Archive for June, 2013
This morning, the Denver Post carried a story about PERA’s “celebration” over a 12.9% return on its investments in 2012, and how it allegedly puts to the lie to State Treasurer Walker Stapleton’s concerns over the solvency of the pension plan.
Would that it were so, but PERA is, as usual, spiking the football on this one too early.
First, let’s start with the return itself. 12.9% is good, but it’s not exceptional, as PERA returns go. It’s above the 8% that they assume over the next 60(!) years, in order to get the funds to be solvent over that time, to be sure. And it’s only possible because a higher return means a higher volatility. As we’ve said before, PERA only needs to have a couple of bad years to fall so much further behind that it can’t catch up. This year’s modest gains in its funded levels could easily be wiped out by even a couple of average years that see positive returns in the 5% range.
As an aside, we should also note that PERA’s returns follow the returns of the much larger California pension system, CalPERS, almost exactly:
The 12.9% is below PERA’s self-imposed benchmark of 13.4% – with Alternative Investments doing the worst relative to its benchmark. It’s right at BNY Mellon’s Median Public Fund average return of 13.0%. And it’s right in line with what you’d expect, given CalPERS’s 13.3% this past year. If PERA is willing to declare victory for missing its own benchmarks, and doing just about as well as everyone else, we should perhsaps be asking what we’re actually getting for all that money management staff we’re paying.
Worst, though, is that PERA’s situation really hasn’t improved all that much, and remains far worse than they’re willing to admit. PERA discounts its liabilities using the expected rate of return on its investments, per the Government Accounting Standards Board (GASB) rules. There are a number of problems with doing this, first and foremost being that it encourages funds to take on more risk in order to appear better-funded. It’s also unsound financial economics. Every other pension rule in the world requires the fund to use its parent entity’s long-term cost of borrowing. In this case, that would be best approximated by Colorado Certificates of Participation, currently trading at 5.3% yield. PERA provides a sensitivity analysis of various discount rates, and it’s not too hard to extend it back to a rate of 5.3%. (There’s also a very slight change in the actuarial value of the assets; I’ve included that just for completeness).
So basically, properly calculated, instead of having the unfunded liability of just over $24 billion that PERA admits to, it’s actually in the hole for about $47 billion, or about $23,500 per household. A more accurate number could be gotten with a more detailed analysis, but this is probably within a billion or two dollars, which suddenly doesn’t seem like all that much money.
PERA likes to claim that the actual unfunded liability doesn’t really matter all that much, since it can’t ever be called in tomorrow, but must wait until it’s actually due. Like so much else PERA says when it comes to its unfunded liability, this fundamentally misunderstands the nature of present value. The point isn’t whether or not a liability can be collected tomorrow. Present Value is just a means of comparing a future liability and present assets in today’s dollars, a way of asking how much you would pay today for the promise of the amount of the liability tomorrow (or whenever it’s due). It has nothing to do with whether or not such an immediate transaction is possible.
However, we can calculate how much the unfunded liability will mean to Colorado families when they have to make it up. Right now, a $23,500 debt, paid at PERA’s assumed return of 8% over 30 years, is about $2,000 per family, per year.
Save the champagne.
As relates to another story – PERA’s baleful effects on school budgets, the release of the CAFR gives us a chance to update our school spending charts. There’s some improvement in the growth rates, even as they continue to far outpace inflation. And in the School Division, the increase is coming entirely from the taxpayers.
Today, in its ruling on California’s Proposition 8, the Supreme Court ruled that citizens’ groups do not have standing to defend a law passed by referendum or initiative in federal court, should the state decline to do so. By making this reasoning the basis for its decision, the Court has potentially invited grave implications for Colorado and its Taxpayers Bill of Rights.
Currently, TABOR is the subject of a lawsuit arguing that it violates the US Constitution’s provisions that each state have a republican form of government:
The United States shall guarantee to every State in this Union a Republican Form of Government, and shall protect each of them against Invasion; and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened), against domestic Violence.
