Check out the following from our friends at the Tax Foundation:

Increasingly, the “defined benefit” model of retirement plan (where the employee is paid a lifetime annuity, based on years of service and final salary) is being replaced by the “defined contribution” model of retirement plan (where the employee owns and controls an investment account). One of many reasons for this shift is the tendency of DB plans to be underfunded (promises to pay exceeding available assets), which is structurally impossible for a DC plan. One estimate of private sector DB plan underfunding is over $300 billion.

State and local public employees, for the most part, have DB retirement plans. Much discussion has occurred in recent years to estimate how underfunded they are: the estimates start at $1.3 trillion and go up from there. The difficulty is that calculating the amount depends on your estimate of future rate of return. Most plans themselves project they will earn 7 to 8 percent on their investments, and critics say that is too optimistic.

The organization State Budget Solutions this month produced one such estimate, using a 3.2 percent rate of return (the 15-year Treasury bond yield rate). This calculates to public employee pension plans having only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. A map of their state-by-state funding ratio estimates is below.

Moody’s and the Government Accounting Standards Board (GASB) have sought to change reporting requirements to make it harder for public employee pension funds to increase liabilities without funding them. Further, many states are considering reforms to bring assets and benefits more in line with each other, and a few have implemented them.

As the map below indicates, New Mexico’s pension funds are 33% funded. That is not as woefully bad as Illinois and Connecticut, but it is among the bottom ten ratios among the states.

I’ll be speaking on an ObamaCare panel discussion tonight (9/17/13). The panel is sponsored by the Santa Fe Republican Party and will be held at the Santa Fe Women’s Club. The event is 6pm to 7:30 and the Club is located at 1616 Old Pecos Trail.

In other ObamaCare-related news, we made the front page of the Albuquerque Journal today thanks to their economics columnist Winthrop Quigley. The mention came only as we were the conduit by which he received a report from the Manhattan Institute which produced a report saying that New Mexicans would see the largest increase in insurance prices under ObamaCare. See my posting here.

Quigley, of course, was not impressed by the report. He says that it compares “apples to anvils” because insurance plans under ObamaCare will cover so much more stuff (like child birth) than currently-available individual health plans. He’s right, but I don’t think it invalidates the report. Myself, I don’t know of the Institute’s report will prove to be accurate, but a price tag is a price tag and lots of people aren’t going to be interested in all the bells and whistles forced upon them under ObamaCare. In fact, many healthy people (like me) would rather have an inexpensive insurance policy available in case I get hit by a bus but that gives me control over day-to-day health care costs.

Plans like these are called health savings accounts and they are both proven to reduce health care spending by up to 25% (bending the cost curve) and are under attack from the health care law.

Conservatives in Rio Rancho are attempting to heal some wounds in the wake of the failed ballot measure last month. While my organization endorsed the tax cut proposal, there were honorable people with reasonable views on both sides of the issue.
And, while tax policy is an important component of economic development policy, Rio Rancho’s city council should look beyond taxes (at least in the immediate future) to consider ways to improve governance in the city while also making it a more attractive place to do business.

One of the most important ways to do this is by having a more efficient government with improved cost-effectiveness.
In Indianapolis, former Mayor Stephen Goldsmith had an informal test called the “Yellow Pages Test.” The basic idea behind the test was that if more than one private sector provider for a given service can be found in the phone book, the private sector provider, not government, should be given the job or at least allowed to compete for it on an even playing field with government workers.
According to local government efficiency expert Leonard Gilroy, who visited New Mexico to share policy ideas with elected officials in Rio Rancho and other cities, some of the best government services to consider using private providers include:

• Accounting, financial and legal services;
• Planning, building and permitting services;
• Building/facilities financing, operations and maintenance;
• Park operations and maintenance;
• Animal shelter operations and management; and
• Major public infrastructure assets (roads, water/wastewater systems, airports and so forth).

This list is not meant to be limiting. For example, Rio Rancho already uses a private company for trash collection. Albuquerque, on the other hand, uses more expensive city employees and only recently embraced a public-private partnership to handle and dramatically expand its recycling program.

