ISDA may have been involved in a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business,’ the European Commission said in a statement today. The EU started a probe in April 2011 into whether 16 lenders, including Citigroup Inc. and Deutsche Bank AG, colluded by giving pricing information to data provider Markit Group Ltd.

The EU’s probes add to separate antitrust investigations into whether banks colluded to manipulate benchmark lending rates, including the London interbank offered rate. The U.S. Justice Department is also probing the credit derivatives clearing, trading and information services industries.

This is why Stockton is broke

Stockton, California is in federal bankruptcy court trying to make the case that it is insolvent and should be taken into the protection of the court to sort out its debts and obligations. Meanwhile, bond holders and bond insurers say it hasn’t tried hard enough to meet the requirements of Chapter 9 bankruptcy. They say the city overpays its employees and has not negotiated with CalPERS, the statewide pension system for public employees. Over 75 percent of Stockton’s general fund expenses go to pay police and fire salaries and pensions, much higher than in most communities.

On the question of overpaying its employees, Stockton’s city manager, Bob Deis, wrote in an OpEd for the Wall Street Journal last year:

Also painful is our public safety situation. We are the 10th-most violent city in America. Rates of violence are increasing by double digits, with our murder rate on track to surpass last year’s record of 58 murders. We have the second-lowest police staffing levels in the country for a large city, and often Stockton Police can respond only to “in-progress” crimes. Oakland, a nearby city with similar crime challenges, has 44 percent more police officers per capita. With high poverty rates and gang activity, we cannot turn our back on public safety due to creditor pressure.

As Sacramento drowns, it finds money for a new stadium

I keep reading stories about cities doing convoluted tax deals and giving away hundreds of millions of dollars to keep sports teams from moving away. This strikes me as odd – communities giving away precious resources to millionaire sports team owners while they can’t balance their budgets. Sacramento might win the award for fiscal battiness this year. Here is a description of the state’s current effort to raise money for a sports stadium from the Sacramento Bee:

The city says it can raise $212 million by setting up a nonprofit corporation to borrow against future revenue generated by its downtown garages. That would represent the bulk of the city’s $258 million contribution to the new $447.7 million arena proposed by billionaire Ron Burkle and two other investors trying to keep the Kings from moving to Seattle.

Most of the rest of the city’s share would come from giving the Burkle group parcels of city land worth an estimated $38 million. Burkle could sell the property or develop it himself.

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