ARTICLE IV, SECTION 4
The plaintiffs, which include five current Democratic state legislators, argue that, by removing the legislature’s ability to raise taxes without approval by the people, has violated that clause. That case is now in federal court, in front of the 10th Circuit Court of Appeals.
That assertion has been challenged on a number of counts. First, the federal courts have ruled that clause – the “Guarantee Clause” to be non-justiciable, leaving it instead as an issue for the political branches. Second, there is every reason to believe that the founders used the word “republican” to describe even systems of direct democracy.
Currently, with Gov. Hickenlooper named as respondent on behalf of the state, Colorado’s Attorney General, John Suthers, is defending TABOR on behalf of the state.
In the case today regarding Proposition 8, Hollingsworth v. Perry, the State had declined to defend Proposition 8 in court, despite its having been an approved referendum, and being the law of the State of California. The Supreme Court ruled that, in the absence of state defense, private citizens groups cannot do so in its stead. Once the state agrees with the plaintiffs, the court was essentially saying, there is no case.
The implications for Colorado’s TABOR case, and next year’s elections to succeed Suthers as Attorney General, are profound. While any or all of the Republican candidates can be expected to defend TABOR vigorously, the election of a Democrat would open the possibility that the Colorado Department of Law might decline to defend TABOR in federal court.
In the case involving the Defense of Marriage Act, the federal Department of Justice declined to defend DOMA in court, but the US House of Representative hired counsel to do so. If the Democrats were to retain control of both houses of the state legislature, it is highly unlikely that they would act to defend TABOR in this way.
If that were to happen, TABOR might be left without defense, and without any party with standing to conduct a defense. In short, a twenty-year-old state Constitutional Amendment, whose basic provisions have never been overridden on subsequent attempts at repeal or modification, could be killed by default.
For those who are wondering what a 29-year-old with a GED was doing with clearances, I actually know something about this. I had TS/SCI, with various compartments within a specific type of program, before I was 25. None of that was unusual.
I also had a bachelor’s in physics & math, but that was needed for my job. Evidently, for Snowden’s computer work, he had skills in demand. He had whatever tickets they felt he needed to do the computer work he was hired to do. So while this was obviously a failure from a vetting point of view, there’s nothing about his age or his skills that a priori points to a problem.
Senator Wyden (who evidently tried to trap DCI Clapper into revealing the existence of the NSA program in open session) has also made much of the contractor/employee division, implying that contractors are somehow at greater risk for this sort of thing to happen.
This is also overblown. I was always a contractor, once for a company whose primary client was in Langley. There was cultural friction between the “blue badges” (employees) and the “green badges” (contractors), to be sure. There was a difference in pay, and there was also a difference in the type of work they did. The employees did the actual analysis, for the most part, while the contractors did the programming and the support work.
There was never any sense that contractors were inherently less trustworthy or loyal to the country. We had passed the same polygraph tests, after all. But we were clearly outsiders, who hadn’t made the sacrifice of joining the Company, and so were always more temporary.
There is no reason to believe, and nobody at the time believed, that contractors were more likely to be careless with security, or to go trotting off to our primary adversaries, portfolios tucked under our arms.
How bad is the revelation that the NSA is collecting phone call information on pretty much every call in the country?
I’ve had a lot of fun on Facebook making fun of the NSA Phone Records Extraction, Acquisition and all-Knowing (Phreaking) program. In the current context, that sort of dark humor is entirely appropriate for the somewhat casual, breezy atmosphere of social media. A more serious appraisal is required here.
So, here are some of the better discussions I’ve seen in the last few days:
- Powerline: Is the NSA’s Collection of Phone Records a Scandal?
- Lawfare: What Conceivable Statement of Facts Could Have Produced this Order?
- Lawfare: DNI Statement on the Verizon Story
- Volokh: Is Verizon Turning Over Records of Every Domestic Call to the NSA?
- Jonah Goldberg: Time to Dial Up Some Healthy Skepticism
- WSJ: Thank You for Data-Mining
- Taranto: Snoopy, Come Home!
- Foreign Policy: Why the NSA Needs Your Phone Calls
They represent a variety of opinion, and Lawfare in particular is going to have its teeth into this for a while. Keep going back to it and Volokh for serious legal and policy reporting.
