Nygren right to end Property Insurance Fund, wrong on Life Insurance

Apparently State Rep and Joint Finance Committee Co-Chair John Nygren is reading the same audits from the Legislative Audit Bureau that I am, as he came out with a statement today that touches on a topic I posted on earlier this week.

“Last session, an audit of the Local Government Property Insurance Fund (Property Fund) showed that the fund was in a deficit. Increasing premiums began to force local units of government to search for other, more affordable insurance options in the market. With so many available alternatives, it became clear that the state should not be in the insurance business. It is for this reason that I proposed a bill to subject the LGPIF to the same rate regulations as private insurers.”

“Now, the State Auditor has reported number of insured entities has dropped from 983 to 174 in just over two years, and premiums dropped from $23.1 million to $3.2 million. While I support the Office of the Commissioner of Insurance’s budget request to stop renewing and issuing new policies, we must go further. Continuing the Property Fund on life support will create an unnecessary risk to the State’s General Fund. For that reason it is time to end the program.”

This is a rarity, but I’m on the same side as Rep. Nygren here. As I mentioned earlier this week, the $15 million debt seems likely to grow in coming years, so it’s worthwhile for the state to pull the plug now, pay off the debts that are accumulated (assuming we have the money available to do so), and walk away before we end up on the hook for more.

But there was a second part of Nygren’s statement, relating to another state insurance fund

“This month, the Legislative Audit Bureau also released a report investigating the efficacy of the State Life Insurance Fund (SLIF). Similar to the LGPIF, the SLIF has been experiencing difficulties for years. It is my belief that we should find a prudent solution to this fund and encourage the fund’s financial stability. Just like with the LGPIF, the state should not be in the life insurance business. With so many viable options in the market, a state-run life insurance fund is simply duplicative and outdated.”

First of all, I didn’t even know there was a state-run life insurance fund until I read the LAB audit on it that came out this week. It’s basically a “public option” life insurance plan that has been around over 100 years, as the LAB tells us.

The Wisconsin State Life Insurance Fund (SLIF), which was created in 1911 to provide low-cost individual life insurance to Wisconsin residents, is administered by the Office of the Commissioner of Insurance (OCI). SLIF is subject to the same regulatory requirements as any life insurance company licensed to operate in Wisconsin. Wisconsin is the only state that offers life insurance to its citizens. SLIF receives no subsidies from the State of Wisconsin.

And my guess is that Nygren’s seizing on this part of the report, which shows there are fewer people choosing to be part of the SLIF system.

By statute, OCI is not allowed to advertise this life insurance program, and SLIF is not permitted to use commissioned agents. As shown in Figure 1, the number of policies has been declining since December 31, 1996, when there were 31,361 policies. There were 25,132 policies as of December 31, 2015. The amount of insurance in force has also declined and was $194.1 million as of December 31, 2015. The number of new policies issued each year has been less than the total number of death claims and the number of policies surrendered for other reasons, such as failure to pay the annual premium. The continued decline is likely due to a combination of OCI’s inability to advertise (as mandated by state law), the $10,000 limitation on coverage, and private sector competition.

And if Nygren thinks the state doesn’t need to be in the life insurance business because things are different than 1911, that’s a legitimate viewpoint that can be debated. But Nygren’s claim that that the SLIF needs “financial stability”? That is flat out bullshit, and a look inside the audit shows that the SLIF is in great fiscal shape, and would be a profitable enterprise….if state law allowed it.

A main part of the State Life Insurance Fund’s finances is something called the “surplus balance”, which the LAB described as this.

The surplus balance of SLIF represents the difference between its assets, which are primarily investment holdings, and its liabilities, which are primarily actuarially determined reserves to pay future insurance benefits. The surplus balance increases when SLIF’s revenues, including insurance premiums and investment earnings, are greater than its expenses, including benefit expenses and dividends paid to policyholders. It is important that SLIF have an adequate surplus balance in the event the actuarially determined reserves are not sufficient to pay benefits as they come due.

So it’s an extra cushion in case a lot of people die that have SLIF policies on them, to make sure the fund doesn’t go broke or elsewise gets endangered by a large number of policies that have to be paid out.

Two other sidelights to this is that SLIF policy holders get dividends paid back to them, and that a guiding factor in how much those dividends are involves Wisconsin laws that spell out what is an adequate surplus balance. As a result, the dividends were lowered a decade ago when finances were tighter, but were raised 2 years ago, because the SLIF became more financially healthy than the state would allow.

