Crosstown E-Battle of Ideas Takes Stage in Providence

Ocean State Current joins Breitbart, Heritage, and Franklin in “Future Of Journalism Summit”

Click here to see national news stories about what people are saying about the Summit …

The Ocean State Current, the news wing of the Rhode Island Center for Freedom and Prosperity, will participate with the Heritage Foundation and the Franklin Center for Government & Public Integrity at this weekend’s events, which will include a tribute to the monumental journalistic achievements of Andrew Breitbart at the “Breitbart Awards Dinner” on Friday, June 8, at 7:00 p.m. The dinner is the main event of the “Future of Journalism Summit” – establishing a center-right beachhead north of the State House, opposite the left-wing Netroots Nation summit to its south – on Friday and Saturday.

Andrew Breitbart pioneered a new media revolution that transformed journalism and the political landscape. As his tragic passing is mourned, many seek to ensure that his legacy is honored and that the movement he spawned continues with the army of citizen activists that he cultivated and inspired to carry the torch for freedom and truth.

The spirit of that movement is represented locally by the RI Center for Freedom & Prosperity, which worked with the Franklin Center in the development of the Ocean State Current, its online news bureau. CEO Mike Stenhouse says, “In terms of both inspiration and practical example, the trail that Andrew Breitbart and these organizations have blazed – to uncover the truth and to provide greater government transparency – has been a guide as we’ve made our own way, here in the Ocean State.”

“Interacting with other journalists in the Franklin network around the country these past few months has been very encouraging,” says the Current’s managing editor, Justin Katz. “It’s easy to feel like the Netroots crowd controls the conversation in this state, so it’s great to have some friends from the other side mingling in the shadow of the Independent Man,” he says, referring to the statue on top of the State House dome.

The first annual Breitbart Awards Dinner will honor three individuals from the realms of 1) professional journalism; 2) blogging; and 3) citizen activism-whose efforts advance the spirit of Andrew Breitbart’s work, which was driven by an indomitable pursuit for truth and accountability that advances those causes on behalf of the public good.

The winners of the 2012 Breitbart Awards:

Professional Journalism: Phillip Klein, The Washington Examiner Blogger: Ace of Spades, Ace of Spades HQ Citizen: Andrew Marcus

Breitbart Awards Dinner Details:

Keynote Addresses by John Fund and Sonnie Johnson, Breitbart Award winners

Breitbart Awards Dinner

Friday, June 8th at 7:00 p.m. EST

Providence Marriott Downtown-1 Orms Street, Providence, Rhode Island

The Franklin Center for Government & Public Integrity supports transparency, accountability, and fiscal responsibility. It trains reporters, produces investigative news content, and holds government officials accountable.

The Heritage Foundation is the nation’s most broadly supported public policy research institute. Its mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

Schilling’s Rookie Mistake

Oped by Mike Stenhouse published by the Providence Journal on June 3, 2012

See the ABC-6 interview on this OpEd here …

When All-Star, world champion and potential Hall Of Fame pitcher Curt Schilling stepped from the dugout into the corporate board room, and then into the public-policy arena, he did what most of us did when we first put on our uniforms: He made a rookie mistake.

With the job security of his employees and the investment value of his stakeholders in play, Schilling also took on the public trust of Rhode Islanders when he accepted a $75 million state loan guarantee for funding for his new company, 38 Studios.

While it is now good sport to openly deride Schilling as a hypocrite — or worse — I have a different take on where I think that he may stand to gain a valuable life lesson.

At many points along their athletic journey, most athletes learn the hard way that they must forgo certain activities to be successful in achieving their professional-sports ambitions. At each step along the way, more and more of our energy must be dedicated to our sport if we are to continue to achieve at a higher and higher echelon. This means that such activities as partying, skiing, off-season leisure and hobbies must be curtailed or eliminated to maintain a high level of physical conditioning and emotional focus.

As a rookie in the Major Leagues, I tried to have it all initially: the uniform, on-field success, the night life and the offseason leisure. This formula does not work for most, and it certainly didn’t work for me.

Having experience myself in professional baseball and in the dot-com world as an executive with a $50 million start-up venture, I understand what it takes to succeed. And now, with my experience in public policy, I understand the responsibilities of public officials and publicly financed organizations to taxpayers, it strikes me that Schilling may, likewise, have lost focus and spread himself too thin.