I mentioned above that in the current context, dark humor is called for. This administration has demonstrated a truly unique talent for politicizing just about every aspect of a formerly professional civil service. Therein lies the danger of the current context.
As a conservative, and not a liberal or a libertarian, I want the War on Terror, or War on Political Islam, if you prefer, to be pursued as a war, not as criminal investigation. It’s the main reason I want Gitmo to stay open, since we can interrogate enemies there without certain restrictions that they’d have here on US soil. We need to figure out how to make sure that the government has the tools it needs to prosecute that war without being able to turn them on us.
This is tricky work, with plenty of judgment calls, trial and error, and changes of rules as some thing work and others work too well. It’s the hard work of making government work, and having the discussion start with, rather than end with first principles.
Well, what do we have here?
Colroado State Senator Angela Giron (D-Pueblo), facing a recall from voters in her district over her gun control votes in this year’s state legislature, has gotten considerably monetary help from outside sources in her bid to stay in office, the Pueblo Chieftain reports:
Giron, a Pueblo Democrat, is the target of a recall drive by Pueblo-area gun rights supporters and Republicans. Her defense campaign, called Puebloans for Angela, received a $35,000 contribution from the Sixteen Thirty Fund in Washington; a $20,000 contribution from a Denver organization called Citizens for Integrity; and a $15,000 contribution from a Denver group called Mainstream Colorado. (emphasis added – ed.)
The Sixteen Thirty Fund has been organized as a 501(c)4 since Feb. 16 of 2009 (we wonder how long it had to wait for IRS approval), according to its 2009 IRS Form 990, and its mission, as state on Page 2 of that documents is:
Sixteen Thirty Fund operates exclusively for the purpose of promoting social welfare, including, but not limited to, providing public education on and conducting advocacy regarding progressive policies.
The fund operated as a collector and distributor of over $3.3 million for various left-wing causes during 2009, including $52,000 to our very own Progress Now here in Colorado. It won’t come as any surprise that most of those groups, including ones that are clearly political organizations, are also organized as 501(c)4s.
Now, I don’t have any problem with these or any other groups organizing as 501(c)4s, if the law allows that. But it’s telling that Democrats have decided to turn the various IRS hearings into a trial of the tax law, one which they were perfectly happy to take full advantage of as long as the other side didn’t. Having kept Tea Party, conservative, and libertarian groups on the sidelines through two election cycles, they can now afford to be outraged at unfair treatment, and call for a revision of the law.
And of course, there’s this, from Senate President John Morse, fighting his own recall battle:
— John Morse (@SenJohnMorse) June 4, 2013
At least in the minds of American and European diplomats. It’s a bipartisan affliction, but one to which Democrats and Europeans seem especially prone, probably because it’s an excuse to pressure Israel.
Today we can add another pronouncement from another US Secretary of State that it’s time for Israel to repent, as the end is near. John Kerry assured the American Jewish Committee’s Global Forum that, “Well, the difference is that what happens in the coming days will actually dictate what happens in the coming decades. We’re running out of time. We’re running out of possibilities. And let’s be clear: If we do not succeed now – and I know I’m raising those stakes – but if we do not succeed now, we may not get another chance.”
Here’s the list as it stood when I last posted on the Window of Perpetual Closing, back in November of 2010:
- February 26, 1995 – South Florida Sun-Sentinal – “Middle East Peace in Pieces”
- “Many U.S. diplomats say in confidential interviews that the partners for peace had but a short window of opportunity, a window that opened when the PLO and Israelis issued the declaration of principles for peace 18 months ago. Now, U.S. officials fear, that window has closed.”