Section 607.15, Wis. Stats., provides that SLIF’s net profits be distributed annually to policyholders in the form of dividends. However, statutes also specify that, to the extent practicable, the ratio of SLIF’s surplus to its assets is to be between 7.0 percent and 10.0 percent. Some factors affecting the surplus-to-assets ratio, such as actuarially determined reserve balances, are not controllable by SLIF staff. However, staff can adjust the level of dividends paid to policyholders. Periodically, staff will assess whether the dividend scale, which determines the dividends to pay to the various types of policyholders, needs to be adjusted to maintain a surplus-to-assets ratio within the statutorily specified range of 7.0 percent to 10.0 percent. If a dividend adjustment is necessary, staff work with SLIF’s actuary to review and adjust certain assumptions, such as anticipated investment earnings and mortality rates, which are used in the calculation of the dividend scale.

The dividend scale was adjusted in 2005 and 2006 in an effort to increase the surplus-to-assets ratio, which had declined below the statutorily specified minimum of 7.0 percent. As a result of these adjustments, which we described in report 09-14, the ratio was within the statutorily specified range as of December 31, 2007. However, as we described in report 13-16, the surplus-to-assets ratio continued to increase. As of December 31, 2011, the ratio exceeded the statutorily specified maximum of 10.0 percent and, as anticipated in report 13-16, OCI implemented plans to adjust the dividend scale to reduce the surplus-to-assets ratio by the end of 2014. As shown in Figure 2, the surplus-to-assets ratio was within the statutorily specified range at 9.9 percent and 9.2 percent as of December 31, 2014, and December 31, 2015, respectively.

To get the surplus ratio under 10%, the dividends paid out to SLIF policy-holders went up from $2.1 million in 2013 to $4.7 million 2014, and then remained elevated at $3.6 million last year. Not a bad deal if you’re a policy holder, almost makes me want to consider getting in (my policy doesn’t give me dividends).

And even though there’s a reduced amount of people holding policies, the SLIF is still took in $6.9 million last year, and only paid out $3.8 million in expenses, so its financial solvency is fine for the near and likely long-term future. This is especially true given the rising interest rate environment we are heading into, since 93% of SLIF fund assets were invested in bonds at the end of 2015, and were earning more than enough to pay off a given year of expenses before the current rate-raising cycle began ($5.4 million in 2015).

In addition to there being no fiscal reason for ending or modifying the SLIF, I also have questions as to what would happen to all of these 25,000+ policies if the SLIF is ended. Do they get grandfathered and eventually just fade away over time? Do they get sent over to some other insurance company to oversee (which may or may not be a favored campaign contributor :P)? Or do they all get paid off to make a clean break?

That last point is the one that would set off major warning flags, because the total amount of insurance out there to be claimed totals a little over $194 million, which would mean a massive payment would have to come from state taxpayers to take care of that. Why the hell you’d do that when the SLIF doesn’t take a dime of tax dollars to operate these days is beyond me, unless you were a destructive ALEC whore and wanted to cause a fiscal crisis (wait a second….)

Regardless of the underlying motivation, it looks like “reform” and changes to both the Property Insurance Fund and the State Life Insurance Fund are on the table for Nygren and the WisGOPs that run the Legislature. And while the Property Fund probably should get dumped before the losses get bigger, I’m going to be quite curious to see what they want to do with the SLIF, because on the surface, there doesn’t appear to be any reason to mess with it.

Despite "bright" Walker spin, Wisconsin keeps losing jobs

In 2010s Wisconsin, it’s pretty easy to figure out the news behind theWisGOP spin. Just look and see what the Walker Administration’s agency leads with, and more importantly doesn’t lead with, and you can figure out the real story pretty quickly.

A great example is today’s Wisconsin’s jobs report for November 2016. Note the lead from Scott Walker’s Department of Workforce Development.

The Department of Workforce Development (DWD) today released the U.S. Bureau of Labor Statistics (BLS) revisions for October and preliminary estimates for November covering employment and job statistics for the state of Wisconsin. In brief, the seasonally adjusted estimates show:

·Place of residence data: Employment in Wisconsin reached an all-time high in November with 3,009,600 people working, while unemployment is at its lowest since 2001. A preliminary seasonally adjusted unemployment rate of 4.1 percent in November 2016, unchanged from October and at its lowest rate since February 2001. The rate remains lower than the national unemployment rate of 4.6 percent in November 2016. Wisconsin's labor force participation rate also remained unchanged at 68.4 percent and continues to outpace the U.S. rate which dropped to 62.7 percent in November.

·Place of work data: Based on preliminary data, the state added a statistically significant 30,400 total non-farm jobs and 25,300 private-sector jobs from November 2015 to November 2016, with a significant one-month gain of 5,100 jobs in Transportation, Warehousing and Utilities.

First of all, that Transportation, Warehousing and Utilities stat is a year-long gain, not a one-month difference (just a tip to those of you at DWD who might be reading and have the ability to edit the press release). But hurrah for $12 an hour Amazon warehouse jobs, I guess!

The bigger thing is what wasn’t mentioned in the Walker Administration’s release- the job change for the month of November. And here’s why.

Job Change, Wisconsin, November 2016
Private sector -5,200
Manufacturing -3,300
Total jobs -1,900

Which continues the stagnant/downward trend the state has seen for much of 2016.