Turning over the management of city parks and buildings may sound like a drastic step and it can be politically challenging, but it doesn’t have to result in large numbers of unemployed city workers. In fact, city workers can and have been asked to compete against private providers for contracts.

Setting specific, clearly-defined contractual goals is just good business and having competition to determine the provider is a great way to ensure that all sides are treated fairly and that expectations are met. This is called “competitive sourcing” and is in use in dozens of cities nationwide.

Chicago Mayor Rahm Emanuel has done this with his city’s curbside recycling program while Los Angeles Mayor Antonio Villaraigosa privatized management of one of the city’s major animal shelters and is in talks to do the same with the Los Angeles Zoo.
If these big-city liberals are willing and able to leverage the private sector to make government more efficient, surely conservatives in Rio Rancho can embrace the concept.

Making government more efficient and cost-effective will save taxpayers money and will make Rio Rancho a more attractive destination for businesses and productive workers.

Cutting the cost of government services will allow for future tax cuts as well.

Policies that streamline government and free resources up for the private sector are at the core of what conservatives and free market advocates are about.

To heal the acrimony in Rio Rancho, I hope that free market conservatives will embrace such an agenda.

Paul Gessing is the president of New Mexico’s Rio Grande Foundation. The foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

The City of Albuquerque has dramatically-expanded and improved its recycling program by coordinating with a private company to process the materials taken in under the program. This is a model that could and should be followed by state and local governments throughout New Mexico.

As I wrote in an article for the Rio Rancho Observer, the efficiency allowed by private sector businesses can bring significant benefits to government services (this will be even more important with the departure of 400 Intel workers and their tax dollars).

In August, the Rio Grande Foundation hosted Len Gilroy of Reason Foundation for discussions of public private partnerships and how the private sector can be leveraged to improve government efficiency. He sat down with Diane Kinderwater for in interview on “Issues and Answers.” You can see that interview below:

Len Gilroy of Reason Foundation discusses the potential for public private partnerships and privatization in New Mexico from Paul Gessing on Vimeo.

The Albuquerque Journal has been running its regular series of polls on several local questions of interest. From the perspective of advocates for limited government, the polling was quite heartening. Local voters strongly opposed “union time,” a practice under which taxpayers pay the salaries of government workers who perform tasks on behalf of their labor unions (the poll indicated opposition by 59% while support was only 25%).

Another question related to Project Labor Agreements which are essentially requirements that government construction projects use union labor and pay union wage rates as opposed to finding labor on the open market (known as project labor agreements). This was opposed 51% to 38% by respondents.

These results and the related stories are interesting for a number of reasons:

1) Mayor Berry supports taxpayers and opposes the unions on both issues while his opponents support the unions. It is no surprise then, that Mayor Berry received 63% support in the recent Journal poll and maintained a significant lead over his opposition.

2) Pollster Brian Sanderoff clearly has some “axes to grind” when it comes to these results and his attempts to guide their interpretation. Sanderoff seems to dismiss the labor issues saying that “voters will make up their minds on higher-altitude issues.” I can’t imagine someone saying the same thing if the leading candidates supported the unions and the outlier was more supportive of City taxpayers.

3) The unions are certainly out in force for Dinelli, especially the fire fighters. 3-4 houses have yard signs indicating “IAFF for Dinelli” in my liberal West-Side neighborhood.

4) I love union rhetoric. Rather than a poll question asking voters about their support for PLAs, labor boss Joel Villarreal, apparently with a straight face, said that the poll should have asked voters if the “support fair wages and safety on the job.” I looked and found no serious studies of safety on PLA jobs on either side, but it is true that unions increase the wages on and prices of jobs that use PLAs. One California study, not done by a free market think tank, but an in-house government think tank, found that PLAs increase school construction costs by 15%.

This is 15% number is a consistent finding. No data were available as to why paying the 8 percent of New Mexico construction workers who are unionized based on an arbitrary union wage scale is more “fair” than the going market rate for such work.