Over the past year, when I saw Schilling regularly at the ESPN studios as a baseball analyst, I kept wondering to myself how he was maintaining focus on growing his company and if he was truly committed to its success. Whether his ESPN gig had anything to do with the problems that 38 Studios now faces we’ll probably never know.

However, when Curt Schilling accepted the loan guarantee by Rhode Island’s taxpayers, he truly stepped into the big leagues. I’m not sure that he understood the commitment required to maintain the public trust. Putting everything that we have into starting a business is the type of entrepreneurship that Americans admire, even if the venture fails. But taking things for granted, especially when that includes acceptance of taxpayers’ hard-earned money, is entirely different.

I disagree with all of those who paint Curt Schilling as some kind of evil or dishonest person. I simply think that he made a rookie mistake and I don’t think he’ll make it again. In the same way that Curt Schilling worked hard to achieve success as a pitcher, I expect that he will re-dedicate himself to making 38 Studios a successful enterprise.

Mike Stenhouse is a former Major League baseball player, a former executive with Myteam.com and now chief executive of the Rhode Island Center for Freedom & Prosperity, a conservative think tank.

©2012, Published by The Providence Journal Co.

NY Times Echos Pension Task Force Warnings

The article below reinforces the concept that our Center’s pension task force has been saying for many months … that state and municipal entities are dramatically understating the true scope of their unfunded pension liabilities.

FROM THE NEW YORK TIMES, May 27, 2012

Public Pensions Faulted for Bets on Rosy Returns

By MARY WILLIAMS WALSH and DANNY HAKIM

Few investors are more bullish these days than public pension funds.

While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”

Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.

In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.

But to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”

Public retirement systems from Alaska to Maine are running into the same dilemma as they struggle to lower their assumed rates of return in light of very low interest rates and unpredictable stock prices.

They are facing opposition from public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.

In addition to lowering the projected rate of return, Mr. North has also recommended that the New York City trustees acknowledge that city workers are living longer and reporting more disabilities — changes that would cost the city an additional $2.8 billion in pension contributions this year. Mr. North has called for the city to soften the blow to the budget by pushing much of the increased pension cost into the future, by spreading the increased liability out over 22 years.

Ailing pension systems have been among the factors that have recently driven struggling cities into Chapter 9 bankruptcy. Such bankruptcies are rare, but economists warn that more are likely in the coming years. Faulty assumptions can mask problems, and municipal pension funds are often so big that if they run into a crisis their home cities cannot afford to bail them out.

The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long term, according to the Center for Retirement Research at Boston College. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years, according to the National Association of State Retirement Administrators. (New York State announced last week that it had earned 5.96 percent last year, compared with the 7.5 percent it had projected.)

Worse, many economists say, is that states and cities have special accounting rules that have been criticized for greatly understating pension costs. Governments do not just use their investment assumptions to project future asset growth. They also use them to measure what they will owe retirees in the future in today’s dollars, something companies have not been permitted to do since 1993.

As a result, companies now use an average interest rate of 4.8 percent to calculate their pension costs in today’s dollars, according to Milliman, an actuarial firm.

In New York City, the proposed 7 percent rate faces resistance from union trustees who sit on the funds’ boards. The trustees have the power to make the change; their decision must also be approved by the State Legislature.

“The continued risk here is that even 7 is too high,” said Edmund J. McMahon, a senior fellow at the Empire Center for New York State Policy, a research group for fiscal issues.

And Jeremy Gold, an actuary and economist who has been an outspoken critic of public pension disclosures, said, “If you’re using 7 percent in a 3 percent world, then you’re still continuing to borrow from the pension fund.”

The city’s union leaders disagree. Harry Nespoli, the chairman of the Municipal Labor Committee, the umbrella group for the city’s public employee unions, said that lowering the rate to 7 percent was unnecessary.

“They don’t have to turn around and lower it a whole point,” he said.

When asked if his union was more bullish on the markets than the city’s actuary, Mr. Nespoli said, “All we can do is what the actuary is doing. He’s guessing. We’re guessing.”

Vermont has lowered its rate by 2 percentage points, but for only one year. The state recently adopted an unusual new approach calling for a sharp initial reduction in its investment assumptions, followed by gradual yearly increases. Vermont has also required public workers to pay more into the pension system.

Union leaders see hidden agendas behind the rising calls for lower pension assumptions. When Rhode Island’s state treasurer, Gina M. Raimondo, persuaded her state’s pension board to lower its rate to 7.5 percent last year, from 8.25 percent, the president of a firemen’s union accused her of “cooking the books.”