Job Change, Wisconsin, since March 2016
Private sector –4,500
Manufacturing -3,600
Total jobs -2,700

Which is what makes these Tweets from today's GOPper-ganda event at Wisconsin Manufacturers and Commerce all the more bizarre.

Yes. That's @GovWalker wearing sunglasses. He says future of WI economy is so bright "you gotta wear shades" at WMC event. #WKOW pic.twitter.com/dDUzOpgC2R

— Greg Neumann (@gneumann_wkow) December 15, 2016

.@GovWalker tells @WisconsinMC attendees WI needs to do more branding and more bragging.

— Gwyn Guenther (@GwynGuenther) December 15, 2016

What in the living hell is Walker talking about? I know WMC and Walker live in a delusional Bubble World of trickle-down bullshit, but how can anyone look at the awful jobs stats from this year, combine it with WisGOP’s regressive social policy, crappy roads and disinvestment in public education, and think that’s going to make people want to come to a state that’s a flipping icebox for 4 months?

Now combine that reality along with the higher interest rates and rising oil prices, and what honest person would think that Wisconsin’s manufacturing-heavy economy is going to be better in the coming years?

Then again, maybe there's a double-meaning behind Walker's prediction for what happens in the Trump Administration.

Timbuk3 song quoted by @GovWalker about his optimism for economy's future is actually about a nuclear holocaust: https://t.co/BAtD8RQrqQ

— Scott Bauer (@sbauerAP) December 15, 2016

Nah, Scotty ain't that bright. So my other theory is that Governor Dropout downloaded the wrong ‘80s song as his theme for this speech. He probably meant to get this one.



The sad part is, it won’t get better as long as Walker and the rest of this regressive crew is in charge at the Capitol, that’s for damn sure.

Property taxes down in 2016? Really Scotty?

I see our Governor is making the rounds again, trying to convince the media and the rubes that his policies are working for someone who isn’t rich and politically connected. This recent propaganda dump coincides with the release of this year’s property tax bills.

Gov. Scott Walker visited Waukesha on Tuesday, December 13th to highlight the savings he said taxpayers have seen in their property taxes since taking office.

Estimated property tax bills for the typical homeowner will be $116 lower this year (2016) than they were in 2010, according to the governor. Walker said that results in a six-year cumulative estimated savings of over $1,700 compared to the previous four-year trend.

"Property taxes today in December 2016 are $116 less than they were in December in 2010," Walker said.

We’ll leave out the horrible job-creation record associated with Scott Walker's tenure in office, and instead concentrate on the property tax part here. That chart mostly matches the information that the Legislative Fiscal Bureau put up late last year, at least through 2015, although the dashed red line projecting 2006-2010’s property tax increases to continue the next 6 years is obvious spin. The Walker Administration’s chart also assumes a $3 drop in property taxes for this year, but I don’t see any other documents from 2016 that match this assumption from the Legislative Fiscal Bureau.

If they are counting on a drop, I think I know where it will come from, and it’s not related to Walker/WisGOP policies. If you go back to October, you might recall that the Joint Finance Committee allowed for a significant increase in the Lottery Tax Credit, a result of a large increase in Lotto sales that were helped by the weeks leading up to January’s $1.6 billion Powerball jackpot. So the Lottery Credit went up by 17.4% for the property tax bills that you’re probably getting right now.

I know in our case, the higher Lottery Credit knocked $23 off of our property tax bills compared to last year, and limited our overall increase to 0.6%, which is below our increased in assessed value, so that’s nice. What’s not as nice is that the lottery tax credit is projected to go down by 11.8% next year, a move that would raise my property tax by nearly $19. This is why I previously said that reducing this year’s lottery credit to “smooth out” these numbers could have been a better idea, but obviously the JFC members didn’t agree with me.

There is one Walker/WisGOP policy that’s new for 2016’s property taxes, and might keep a lid on what you have to pay. The School Levy Tax Credit was increased for this year, from $747.4 million statewide to $853.0 million starting with this year’s property tax bills. However, that didn’t come without a few tricks attached, as you’ll notice in the LFB summary of the School Levy Credit increase (it’s on Page 4 of this document).

In his original 2015-17 budget, Governor Walker wanted to skip paying the $105.6 million increase in that School Levy Credit until the 2016-17 fiscal year, have a “double payment” in this fiscal year to make up the difference (making the expenses reach $958.6 million), and then settle the number at $853 million for future years. Remarkably, the GOP-run Legislature took an even less responsible path, paying the credit in July of every year (so not paying it in FY 2015-16) but not having the “double payment” to get the credit payments on schedule. All so Walker and WisGOP could have a lame “We cut property taxes” talking point for this year.