- October 15, 1998 – Austin American Statesman – “Decks Clear for Mideast Talks”
- The decks literally cleared in southern Israel a few days later, when a bomb injured 64 people
- July 24, 2000 – St. Paul Pioneer Press – “Clinton Rejoins Peace Talks, Pressure High, Time is Short“
- August 14, 2000 – New York Times – “Washington Feels Time is Short for Restarting the Mideast Talks”
- April 5, 2002 – Jerusalem Post – “The Postwar Window of Opportunity”
- December 12, 2003 – New York Times – ‘A Bush Aide Criticized Israel For Not Doing More To Foster Peace”
- “In Rome international donors to the Palestinians said that, because of the installation of a new Palestinian prime minister, a ”window of opportunity” had reopened, permitting the resumption of negotiations with Israel.”
- October 19, 2006 – UN Security Council – “Mideast Peace Envoy Tells Security Council…Urgent to Help Restart Dialogue”
- “ELLEN MARGRETHE LØJ ( Denmark) said the challenge for the parties to the conflict, as well as for the international community, was to ensure that they embarked on a process leading towards lasting peace…. It was now up to the parties to avail themselves of that window of opportunity.”
- March 31, 2007 – Bloomberg – “EU Says Palestinian Government Gives Window for Mid East Peace”
- May 2, 2008 – MonstersAndCritics.com – “Rice Warns Time Is Limited For Achieving Mideast Peace Deal”
- November 16, 2010 – Washington Post – “Israeli officials say time growing short for West Bank peace deal” (I speculated at the time that elements within Israel might be coordinating with the Obama Administration)
For the last few weeks, I’ve been working my way through Henry Clay: The Essential American. Such political biographies are inevitably histories of the times, and Clay’s times basically bridged the America of the early Constitution and the America just before the Civil War.
I may or may not have time for a longer, more thorough post on Clay, but I wanted to throw out a few observations, as Clay spends a few years at Ashland, recovering physically and financially in preparation for one last stint in Washington, after his defeat as the Whig nominee in 1844.
Clay was, by any account, a remarkable and remarkably intense politician. He was quickly elected Speaker of the Kentucky House of Representatives, and then, on his first day in the US House, elected Speaker of the House there. Clay would revolutionize that role, taking the Speakership from a mostly administrative role to a center of political power. When he moved to the Senate, he would wield similar power there as a floor leader, even without the formal role of Majority Leader that we have today.
Because of his long Congressional career, we know Clay today as the Great Compromiser, remembering his roles in the Missouri Compromise of 1820, and the Compromise of 1850, both of which helped stave off disunion over slavery. Those are merely the largest, best-known of his compromises. He led successful compromises over the tariff (despite being a westerner, he favored a high protective tariff), and over a renewed Bank of the United States and internal improvements, the last two thwarted by presidents rather than Congress. These three aspects of his program comprised what he referred to as the American System.
For being almost 200 years old, the politics of the 1830s and 1840s is strikingly modern. Much of this is the result of Andrew Jackson’s populist revolution in American politics, but Clay’s and the Whigs’ response to it also resonates with today’s reader. For instance, in vetoing the recharter of the Bank of the United States, Jackson’s message essentially dodged constitutional questions, and boiled down to the fact that he didn’t much like banks. Clay thought that Jackson’s lack of intellectual coherence in his veto message would cost him politically in the Mid-Atlantic states, where the Bank was popular. He underestimated the populist appeal of Jackson’s message. It wouldn’t be the last time Clay misread the politics vs. the policy of an issue.
Clay also had to deal with the changing nature of presidential campaigning. While personally outgoing and optimistic, and a fine public speaker, he never really enjoyed or thought seemly the public appearances and speeches that marked presidential elections in the 1840s. And in the 1844 campaign, he never could get his fellow Whigs to understand the importance of a centralized party organization. Counting on the popularity of their program and ideas to carry the day, they narrowly lost to James K. Polk, whose Democrats better understood the politics of faction.
The Whigs also might well have won, had they been able to keep the focus on the economy. They had won handily in 1840 on that basis, although Harrison’s death and Tyler’s allegiance to Democrat, rather than Whig, ideas, cost them mightily as the public perceived them as unready to govern. But the party in power often controls the public agenda, and it was to Tyler’s benefit – until he dropped out – to bring Texas, and the inevitable conflict over slavery – to the forefront. It was the 1844 equivalent of running on a supposed “War on Women,” in order to avoid talking about a wretched economic record.