Lowering the rate to 7.5 percent meant Rhode Island’s taxpayers would have to contribute an additional $300 million to the fund in the first year, and more after that. Lawmakers were convinced that the state could not afford that, and instead reduced public pension benefits, including the yearly cost-of-living adjustments that retirees now receive. State officials expect the unions to sue over the benefits cuts.

When the mayor of San Jose, Calif., Chuck Reed, warned that the city’s reliance on 7.5 percent returns was too risky, three public employees’ unions filed a complaint against him and the city with the Securities and Exchange Commission. They told the regulators that San Jose had not included such warnings in its bond prospectus, and asked the regulators to look into whether the omission amounted to securities fraud. A spokesman for the mayor said the complaint was without merit.

In Sacramento this year, Alan Milligan, the actuary for the California Public Employees’ Retirement System, or Calpers, recommended that the trustees lower their assumption to 7.25 percent from 7.75 percent. Last year, the trustees rejected Mr. Milligan’s previous proposal, to lower the rate to 7.5 percent.

This time, one trustee, Dan Dunmoyer, asked the actuary if he had calculated the probability that the pension fund could even hit those targets.

Yes, Mr. Milligan said: There was a 50-50 chance of getting 7.5 percent returns, on average, over the next two decades. The odds of hitting a 7.25 percent target were a little better, he added, 54 to 46.

Mr. Dunmoyer, who represents the insurance industry on the board, sounded shocked. “To me, as a fiduciary, you want to have more than a 50 percent chance of success.”

If Calpers kept setting high targets and missing them, “the impact on the counties won’t be bigger numbers,” he said. “It will be bankruptcy.”

In the end, a majority decided it was worth the risk, and voted against Mr. Dunmoyer, lowering the rate to 7.5 percent.

Center for Freedom Calls for End to Corporate Welfare in RI

38 Studios–Type Cronyism Is Not Capitalism

Introduction

Put simply, crony capitalism is the transfer of public money to businesses and organizations through the peddling of influence. Cronyism gives free markets a bad name, since it can be difficult to determine whether true competition exists or the game has been rigged.

A more appropriate term might be “venture socialism” or the more familiar “corporate welfare.” Whatever its name, the concept involves a less efficient economy — making us all poorer and reducing economic opportunity for our citizens.

Download a PDF of the Policy Brief here.

Unfortunately, cronyism has defenders on both sides of the political aisle because its proponents are on the receiving end of the short-term benefits.  Politicians reward their “friends” with all kinds of publicly provided treasures, from subsidies to exemptions from regulations to loopholes in the tax code. In 2008, we witnessed hundreds of billions of dollars spent on the bailout of major Wall Street firms. A more-recent example of a half-billion dollar investment gone bad has given a name to politically correct green industry schemes: Solyndra.

Given its insulated political culture, Rhode Island is certainly not exempt from cronyist deals and boondoggles. Beginning in the 1990s, corporate giants CVS Caremark and Fidelity Investments have received a bevy of tax breaks and subsidies to build or expand national or regional headquarters.

During the last decade, debates raged about the $300-million-plus ratepayer-funded Deepwater Wind project, a Twin River casino bailout, and the $75 million loan guarantee to Curt Schilling’s 38 Studios. In the past week, Schilling’s video game company has offered a uniquely clear example of the risk that targeted public investments will never produce a positive return on investment for taxpayers.

Taxpayer or ratepayer dollars should not be randomly put at risk to finance politically connected corporate interests. It’s time to replace corporate welfare programs with a broad-based growth program.  It’s time to end the handouts and create a pro-job, pro-business structural environment for economic growth in Rhode Island.

Policy Recommendations

As just one step in reducing the size and scope of government in the Ocean State, the RI Center for Freedom & Prosperity recommends that the State of Rhode Island:

  1. End the practice of corporate welfare in the General Assembly
  2.  Defund the Economic Development Corp. (EDC), preventing it from spending or putting at risk any taxpayer dollars

One of the great mistakes to which policymakers often fall victim is judging public policy programs by their intent rather than their results. Such an approach minimizes the consideration that serious unintended consequences ought to carry in subsequent policy decisions.

Rhode Island should roll back many of its so-called economic development incentive programs, whether in the form of subsidies on the expenditures side of the ledger or loopholes on the tax side.  Any economic development program that cannot be objectively shown to create jobs that generate more in-state revenue than they cost should be repealed.