By the way, Walker and the WisGOPs pulled a similar trick on delayed payments for their increase in per-pupil aid for K-12 public schools. They delayed a $126.8 million increase for last year until mid-July 2016, which means it wasn’t accounted for until Fiscal Year 2016-17. They followed with a “double payment” in this Fiscal Year which gets things back on track for future years.

Those two moves meant expenses paid for Fiscal Year 2015-16 were $232.4 million less than they should have been, which not only reveals the fraudulence of the $331.0 million “surplus” that we saw in the 2015-16 Annual Fiscal Report, but it also means that we are likely to see a second straight increase in the GAAP deficit when the Comprehensive Annual Fiscal Report comes out in the coming days (remember when Walker promised to balance the budget using GAAP?).

And going back to the property tax point, I’ll note that this year’s taxes are based on assessments made in the early part of 2016. Since then, home sales and property values have taken off in many parts of the state, as Walker’s buddies in the Wisconsin Realtors’ Association are more than happy to tell us. Watch for this mini-bubble to be reflected in next year’s assessments, which will drive up property taxes for many individuals around the state.

In addition to a lower Lottery Credit and inflated assessed property values, 2 other items point to higher property taxes showing up this time next year.

1.No additional increases in the School Levy Credit to lower taxes, like we’re seeing this year.
2.The passage of so many K-12 public school referendums last month- a direct result of Walker and WisGOP underfunding from the state level- likely will translate into more taxes for the 2017-18 school year.

It makes me almost want to laugh at Gov Walker’s pathetic attempts to sell to Wisconsinites that property taxes are being held under control, and that things are just fine. But let’s do a test of my 5-6 readers and see if that jibes with reality.

1.How do your property taxes compared to last year?
2.How do your property taxes compare to 2 years ago (the year after the unfunded $406 million giveaway to Wisconsin Tech Colleges)?
3.How much has your assessed home value changed since then?

I’m guessing it ain’t going to match well with Walker’s “you’re better off and paying less!” claims

Severe weather complicates already-bad DOT budget

A thought occurred to me as the plows ran through Madison on Sunday and Monday to get the snow off the road before the deep freeze hit. I found it fortunate that this suddenly snowy and colder December follows a tamer January-March 2016 where not much snow removal was required, so the City of Madison had funds available to take care of this (local governments in Wisconsin run on a calendar year basis).

But other parts of the state are lacking the money available to do weather-related maintenance, or other types of road work this year. State Senator Kathleen Vinehout recently talked about how parts of her Western Wisconsin district haven’t been able to fix the washouts and related mess from this Summer’s record storms.

The story began early August 11, 2016 when torrential rains dumped up to 11 ½ inches in our area. Small creeks became raging rivers. Wild water took out several bridges including the Schoepps Valley Bridge that connects a major road –State Highway 88 – to about 20 homes and farms.

Recovery from the floods is slow and wearisome. Some residents just recently were able to apply for assistance. Town officials borrowed money to fix roads and bridges, and the county may need to borrow for cleanup of a debris-filled creek that still threatens homes.

But for resident in Schoepps Valley, the bridge is still out.

Town officials cannot yet get funding from the state Department of Transportation to pay for a temporary bridge. Getting a new larger sized permanent bridge will take some time.

Meanwhile, people are worried about getting to work. Some fear being stranded and sometimes stay with relatives in Winona, Minnesota.

Without a new bridge, the only way out of the valley is a steep, windy road that becomes impassable during bad weather.

Complicating matters in Vinehout’s part of the state is that unlike similar rainstorm events near Lake Superior and in the La Crosse area, those August storms in Buffalo County were not given a FEMA disaster declaration to help pay 75% of the repairs. While businesses and home owners in Buffalo County are eligible for loans from the US Small Business Administration, that doesn’t get the bridges and roads fixed in the area.

There is a program that sets aside money to help the state to make up the difference that FEMA won’t pay for, and this may be what Vinehout is referring to in her column when she says WisDOT has yet to release the money.

The department shall make such investigation as it deems necessary and within 6 months from the date of filing the petition shall make its determination as to the granting of aid, the amount thereof, and the conditions under which it is granted. In making its determination the department shall cause an estimate to be made of the cost of repairing or replacing the facilities damaged or destroyed to standards and efficiency similar to those existing immediately before the damage or destruction, and also an estimate of the cost of reconstructing the facilities to a higher type or improving any such facilities if determined to be warranted and advisable. Except [in cases of disasters under $15,000 or over $1,000,000], the amount of aid payable for damage caused by a disaster described in sub. (1g) (b) 1. shall be 75 percent of the cost of repair or replacement to standards similar to those existing immediately before the damage or destruction, plus 50 percent of the increased cost of the reconstruction to a higher type or the improvement of any of the facilities. Except [in cases of disasters under $15,000 or over $1,000,000], the amount of aid payable for damage caused by a disaster described in sub. (1g) (b) 2. shall be 70 percent of the cost of repair or replacement to standards similar to those existing immediately before the damage or destruction. The department may revise estimates on the basis of additional facts. The county, town, village, or city shall pay the remainder of the cost not allowed as aid, but this shall not invalidate any other provision of the statutes whereby the cost may be shared by the county and the town, village, or city.