New Mexico’s economy continues to be buffeted by bad news;

400 Intel workers being “redeployed” out of our state; and

While not as devastating, a local supermarket closing its doors.

I found this opinion article in the Albuquerque Journal to be quite interesting. While the article focused primarily on green chiles and happy memories of our state, the fact is that the individual moved to Nebraska (a Right to Work state) to find work.

While it is easy to get down about the bad news and some would love to lay the problem at the feet of Gov. Martinez (while ignoring the Legislature’s primary role in making economic policy), there is no doubt that New Mexico can and must do better.

The time for half-measures is over. We need a right to work law, pro-growth tax reform, and serious education reforms including school choice.

The latest edition of New Mexico “Pro-Con” is now online and the issue on the table is federal lands within New Mexico. Click here to read the arguments.

Online education is supposed to be an innovative and, ultimately, less expensive way to learn. However, that is not always the case in the real world, especially as traditional providers enter the playing field, often lacking the incentive to keep costs low. US News and World Reports has produced a new report detailing the ten most expensive online bachelors degrees in the nation.

Unfortunately, New Mexico State University made the list with the 6th most-costly online degree in the nation, costing an astonishing $50,816 according to the magazine. Interestingly enough that is more than double the cost of an undergraduate degree from the institution for an in-state student (Based on this spreadsheet which is provided on the School’s website, a four-year degree for a student taking classes on campus in Las Cruces should cost about $18,600).

This doesn’t add up. Clearly, the field of online learning is a new one and there are resources needed to adapt to the new educational style, but fewer buildings and even fewer instructors should be necessary for online classes. And, of course, at the K-12 level, there are two entirely digital charter schools now up and running that, despite the (controversial) involvement of for-profit companies, are costing parents and students no more than their traditional counterparts.

What gives? It’s hard to say why an online diploma would be so much more expensive than a traditional one. I’d be interested in feedback from folks at NMSU and anyone who is interested in the situation.

HT: Pat Leonard

I was interviewed recently by Fred Martino of KRWG in Las Cruces on a variety of topics, most of which are listed in the title of this posting above. Click this link to listen to the program.

Prior to taking the helm of the Rio Grande Foundation, I did a fair amount of work in airline taxation and regulation. A recent article in Barron’s, a national financial and investing publication, caught my attention and drew a response. See that response which was published in the September 2, 2013 issue.

Thomas Donlan is on-target in critiquing the (mis) use of anti-trust by the Obama Administration in the US Airways/American Airlines merger, but he only scratches the surface in terms of the heavy burden the federal government places on airlines and their customers.

For starters, the current rules in the U.S. state that airlines must be majority-owned by Americans (50 percent plus one) and that Americans must own 75 percent of the voting shares in the company, hinder competition and reduce the ability of airlines to access capital in the international marketplace.

The TSA’s stranglehold on airport screening also must be ended. The use of private contractors should be expanded beyond a few pilot programs immediately. According to the GAO, if the nation’s top 35 airports switched to private contractors, taxpayers would save $1 billion over five years.

The FAA made news earlier this year when the Obama Administration used the sequestration budget “cuts” as an excuse to force Americans to face increased delays due to air traffic control. There is absolutely no reason for the federal government to manage air traffic control. This too should be privatized as has been done in Canada and dozens of nations around the globe to great effect in terms of both costs and improved technology.

A week ago in the Albuquerque Business Journal, a letter writer slammed me and the Rio Grande Foundation for using “selective statistics” in a letter to the editor:

I felt the need to respond to this with my own letter in defense of free markets and limited government both in the US and around the world:

Liberals are eager to criticize the Albuquerque Journal for their alleged transgressions in being overly-sympathetic to the Rio Grande Foundation and the conservative viewpoint. So here’s my critique of their pitifully one-sided story on today’s front page on the food stamp program (SNAP).

The story included the usual sob-stories about people who couldn’t possibly live without the program (no mention why a single woman is paying $765 in rent for a two bedroom apartment) and from advocates like “Voices for Children” who never saw a government program they didn’t want to expand. Also unmentioned was food stamp fraud and the way the system is often abused.