The savings from the ended programs should be used to enact across-the-board improvements of state competitiveness by reducing the Rhode Island’s stratospheric tax rates to more-competitive figures. For instance, Rhode Island’s corporate income tax rate and sales tax rate are the highest in New England, putting the state at a serious economic disadvantage.

Furthermore, ending the practice of cronyism will reduce the special interest and corporate lobbying that pervades Smith Hill and will send a message that taxpayer dollars can no longer be traded for political support and campaign contributions.

Background/Overview

A key critique of market capitalism often revolves around the undue relationship between powerful corporations and the government, resulting in policies, legislation, and regulations that appear to benefit the well-connected at the expense of the public.  This critique — though often labeled an inherent failure of capitalism — is a function of an outsized government.

The relationship is intuitive: A government with more power over the economy creates more opportunities and greater rewards for lobbying. In turn, influence over an entity with the power to regulate, tax, and police brings access to competitive weapons not available in a free market.

Indeed, the lion’s share of blame for the current economic crisis can be laid at the feet of connected business interests’ feeding on the fruits of the public commons while pushing the risk onto the public.  National examples are most prominent in our minds.

When the housing bubble popped in 2008, Washington-connected Wall Street firms won taxpayer bailouts and bonus checks while the working Americans who paid the bill received pink slips and empty promises. And by most measures, those same firms are now more profitable than ever; industry data shows that President Barack Obama’s first two and a half years in office have been more profitable for Wall Street than George W. Bush’s entire eight years in office.

This is not simply a crisis of bad banks run amok, but an unsettling symptom of cronyism. Cronyism, by its very definition, implies a situation in which the system (i.e., the government and the institutions it establishes), rather than the choices of consumers, picks the winners and losers.

While Rhode Island’s economic climate is demonstrably bad for business (Rhode Island ranks 45th in the Fraser Institute’s Economic Freedom of North America 2011 index), a number of tax credits, incentive packages, and corporate welfare programs benefit a few chosen firms while the rest are forced to languish within a suffocating structural environment.

Targeted incentives are sometimes viewed as legitimate instruments for economic development, but a genuine program for broader growth would allow the state to close many of these loopholes in favor of broader reforms that ease the economic burden across the board.

The Research

Every day, taxpayer money is being funneled to organizations and enterprises that someone in government has decided are worthy of patronage, whether they need it or not.  Worse, this kind of cronyism is not merely limited to a series of one-off deals, but is systematized on every level in the form of grants, tax credits, sweetheart loans, loan guarantees, and other preferential treatment.

According to GoodJobsFirst.org, a left-leaning economic development accountability resource, Rhode Island taxpayers paid out almost $50 million in related costs for fiscal year 2010, including:

  • Corporate income tax rate reduction for job creation
  • Enterprise zone tax credits
  • Job training tax credit
  • Manufacturing and high-performance manufacturing investment tax credit
  • Motion picture production tax credit

Worse, disclosure and reporting on these programs are well below what anyone would expect in return for $50 million.  In a series of transparency benchmarks measuring program outcomes, data availability, and accessibility, the average Rhode Island program produced a woeful score of only 36 out of a possible 100 points.

These are only a few of the higher-priced programs.  At present, a startling number of programs are on the books to divert taxpayer money to targeted businesses and industries, accounting for tens of millions in additional handouts with little or no objective standards or accountability. Some of the others include:

  • Distressed Areas Economic Revitalization Act and Enterprise Zone Program
  • Jobs Development Act
  • Rhode Island Public Rail Corporation
  • Child Day Care Facilities in Industrial Parks Grant Program
  • Jobs Training Tax Credit Act
  • Urban Infrastructure Commission
  • Mill Building and Economic Revitalization Program and Tax Credits
  • Jobs Growth Act
  • Petroleum stockpiling program
  • Small Business Advocacy Council
  • and many, many more.

While each carries a plausible justification and positive intended outcome (who could be against child care?), they are all simply variations on the crony-capitalism theme.

Discussion

John Stossel, the libertarian journalist of 20/20 fame and program host on Fox Business News, penned a provocative and compelling piece for Reason magazine in March 2004 titled “Confessions of a Welfare Queen.” Rather than documenting now-familiar stories of individual welfare abuse, as the allusion to Ronald Reagan’s famous “welfare queen” quip suggests, Stossel turned his sights on the multilayered fabric of lavish subsidies for the rich and cronyism.