But there is only $1 million in the Transportation Fund and $2.45 million in the General Fund that is budgeted for such disasters, and given the large number of damage-causing weather events in recent months, that may mean another source of strain on a state budget where there isn’t a lot of money left to go around in Fiscal Year 2016-17.

And since most local governments pay for street plowing, repair, and maintenance out of the same pot of money, and because those resources are squeezed by property tax and expenditure limits imposed by the state, you can likely add these needed repairs for weather-related damage to the list of problems the state may have with its deficit-ridden transportation fund. Any carryover funds that Wisconsin communities may have been counting on to keep things as close to normal as possible might be going away with these weather-related costs, which makes it all the more vital that these places see increases in state funding, or added flexibilities beyond wheel taxes for local communities to use to pay for the roads.

But as that debate continues as to what to do about the state's Transportation Fund, the roads in Buffalo County will still be washed away (they're not going to build it when it's 0 degrees), and the people of Western Wisconsin will await the money to come up from Madison to help them get back to normal and get re-connected to other areas of the state and the country.

Wis insurance for local govt going broke, likely needs bailout

Here’s yet another example of how a relatively small document might tell a bigger story. Today, I noticed the Legislative Audit Bureau sent a letter to Wisconsin’s Joint Legislative Audit Committee discussing the status of the state’s Local Government Property Insurance Fund. The letter describes is a program that is now drowning in debt, will likely be dissolved in the near future and will likely need a taxpayer bailout to pay off its costs.

So what is the Local Government Property Insurance Fund? It’s been around for decades, and is basically a “public option” for local governments, Here’s how the LAB described it in their full audit of the Property Fund last year.

The Property Fund makes property insurance available for local government property such as municipal buildings, schools, libraries, and motor vehicles. It covers property losses except, among other things, those resulting from flood, earthquake, wear and tear, extremes in temperature, mold, war, nuclear reactions, and embezzlement or theft by an employee. Examples of covered property losses include large-scale wind damage to a building and minor accidental damage to a car. The Property Fund does not advertise or pay sales commissions to insurance agents and does not actively solicit business. Units of local government generally become aware of the Property Fund by word of mouth or from information available on OCI’s website. As of June 30, 2014, the Property Fund insured $51.9 billion in property owned by 983 units of local government, as shown in Table 1.

The fact that the Local Property Insurance Fund is now in debt is a remarkable drop from the $41.2 million it had in cash in 2009. The LAB described two big reasons behind this turnaround from surplus to deficit - a one-time move by the Doyle Administration to cushion local governments in tough economic times, and a number of disasters that followed, forcing large insurance payouts.

In recognition of the increasing surplus balance and challenging economic conditions during the last recession, the Legislature considered the establishment of a premium holiday for policyholders. In response, the Commissioner of Insurance declared a one-time $12.0 million dividend in FY 2009-10. As a result, the Property Fund’s net position declined.

After the $12.0 million dividend was declared, significant insurance losses occurred in FY 2010-11, FY 2011-12, and FY 2013-14. As a result, net losses and other expenses significantly exceeded net premiums and other revenues, and the Property Fund’s net position further deteriorated.

The biggest of these disasters was the 2013 fire at the Milwaukee County Courthouse, which resulted in total losses that are currently near $20 million, and a complication of that Courthouse fire was mentioned in this week’s LAB letter to the Audit Committee.

The Property Fund is supposed to be able to have losses limited to $1.8 million in one event and $22 million in one year, but the LAB said that the Property Fund’s attempt to recover $11.5 million of those losses from the Fund’s excess-loss provider (the insurance for the insurers) is still tied up in court, as the private insurers don’t believe that some of the fire’s circumstances allows the state to cut its losses under that excess-loss policy.

The recent financial difficulties for the Property Fund led Governor Walker to try to phase it out in his 2015-17 budget, and move any local governments that are getting insured over to the private sector or self-insurance. That effort was shot down in the Legislature during budget deliberations, and in response, the LAB noted that Office of the Commissioner of Insurance raised premiums that local governments had to pay to the state by 73.4% starting on July 1, 2015, in an attempt to have the Fund stay afloat.

This spike in premiums led many Wisconsin local governments to stop using the fund, which the LAB letter said was a main cause behind the Property Fund losing 88% (!) of premium income in 2 years.

In its July 28, 2016 letter, OCI reported a decrease in the number of insured entities from 983 as of July 1, 2014 to 231 as of July 1, 2016. OCI also reported outstanding losses of $10.7 million and a decline of premiums in force from $27.1 million as of July 1, 2014, to $3.2 million as of July 1, 2016. The letter also discussed actions taken by OCI to increase the Property Fund’s net position, which included decreasing the deductible for claims made through its reinsurance programs, increasing premiums, and making other policy changes.

