Edwards parrots bogus study, adds own analytical error
The political story here isn’t that an interest group put out flawed data, nor that it used that in a bogus argument, but that a Louisiana gubernatorial candidate fell for it hook, line, and sinker – again – and then added his own misinformation to compound the error.
Last week, Louisiana was one of 10 states mentioned in a report by the leftist group Good Jobs First, which criticizes government subsidies and tax breaks only to corporations as part of its government-centric, labor-friendly, static view of economic development. The report reviewed, quite selectively as pointed out by Louisiana’s Secretary of Economic Development Stephen Moret, such programs in these states and compared their costs to pension costs. It concluded that in all states reviewed these subsidies/breaks exceeded pension costs, and the gap was greatest in Louisiana. This assertion was used in support of a narrative that states ought not be trying to find ways to reduce pension costs to taxpayers when they apparently give away so much corporate largesse.
Specifically for Louisiana, the group selected $1.8 billion in corporate subsidization (which admittedly contains some speculative numbers, such as the estimate made by a Ralph Nader-connected interest group that claimed “corporate tax avoidance” cost the state nearly a half billion bucks) and determined pension costs were about $350 million a year. These costs were derived from data from the two, of four, “state” retirement systems (the nine other “statewide” systems are much smaller) presumably because the two, the Louisiana State Employees’ Retirement System and the Teachers’ Retirement System of Louisiana, between them have 85 percent of all state system retirement assets.
However, in computing the latter figure, they made an egregious error that decisively underestimated the actual pension costs. Through inattentiveness, or perhaps to skew the results to try to make their case, the analysts derived the cost looking at covered payroll times the “normal cost” for government, or the minimal contribution governments were obligated to make. But that ignores the constitutional imperative the state has that by 2029 all of the unfunded accrued liability in pension funds be reduced to zero (see here for an explanation), which pushes the actual costs far higher, in recent years typically to about four times the normal cost. For LASERS alone, instead of the $132 million the group computed as costs, the actual cost was $649 million, and for TRSL that the group reported as $216 million, it was $984 million -- putting the total almost at what it computed in its questionable subsidies numbers.
But untrustworthy numbers alone don’t make the report essentially useless. Its entire premise links the forms of subsidization and pension payouts to create disingenuously the notion that policy merits of the two are relative and dependent on the other. That is, subsidization makes it more likely that politicians will “single out” pensions as areas of reform that need changes that either or both increase employee contributions or reduce benefits.
Yet this is a specious argument. Proper analysis places both activities in an absolute context. That Louisiana may provide too much corporate largesse has no bearing on whether it has pension systems that provide too much benefits, in the overall larger scheme of things of total compensation for work performed, for too little employee contribution and too much demand on taxpayers. Regardless of other policy areas, the question of whether the current retirement regime for most state employees and most school district employees is appropriate stands independently. By trying to connect it to other government spending choices, this serves only to introduce a red herring to distract from this genuine issue of inefficient and wasteful government spending that unduly enriches state employees at taxpayer expense.
But, in spite of – or perhaps because of – these analytical errors, gubernatorial candidate state Rep. John Bel Edwards ran with this argument, saying “When there’s not enough money to do the things that everybody thinks we should do, we immediately blame our public sector employees and talk about their pension benefits. That’s clearly wrong.” In his view, regardless of the appropriateness of an overgenerous pension regime in the state, conversations about changes to it are forbidden.
And, with mouth wide open in parroting the line based upon flawed analysis, Edwards then can’t resist but to stick his own foot into it upon stating that state retirees average $19,000 a year, perhaps in order to make a claim that the system isn’t generous enough. At least the invalid representation on total state payment annually towards the two major pension funds by the group could be traced as to its error; but where Edwards concocted this number is anybody’s guess.
According to the data, the average LASERS retired member benefit received was $22,120 last year, and for TRSL it was $25,343, and the 11 other systems combined almost certainly have a significantly higher average, given their memberships. Further, these figures include large numbers of retirees who did not spend the vast majority of their working careers in state or local government, which serves to reduce the average significantly; for those employees who put at least 30 years into state employment, LASERS’ average benefit for those retiring in 2013 was $53,448. Keep in mind that for most in LASERS one could retire as early as 58 with full pay (averaged over the last three years of service) or at 48 with 75 percent of full pay, that over half retiring in 2013 served less than 25 years, and that retirees often have had other jobs that qualify them for other retirement benefits including Social Security.
Of course, Edwards with these comments is grubbing for votes from his natural constituency – the beneficiaries of government largesse, both the takers of wealth transferred from its makers and the intermediaries of this process. In the process his uncritically swallowing biased data to spit out an ideological point impoverishes serious debate.
Posted by Jeff Sadow at 11:00