Nor is the fact that spending on the program has more than doubled since just 2008:

Overall, about as one-sided a story as you can find.

I’m not talking about obesity, although perhaps Michelle Obama should deploy her food police in government instead of against our kids…but I digress.

No, I’m referring to the dramatic increase in the number of government entities, particularly in New Mexico during the mid-1990s according to a new report from the Washington Post (see chart below)

In general, government should not be multi-layered. It is expensive as it requires multiple people at each layer, creates conflicts (most notably between the City and County, and adds bureaucracy and taxes (applied by each entity) one on top of each other. Locally-speaking, we have Bernalillo County, City of Albuquerque, APS, AMAFCA, Rio Metro, and MRGCD to name just the ones off the top of my head that do business locally.

I’m not sure what happened in the mid-1990s to cause the explosion in New Mexico government bodies and I’d be interested in anyone who knows, but there’s no doubt that paring them back is necessary.

According to a new, interactive report from the fiscally-conservative Manhattan Institute, New Mexico will see the most dramatic rate hikes in the nation under the new health care law. According to the report, insurance rates will rise 130 percent with the next-highest state, Vermont, seeing rates rise by “only” 97 percent.

As Rob Nikolewski over at Capitol Report New Mexico writes, the Manhattan Institute is one of several organizations to have estimated health care cost hikes/reductions under the new law. Kaiser has its own set of calculations.

The fact is that only time will tell what the new law will do to insurance costs. Here is a detailed blog posting by Avik Roy, one of the creators of the interactive map. With the exchanges scheduled to “go live” in less than a month (by October 1), the law is moving rapidly towards full implementation.

If you want to find out more about the law, I will be speaking on an ObamaCare panel put on by the Santa Fe Republican Party on Tuesday, September 17 from 6pm to 7:30pm 6:00 p.m. to 7:30 p.m. at the Santa Fe Women’s Club which is located at 1616 Old Pecos Trail.

I woke up this morning to this Albuquerque Journal story which explained that a federal judge had overturned a local ban on corporate campaign contributions to local public officials. This is a good decision, not because “corporations are people” as some on the left would have us assume is the issue, but because one should not have to forego basic political rights due to being part of a corporate entity. In other words, it is clearly a free speech issue just as the Supreme Court correctly decided in Citizens United.

More interesting is the ban on donations from city contractors who have contracts with the City. This certainly seems to be defensible because of the clear potential for people and businesses that receive compensation from the City for services rendered to guide the political process to their own benefit, but what about City employees? Should they be banned from contributing to City elections on the same grounds? After all, many of them have axes to grind with politicians who control their wages and retirement benefits. Seems to me that the legal reasoning for banning contractors would carry over to employees as well…

Leading economic historian, best-selling author, and award-winning journalist Amity Shlaes will be speaking on Calvin Coolidge and his legacy of limited government at events in Albuquerque and Tularosa, New Mexico, on Monday, October 21st, 2013.

Tickets for either event are available for $50 per person. A ticket and book combo is available for $80 which will get one person entry to the luncheon or dinner and one copy of Shlaes’ book Coolidge. That’s $5 off the book’s cover price of $35.

Shlaes will first speak at a luncheon in Albuquerque from 12:00 noon to 1:00PM at the Marriott Pyramid which is located at I-25 and Paseo del Norte. Click here to make your Albuquerque luncheon reservations online.

Shlaes will then speak at a dinner in Tularosa from 6:00 to 7:30PM at the Tulie Cafe which is located at 313 Granado St. Click here to make your Tularosa dinner reservations online.

Sponsorships which include a reserved ten-person table and preferred seating can be purchased for either the luncheon or dinner for $550. Books can be added to the table price for $30 per book. Click here to order additional books.