And since July 1, OCI told the LAB that over 20% of the remaining entities had dropped coverage with the property fund, leaving only 174 with policies. Needless to say, this means that the financial outlook for the Property Fund (and cost to Wisconsin taxpayers) looks even worse.

In October 2015, the Property Fund repaid the $2.0 million it had previously borrowed in September 2015 from the state’s General Fund. However, the Property Fund borrowed an additional $15.1 million from the state’s General Fund from November 2015 through October 2016, none of which was repaid by November 30, 2016. The Property Fund reported, in its draft unaudited financial report, a liability of $8.4 million for the amount borrowed from the General Fund as of June 30, 2016.

With the continued decline in the amount of insured entities, the Property Fund will likely earn less in premiums in FY 2016-17 than was earned in FY 2015-16. Because the Property Fund’s resources available to pay claims have continued to decline, the Property Fund may need to borrow additional amounts from the state’s General Fund, and the ability of the Property Fund to repay the state’s General Fund, is not known.

With these losses piling up, no wonder why the Office of the Insurance Commissioner asked to get rid of the Local Government Property Insurance Fund in its 2017-19 budget request. It’s a sensible move, given that events and actions over the last 7 years have made the Property Fund a money-loser for the state, and with such a small number of participants remaining, the disruptions would be significantly less than what we would have seen if it happened two years ago.

Now the question falls to this- how much time do you give to phase out the Property Fund program to allow local governments to adjust, and how many taxpayer dollars are going to have to be set aside to pay off the current deficit and future claims? This is what will likely have to be determined and hammered out in the upcoming budget debates.

No funds were designated in the OCI budget request for such a bail-out of the Property Fund, which means you can add those costs to the $588 million General Fund deficit, and the $880 million Transportation Fund deficit, and 2016’s weather-related disaster costs that FEMA won’t recover. As the countdown begins to Gov Walker’s formal release of the 2017-19 budget, complications like the demise of the Property Fund keep making a rough budget picture even trickier.

Trump, Walker-led governments are intentionally screwed-up

The disaster that results from Republican “governance” and control continues to make itself apparent, as shown by the shocking resignation of Robert Kinney from the Wisconsin Ethics Commission today. Kinney’s decision comes less than 6 months after the Ethics Commission began operations, after Republicans at the Capitol passed bills that broke up the Government Accountability Board, likely as revenge for the GAB investigating campaign finance violations in the John Doe scandals.

As the Wisconsin State Journal points out, the new setup of elections and ethics oversight was a marked difference from the more independent GAB.

The six-member ethics commission is made up of three Democratic appointees and three Republicans. The Government Accountability Board it replaced was nonpartisan.

Wisconsin Democrats were sharply critical of Republicans for creating ethics and elections commissioners to replace the accountability board. They predicted the new commissions will operate less effectively and -- because they're evenly split between partisan appointees -- will frequently reach gridlock on key decisions.

And Kinney’s scathing resignation letter indicates that the Dems’ fears about what would happen with the new Ethics/Election Commissions are coming true - it is not designed to bring to justice those who violate election laws and the rules of public decency.

During the October 10, 2016 public meeting of the Commission a telling vote was taken which, in retrospect, foreshadowed what was to come. As a new agency, we were required to articulate a mission statement. The staff of the Commission hearkened back to Wisconsin’s reputation when it proposed the following as our mission statement:

͞The mission of the Ethics Commission is to enhance representative democracy by furthering Wisconsin’s tradition of clean and open government through the administration of Wisconsin’s campaign finance, lobbying, and ethics laws, and through dissemination of information to the public.͟

At the October 10, 2016 public meeting of the Commission, incredibly, three members – one-half of the Commission’s membership – voted to strike from the mission statement the aspirational language, ͞”furthering Wisconsin’s tradition of clean and open government.͟” The handwriting was on the wall….

The non-partisan staff of the Ethics Commission consists of some of the most competent and dedicated civil servants I have had the pleasure of working with. If the people of the State of Wisconsin could see these people in action they would be so proud of our State. In addition, Chairwoman Peg Lautenschlager deserves considerable credit for trying to steer the Commission in the direction of even handed enforcement of the law. But the staff has had to deal with many obstacles – erected by Commission members. To begin with, there exists among several of the commissioners an observable lack of commitment to the underlying purposes of the agency. On top of this, staff are confronted with overbearing nit-picking at virtually every meeting. Over time (if it hasn’t already happened) this disrespectful treatment will erode staff morale and we will lose these talented people. Perhaps that is the goal.

