Although politicians who challenge party orthodoxy are
often putting their careers at risk, several Republican and Democratic
governors are doing just that on health care and pension issues.
During the protracted battle waged by Republicans against President Obama's
health care law, the Affordable Care Act (ACA), Michigan Gov. Rick Snyder broke
ranks and accepted the legislation as the law of the land even before the
Supreme Court upheld its constitutionality. His realism earned Snyder the label
of "RINO" - Republican In Name Only - among GOP true believers, while
his conservative positions on other issues still alienate Democrats. Snyder is
presently running an uphill campaign for re-election in 2014 with an approval
rating of only 37 percent.
Now, it is Gov. Rick Scott of Florida, an even stauncher conservative, who is
under fire from hard-core GOP partisans for reversing course and accepting a
key feature of the ACA: expansion of Medicaid, the federal-state program that
provides health care for the poor and disabled, to cover persons up to 138
percent above the poverty line (See Governors in the issue). Other Republican
governors including Jan Brewer of Arizona, Chris Christie of New Jersey and
John Kasich of Ohio also agreed to do this, but Scott's decision was the first
crack in a solid Southern bloc of GOP governors opposed to expansion.
The Florida governor points out that he would receive something in return from
the Obama administration: a federal waiver allowing Florida to use a
managed-care approach to Medicaid long advocated by Scott, a former health care
executive. But this hasn't quieted Scott's critics or pacified the
Republican-controlled state legislature, which has rejected Medicaid expansion
in committees of both chambers. Opposition to Obamacare, as Republicans
uniformly call the law, has been a touchstone of GOP orthodoxy since the law
was approved in 2010 on party lines.
Democrats are as dogmatic in their support of public employee unions as
Republicans are in opposing federally mandated health insurance. Unions are big
Democratic contributors, and Democratic legislators have shown their
appreciation by resisting right-to-work laws-passed over their opposition in
Michigan and Indiana - and dragging their feet on public pension reform.
But state and municipal governments can no longer ignore their pension-related
obligations. Unfunded pension liabilities, meaning the gap between promised
retirement benefits for public employees and funding for these benefits, amount
to $1.4 trillion, according to a 2012 report by the Pew Center on the States.
Some estimates are considerably higher.
Illinois and California are often considered the poster children for unfunded pension
liabilities, although at least a dozen other states are also in serious
trouble. Both California and Illinois have Democratic governors who have
favored pension reform, and both have legislatures with Democratic
super-majorities that have resisted meaningful changes.
In California last year Gov. Jerry Brown (D) offered a far-reaching proposal
for pension reform that pleased Republican legislators but was greeted coolly
by the Democratic majority. But Brown persevered, as he often does, and eventually
obtained a modest version of his proposal. Emulating past California governors
- his father, Pat Brown, and Ronald Reagan come to mind - he then celebrated a
half-a-loaf victory as if it were an entire bakery.
In Illinois, Gov. Pat Quinn (D) has little to celebrate. Five state pension
funds are in the red by $97 billion - $21,000 for each household in the state,
which now spends nearly 20 percent of its general funds to make the annual
pension payments. But apart from a recent minor reform that will save at most
$1 billion a year, the Legislature has buried its head in the sand on pension
issues and rebuffed Quinn's pleas for major changes.
"It's time for you to legislate," Quinn said in a budget message to
the Legislature earlier this month in which he pointed out that Illinois would
soon be spending as much for pension liabilities as it does for education.
"What are you waiting for?"
The Legislature, backed by the unions, was unmoved, knowing that Quinn lacks
political clout. In part that reflects a generally low opinion of Illinois
voters for the office of governor. Although Quinn's administration has been
scandal-free, four of seven previous governors were convicted of various
Quinn has an approval rating of only 25 percent and faces a steep uphill battle
for re-election next year. But Quinn is right about his state's pension plight.
On Monday (March 11), the federal Securities and Exchange Commission accused
the state of fraud for falsely claiming that it had been properly funding public
employee retirement funds. The SEC pointed in particular to the period from
2005 to 2009, before Quinn was governor.
Politically speaking, it's a different situation in California, where the
74-year-old Brown, who served two terms as governor in the 1970s, has a 57
percent approval rating and is a solid favorite to be re-elected if he runs in
2014. But neither Brown's popularity nor the modest pension fix he extracted
from the Legislature, have led California out of the pension-liability woods. In
fact, the Golden State has the highest teacher pension liabilities in the
nation, according to a report issued in February that was funded by the Bill
Gates Foundation and the Joyce Foundation. This report, "No One Benefits:
How Teacher Pension Benefits are Failing Both Teachers and Taxpayers,"
puts California's unfunded teacher pension liabilities at $57 billion, with
Illinois second at $43 billion and Ohio third at $40.7 billion.
Nor is it just teacher pensions that are out of balance in California. Moody's
Investors Services has proposed new evaluation standards, beginning in 2014,
for pension liabilities that would in a stroke raise California's unfunded
liabilities for state and local pensions from $128.3 billion to $328.6 billion.
At the higher level, pension liability per household in California would be
The huge discrepancy between the two standards demonstrates how difficult it is
to put a precise price tag on unfunded pension liabilities. The amount of
liability depends upon many factors but most of all on the rate of return a
pension fund receives from its investments. The California Public Employee's
Retirement System (CalPERS), the biggest U.S. public pension fund, estimates a
7.5 percent return. The new standard proposed by Moody's would reduce the
projected return to 5.5 percent.
CalPERS reported in January that it posted a return of more than 13 percent in
2012, a year of strong investment gains. But the fund fell short of even the
5.5 percent figure during several years of the recent fiscal recession. Luke
Martel, a pension expert with the non-partisan National Conference of State
Legislators, said many state public pension funds project returns similar to
CalPERS. A study by the Center for Retirement Research at Boston College issued
March 11 said that these earning projections are overly optimistic.
No one has an unclouded crystal ball when it comes to future earnings, but The
Economist issued a warning last week that should put most states on edge:
"American pension funds should be aware that, with bond yields low and
equity valuations high, future investment returns are likely to be low."
Try and tell that to the Illinois Legislature.
Meanwhile, governors who depart from the party line, with the notable exception
of Jerry Brown, are struggling politically. Snyder in Michigan and Quinn in
Illinois both trail potential challengers next year in trial-heat polls.
In Florida, Scott also has low approval ratings, but his apostasy on Medicaid
expansion has proved a stepping-stone to more moderate positions on education
and the environment, dismaying conservatives and puzzling liberals in the
process. "Medicaid expansion, Obamacare, teacher bonuses - who is this
guy?" State Senate Democratic leader Chris Smith asked on Twitter.
Perhaps it's something in the water in the governor's mansion in Tallahassee. A
previous Republican governor, Charlie Crist, moved left after he was elected
and was soundly defeated in the GOP primary by Marco Rubio when he ran for the
U.S. Senate in 2010. Crist, now a Democrat, said recently he is thinking about
running for governor again. But if Scott continues on his present centrist
course, he may have to overcome a conservative challenger in the Republican
primary before he faces any Democrat.
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