Shlaes writes a syndicated column for Forbes, is Chairman of the Board of the Calvin Coolidge Memorial Foundation, directs the 4% Growth project at the George W. Bush Presidential Center, and teaches at New York University’s Stern School of Business in the MBA program. She is the author of the New York Times best-sellers, The Forgotten Man: A New History of the Great Depression (named by The Wall Street Journal as one of the best books to read during a financial crisis), The Greedy Hand, and her latest book Coolidge, a comprehensive biography and reassessment of President Calvin Coolidge.

The Wall Street Journal raves that it is “both timely and important … As the nation faces a looming economic crisis wrought in large measure by mounting public debt, the Coolidge experiment offers insights into what an alternative course might look like. Ms. Shlaes has given us a detailed examination of that alternative course.”

Shlaes has written for Bloomberg, The Financial Times and The Wall Street Journal, where she was an editorial board member, as well as for The New Yorker, Fortune, National Review, The New Republic, and Foreign Affairs. She has appeared on PBS’s News Hours with Jim Lehrer, Comedy Central’s The Daily Show, Fox News’ Glenn Beck, ABC’s Good Morning America, Charlie Rose, CNBC’s Kudlow, contributes to Public Radio International’s Marketplace, and appears frequently on Bloomberg radio.

She chairs the jury of the Manhattan Institute’s Hayek Book Prize and has won both the Hayek and the Bastiat Prize for Journalism. Shlaes is a trustee of the Calvin Coolidge Memorial Foundation.

She graduated magna cum laude from Yale and studied at the Free University in Berlin on a DAAD fellowship. Yale named Shlaes to its “Who’s Been Blue,” list of most distinguished alumni. She lives with her family in New York.

Make Your Reservations Online:

Albuquerque luncheon reservations

Tularosa dinner reservations

Check this entertaining new video out from our friends at the Competitive Enterprise Institute.

I’ve written about the potential impact of natural gas exports on New Mexico. And, if you aren’t convinced that this is a huge issue for New Mexico’s economy, Rob Nikolewski over at Capitol Report New Mexico makes an interesting case that natural gas prices have driven our state’s economy (for better and worse) over the last few decades.

The Obama Administration has been somewhat more proactive about LNG exports than it has about the Keystone XL pipeline.

Many of our blog readers attended the Friedman Day luncheon with Tim Keller of the Institute for Justice. A big part of Keller’s talk involved problems with occupational licensing.

One group that suffers in several states under the yoke of occupational licensing is African hair braiders. IJ has assisted these folks in several states around the nation and are looking for potential clients to help break through New Mexico’s costly and harmful licensing laws.

If you know anyone who is involved in African hair braiding, please pass this message along to them and have them contact the Rio Grande Foundation via email: info@riograndefoundation.org or via phone at: 505-264-6090. There’s no commitment. We’re just looking to help out a friendly organization.

Paul Gessing of Rio Grande Foundation sat down with Diane Kinderwater recently to discuss a variety of issues of importance to New Mexico. See the full interview below:

Issues & Answers: federal lands, Milton Friedman, licensing, New Mexico, economy from Paul Gessing on Vimeo.

Lots of news to report on government pensions. For starters, Carter Bundy of AFSCME and I have disagreed on a variety of issues (just look it up), but I completely agree with him that if New Mexico’s Supreme Court voids the pension deal reached during the last session on the grounds that COLA adjustments violate the “property rights” of retirees, then New Mexico will be on the path of Detroit.

Interestingly-enough, our friends at State Budget Solutions shined a light on the pension situations of New Mexico and other states in a recent brief. According to the report, New Mexico faces an unfunded pension liability of $42 billion with a funded/unfunded ratio of 33%. The average state ratio is 39%. More problematic is the fact that our liability as a percentage of the economy is 53% which is the second-highest among states. Ohio’s is 56%, but the average state’s is only 27%.

Unfortunately, New Mexico’s government pension system is already bleak. The Courts can only make the situation bleaker with an adverse decision.

Lastly, there has been a fair amount of discussion of judicial pensions in New Mexico and the need to reform them. We agree. In fact, policymakers should consider transforming judicial pensions into a defined contribution (as opposed to a defined benefit) program. This would protect taxpayers while allowing some of the most educated and highly-paid public employees in New Mexico to invest their own money for their own retirements. One objection to defined contribution retirement systems is that average government workers are not capable of investing for their own retirements, but judges would seem to be highly-educated enough to be a test-case for this reform…perhaps freeing additional funds for judicial pay raises?