At a time when public confidence in elected officials has been deeply eroded, we should be doubling down on our efforts to enforce campaign finance, ethics, and lobbying laws. When charges of financial or ethical improprieties are leveled, or allegations of quid pro quo corruption are made, they must be thoroughly and timely investigated, and, if warranted, aggressively prosecuted. Sadly, it appears we have created a system which almost guarantees that this will not occur. It would be an enormous injustice to the People of Wisconsin and to the success of our government in serving them if this agency is relegated to shuffling papers.

In an updated part of today's State Journal story, it was that inability to require a certain party to follow the law that sent Kinney over the edge.

Kinney told the State Journal he was frustrated by the commission's handling of a complaint by the Assembly Democratic Campaign Committee against its GOP counterpart, the Republican Assembly Campaign Committee. The complaint alleged RACC violated campaign finance law when it did not report its financial activities in September, as did other legislative campaign committees.

State law requires the commission to debate and act on such complaints in closed session. The commission dismissed the ADCC complaint in last week's closed session, according to ADCC executive director George Aldrich.

This paralyzing deadlock and “paper-shuffling” is exactly what Robbin’ Vos and the GOP legislative leadership was counting on when they decided to blow up the Government Accountability Board and split it into the Ethics and Elections Commissions. They don’t want these organizations to work for the common good, and want to use these agencies to protect the politicians and connected interests that pay for their campaigns, instead of holding those people to account.

And the same mentality goes up the chain to Washington DC and a New York City high-rise, where Donald Trump’s proposed Cabinet and top advisors are filled with “alt-good” hacks, donors and other fools who will make government dysfunctional, and not be able to fulfill its goals of accountability or public protection. This was the point that was lampooned in the opening skit on this weekend’s Saturday Night Live, with a guest appearance by the always-great Bryan Cranston.



It has to be drummed into everyday people’s heads that when you elect Republicans to be governors or president, you also are also allowing crooked, dimwitted hacks to take over agencies, leading to wreckage that harms real people (“Brownie, you’re doing a heckuva job!”). It’s why Trump should be vetoed next week by the Electoral College, as he has now revealed his absurd choices for White House and Cabinet staff, and one of many reasons to flip numerous Republican governor seats up for election in 2018 (including Wisconsin). The future of effective government in Wisconsin and in America may depend on it.

WRS fights back against Dewey's plans to cut benefits

Since I wrote my piece on the audit of the Wisconsin Retirement System (WRS) a few days ago, there has been a few developments involving the retirement fund for most of Wisconsin's public employees. The first of which involves an interview State Sen. Dewey Stroebel gave to the Wheeler Report discussing the WRS and a couple of bills he has proposed to "stabilize" it.

....Sen. Stroebel said he will be re-introducing the bills now that he has the actuarial studies. With regards to SB-328, Stroebel said the situation is being gamed. Stroebel said when someone spends 25 years paying into the retirement at a specific level, then there is a three-year change it affects the soundness of the actuarial system. Stroebel said it isn’t fair and equitable. With regards to SB-329, Stroebel said early retirement isn’t actuarially funded and every time someone takes early retirement there is a “hit to the system.” Stroebel highlighted that the actuarial was done at a 7.2% return, but if that number were to drop that could significantly impact the retirement fund. Stroebel said the bills are aimed at making small policy changes to make sure the fund is solvent, rather than having to make big changes should there be a change in the fund. Stroebel emphasized that in 2001 total employee contribution rates were 9% and in 2016 they are 13.6%. Stroebel said that’s a significant change and it is eroding what employees are able to take home in pay. Stroebel said this is a disservice to the employees, that the state relies so heavily on the pension instead of on pay.

When asked about opposition to the bills, Stroebel said ‘change.’ Stroebel emphasized that in the past the courts have said that the state can make changes to benefits, but circumstances must be considered. Stroebel highlighted the early retirement bill would not affect anyone who is older than 40; meaning there would be 15 years before the state would see the changes. Stroebel said the 3-5 year change would be delayed five years to minimize the impact to current employees.

Well, Sen. Stroebel doesn't need to worry too much about that 7.2% return in the WRS for this year, because I noted that the Department of Employee Trust Funds (ETF) released figures on the investment performance of the WRS near the end of (last) week. And it’s been doing pretty well in 2016.

Core Trust Fund: 7.0% (Benchmark: 6.5%)
Variable Trust Fund: 8.4% (Benchmark: 8.1%)

Preliminary Value of WRS Assets under Management as of November 30, 2016

Core Trust Fund: $88.3 billion
Variable Trust Fund: $7.1 billion
Total: $95.4 billion

So the WRS was at the “tread water” figure by November 30, which would let it stay at the 98.2% funding it was at on December 31, 2015. Then given that the ridiculous “Trump Rally” has continued on Wall Street in the week-and-a-half since then, it seems very likely that the fund will be back over 100% when it is next figured for the end of calendar year 2016.