It was also in the 1830s that we start to see the philosophical differences that would define American politics from then on. The Democrats favored a strong executive – first pioneered by Andrew Jackson – while the Whigs really coalesced initially around resistance to what they saw as the usurpation of legislative priority. But it was the Whigs who favored a more nationalist policy, Clay’s American System – a central bank, protective tariffs, and federally-funded internal improvements. So it was possible for Tyler to resist Jackson’s executive power grab by joining the Whigs, and still oppose the Whig federal program.
Clay never would be president, despite being a perennial nominee or mentionee for decades. It’s entirely possible that this was for the best. His time at the State Department under John Quincy Adams was miserable. Clay always supported legislative supremacy, believing that the Constitution put Congress in Article I for a reason, and there’s no reason to doubt his sincerity on this point, or to believe that it was one of convenience. Had he been elected President, he would likely have found crafting legislative compromise more difficult from the other end of Pennsylvania Ave., since he wouldn’t have been in a position to control the process as thoroughly as he did from the floor or the Speaker’s chair. The Presidency has not been kind to those with a legislative, rather than an executive temperament.
Could CFCs, already known to be responsible for the ozone hole, also be responsible for global temperature change, rather than CO2?
That’s the conclusion from a new paper in Modern Physics B, a high-level peer-reviewed journal. The paper found that while the correlation between recent temperature anomalies and CO2 was close to 0 – as in, no correlation whatsoever – the correlation to CFCs was close to 1, almost a perfect fit:
Climate scientists have been hard-put to explain the fact that there’s been no net warming since 1998, despite increases in atmospheric CO2. If this is true, it is extraordinarily good news. CFC usage has been heavily reduced since their effects on the ozone layer were discovered, and are slowly being removed from the atmosphere. The 15-year lull in warming would not, then, be a pause before further warming, but the top of the roller coaster before we headed back down.
But more important, even the publication of the piece pulls the rug out from underneath the climate alarmists, who have been telling us for well over a decade that The Science Is Settled, and that CO2 emissions are responsible for global warming – or, as they now prefer, “climate change.” There has been plenty of reason to doubt these conclusions – historically, CO2 levels have closely led, rather than closely training, global temperatures. Moreover, climate has been changing for millennia, long before the industrial revolution. And recent papers have also cast doubt on the speed with which temperatures have actually been increasing.
CO2 emissions have become something of a totem in current policy debates, inserting themselves into just about every discussion, and they have been responsible for some of the most distortionist of recent economic policies. The people who suffer from these policies most are, of course, the poorest. Globally, the poorest find themselves victimized by added costs for their countries to industrialize and modernize. Locally, Americans find themselves with higher utility costs from green subsidies, higher food costs from diverting massive amounts of corn to ethanol, higher housing costs from mandatory efficiency requirements in building codes, and higher transportation costs from boondoggles like “cash-for-clunkers.” And of course, such policies make jobs scarcer for college grads, and less remunerative for a middle class already finding it hard to save for their futures.
On a grander scale, “greenhouse gas emissions” end up being the justification for wasteful light-rail, high-speed rail, and streetcar projects, and the excuse for diverting ever-more tax dollars into losing efforts to force people out of suburbs an into higher-density city centers. The Supreme Court’s ruling that CO2 is a pollutant has given the EPA carte-blanche to interfere in just about every industrial process in the country. This despite the fact that natural gas use has allowed the US’s CO2 emissions to fall to 1992 levels, even as actual industrial production has risen, without massive government intervention.
As, the climate alarmists have been seeing the debate slip away from them, they have resorted to more anti-science, political hardball tactics. The Climategate I and Climategate II emails laid bare the ruthlessness with which they treated those who questioned their orthodoxy. Recently, it was revealed that the Texas A&M Atmospheric Sciences Department was requiring what amounted to a climate loyalty oath for its faculty – usually not a sign of security that one’s position is supported by the actual science.
Add this paper to the growing body of evidence undermining the need for massive reordering of the global economy in order to stave off a disaster that looks increasingly unlikely.