I read Jon Hendry’s column in the Albuquerque Journal over the Labor Day weekend and knew I’d disagree with many of his points. Hendry is after all one of the leading proponents of economically-misguided film subsidies in our fair state. These subsidies have been panned by analysts across the political spectrum.

But before I even got into the meat of the article, Hendry’s column had me wondering if he and his union buddies even have a grasp on New Mexico law. After all, Hendry plans to accomplish all of his goals through “a package of ballot initiatives to be voted on in 2014.” I hate to break it to him, but a glance at the map below clearly shows that New Mexico as a state does not have the initiative process.

In his column, Hendry does “challenge our elected leaders to allow the voters to make these changes…” but outside of a Constitutional Amendment, there is no way to do this under New Mexico law (and this process is called a “referendum” anyway.

Oh, and to his actual points, Hendry’s proposals are a grab-bag of more spending, bigger government, and more regulations. It would be great if, rather than arguing for bigger government that New Mexico’s private sector labor unions would join the fight to expand New Mexico’s private sector. We may disagree on exactly how to do so, but it would be great to see them fighting for tax and regulatory reforms that could benefit private sector unions and the state as a whole.

In this article, my good buddy, Winthrop Quigley, over at the Albuquerque Journal, repeatedly cites “market failure” as the reason for the ever-increasing role the federal government is taking on in health care. I’ll give Quigley a partial pass on this one because it seems like the speaker he is citing repeatedly used the term in his presentation.

Is health care really facing “market failure?” Defined, market failure describes a situation when the allocation of goods and services by a free market is not efficient.

As the following chart shows, the percentage of health care costs borne by those who actually use the service is down to 12 percent (and shrinking):

That alone causes US health care to defy the adjective “free market.” Without even touching ObamaCare, let’s talk about the tort issue, the Food and Drug Administration, medical licensing, and the lack of an interstate market for health insurance.

These are just a few items that make the term “market failure” void when applied to US health care. It would have been nice had Quigley challenged the use of the term or at least not repeated it. And, of course, ObamaCare only takes us several steps further away from anything resembling a “free market.”

With the impending Labor Day Holiday, a new report from the Mackinac Center illustrates the benefits of Right to Work laws that give workers the freedom to decide for themselves whether to join a union or not. The full report is available here. As the executive summery notes:

From 1947 through 2011, right-to-work laws increased average annual employment and real personal income growth by 0.8 percentage points in right-to­-work states. Average annual population growth in these states increased by a lesser degree — approximately 0.5 percentage points — but this effect was still statistically significant.

Furthermore, as the the report points out, the results of adopting such a law may vary depending on economic conditions and time periods.

From 1947 through 1970, there was no measured statistically significant effect of right-to-work laws for states with such laws. From 1971 through 1990, however, right-to-work laws increased average annual employment and real personal income growth by about 0.9 percentage points and increased average annual population growth by 1.3 percentage points. Further, from 1991 through 2011, the effect in each category was slightly smaller than in the previous period, but each was still statistically significant.

As we celebrate Labor Day, it is worth thinking about both the accomplishments of private sector labor unions and the necessity that workers freely choose whether to be represented by them or not.

Bob Williams of State Budget Solutions thinks New Mexico and other states could see the same positive economic numbers as North Dakota where the unemployment rate is 3.2% (New Mexico’s is more than double that), but that Washington’s heavy hand in land ownership is holding us back. Check out his article from Forbes.

Utah has already adopted legislation requesting federally-controlled lands back from Washington and New Mexico has considered such legislation as well.

Interestingly enough, state management of BLM lands which, as media reports have stated, are being overrun by wild horses, could result in more innovative solutions to the West’s wild horse problems. As things stand now, slaughter is the only albeit controversial serious solution anyone has broached. It would be great to see the various states working to find innovative solutions.