But Stroebel does have a point about how 7.2% is a high standard to reach and maybe there's some need to add "flexibility" to the fund in case things go down and stay down in the market in coming years. So when I saw The Wheeler Report linked to an actuarial study of Stroebel's bills from Gabriel, Roeder, Smith and Company, my geekiness got intrigued, and I checked it out.

Here's what the actuaries say will happen if Stroebel's bill to raise the early retirement age from 50 to 52 for police and firefighters and 55 to 60 for other public employees would become law, basically that there would be a short-term bump in expense, but a long-term savings that reduces costs to taxpayers and employees because they don't have to put as much into the WRS.

It may seem counterintuitive that a change that increases the present value of future benefits (PVFB) can lead to a decrease in contribution rates. The initial increase in PVFB is very small in relative terms and can be caused by the interaction of the formula benefit with the money purchase benefit (more members being shifted to the money purchase benefits) as well as the shift in the retirement decrement pattern. In the long term, however, extending the retirement age tends to allow members to accrue their benefit over a longer period of time which typically reduces the normal cost for new entrants. In simple terms, this is a reflection of the fact that extending the retirement age means that fewer people will draw benefits over the life of the plan, and therefore total costs can go down (more money is paid to each person, but fewer people in total are involved). The long-term impact represents the expected change to the future service normal cost as future entrants join the plan under the proposed benefit structure. The long-term impact will emerge gradually over time as current active members are replaced by new hires.

A second Stroebel bill would make the pension benefit be based out of the 5 highest-paid years for an employee, instead of the 3 highest it is today. The actuary says a benefit of this would be that it would reduce the practice of "spiking" pay to get a better pension.

Lengthening the FAE period to 5 years from 3 years will lower benefits for almost all participants, and therefore lower long-term plan costs. It will also reduce the effect of most pension spiking that may be occurring. Pension spiking refers to the situation where there is an unnatural increase in earnings toward the end of the career that has the effect of raising the retirement well above what is intended by the benefit formula. Examples would include:

John spends most of the public employment in a capacity that yields a year of service credit per calendar year but has a very low pay base. Perhaps John was an elected City Council person earning $12,000 per year for 20 years, in addition to having a private practice as an attorney. John later gets a job as in-house Counsel to the City at $80,000 per year, works three years, and then retires. In that case, John’s final average earnings would be $80,000, when almost all of the funding that WRS received was based upon the $12,000 pay rate.

Within a couple of days, Department of Employee Trust Funds Secretary Robert Conlin responded to Sen. Stroebel with a letter that clarified some details, including a Stroebel claim that the state had to borrow to keep the WRS solvent in 2003, leading to a large balloon payment due in 2018 (a payment that was deferred onto future years by a debt shuffle that the Walker Administration pulled off earlier this year). And ETF Secretary Conlin reminded Stroebel of the real-world consequences of the bills he is proposing, and possible effects on people's lives.

First, the WRS does not have a “solvency” issue, and if it did, these bills would do little to address it. The WRS is well funded and in a position to pay promised benefits.

Second, the State did not borrow money to “backfill” the WRS (in 2003 and 2008). The WRS was well funded prior to the State paying off its benefits liability and remains so today. (correct. The debt borrowing was actually a compromise by new Governor Doyle and the GOP Legislature to deal with the Thompson/McCallum deficit without raising taxes)

Lastly, while the bills may somewhat reduce contribution rates for public employees and employers, they do so by reducing benefits of current employees and in a way that may not be equitable.

The bills may also present unintended workforce challenges. As an example, we would anticipate seeing another large wave of retirements as the applicability date for SB 328 nears. Over the next five years, about 40% of the current workforce will be eligible to retire and SB 328 may lead many of them to do so sooner than they ordinarily would.

That last point is also noted in the actuarial study, which says that the costs of paying for retirees out of the WRS would actually go UP in the short-term because of a "rush to the door" from Boomer-aged employees looking to lock in their higher benefits.

As written, the proposal has a cliff effect that is likely to result in a reduction in accrued benefits for some people. Suppose, for example, that the bill passes, is signed by the governor, and is published on December 11, 2016. The bill would become effective January 1, 2021. Consider next an individual who is eligible to retire on December 1, 2020. If that person actually retires on December 1, 2020, he or she would get a retirement benefit based on a three-year FAE determination. If instead, that person delays retirement by one month, the retirement benefit would be based upon a five-year FAE determination, and could well be lower. In addition to requiring careful legal review, a provision such as this is likely to create a temporary rush to the door, at least for people whose benefits would actually go down due to the delay.

So no, there is no immediate funding crisis in the WRS to "solve", and while Sen. Stroebel's bills to raise the retirement age and reduce the pension benefit for WRS employees would help the numbers even more, you'd be screwing over a helluva lot of Wisconsin workers and their families, and likely reduce the quality of employee and services that state and local governments offer in Wisconsin.

Of course, maybe that's the plan from Sen. Stroebel and his fellow ALEC boys, isn't it?