From bizarre payouts to beachfront homeowners to abuses of eminent domain to unfair subsidies for agro-corporations, Stossel explains how these programs are not examples of market failure, but simply the symptoms of the increasing investiture of power into government, especially over ever-greater swaths of the economy.

Americans who decry cronyism as a betrayal of the social contract are correct: The iron triangle linking lobbyist-rich companies and organizations, campaign contributions, and government policy is a burden on our economy and a drag on our democracy. Too often missed, however, is that regulatory solutions just hand over new car keys and more drinkable money to the hooligans who repeatedly steer the economy into a ditch.

The only solution that can work is to limit the government’s ability to mismanage taxpayer funds; that means cutting back on the size, scope, and domain of government. The most vocal opponents of ending cronyism are, predictably, those who benefit most from the system. They, along with well-meaning but misguided allies, will generally contend that targeted systems of tax breaks and incentive programs are useful for directing policy mechanisms toward specific, concerted ends and that Rhode Island needs these incentive programs to be nationally competitive.

Two fallacious premises support these arguments: first, that public policy instruments are the best available means of achieving common ends and, second, that a labyrinth of programs is a suitable way to attract and develop economic activity. These fallacies, in tandem with the frenetic and sound-bite oriented nature of contemporary media, contribute to the idea that most problems have public sector solutions. This is particularly common in the realm of economics, precisely the area over which a market capitalist system would give the government the least control.

Again and again purported plans for “economic development” have been used to justify programs and incentives that ultimately do little to boost economic growth.  But because spending and special-project support create the illusion of forward movement, beneficiaries can brand the efforts as “doing something.”  What corporate welfare actually does, however, is to tip the scales toward the already rich at the direct expense of the poor and middle class.

Ultimately, government remains wedded to the language and practice of inputs — what it gives and does — because it has very little competence generating or measuring outcomes.  Advocates tend to point to inputs as measures of success — the dollars spent, the teachers hired, the police stations built. Then they trumpet or downplay economic trends, educational accomplishment, and as suits their needs.

Tax breaks and incentives may seem like positives from the input side, but their non-anecdotal outcomes show them to be generally a waste of money.

Conclusion

It’s hard to argue against economic development.  Who doesn’t want the economy to “develop”? But the sad truth is that sending public money to politically-connected organizations, interest groups, and companies on the basis of poorly measured and ill-defined goals is more of a handout than a strategy.  If Rhode Island is serious about promoting economic growth, this kind of piecemeal approach should be seen as expensive and insufficient.

Instead of using targeted tax breaks, incentive grants, and other wizards’ tools to trade away taxpayer funds, Rhode Island should focus on creating a growth-oriented structural environment.  That means replacing isolated pockets of preferential treatment with an across-the-board slate of policies to support growth:

  • Reduced tax rates
  • A more nimble and versatile education system to produce a highly trained workforce
  • Eliminated regulations, streamlined when they are absolutely necessary

Any economic development program that cannot be objectively shown to create jobs and generate more in-state revenue than they cost should be repealed. The savings should be allocated to more general improvements, especially lowering taxes.

Rhode Island’s corporate tax rate remains the highest in New England and is tied for third highest in the country, after Washington, D.C. and Illinois.

Rank in New England

Corporate Tax Rate (%)

Rhode Island

1

9.0

Maine

2

3.5–8.93

New Hampshire

3

8.5

Vermont

4

6.5–8.5

Massachusetts

5

8.25

Connecticut

6

7.5

 

Another area in which Rhode Island is uncompetitive is its state sales tax, which is the highest in the region and tied for second in the country. A study to be released shortly by the RI Center for Freedom & Prosperity will demonstrate that eliminating the sales tax would have the highest “bang for buck” of any reform, creating tens of thousands of jobs and paying for over half of its cost with the increased tax receipts of a larger economy.

Rank in New England

State Sales Tax Rate (%)

Rhode Island

1

7

Connecticut

2

6.35

Massachusetts

3

6.25

Vermont

4

6

Maine

5

5

New Hampshire

6

0

 

These are just a few of the low-threshold starting points for reform. If Rhode Island seeks to distinguish itself as a pro-growth state, it should depart from crony capitalism and unleash the true capitalistic forces in the state.  Fortunately, much of the government cost of the necessary policy changes can be borne by elimination of the special deals and crony-capitalism style programs that infest our state with false promises of a better tomorrow.

To the population more broadly — to the people of Rhode Island — there will be no cost, but rather the benefits of a thriving economy.

The Ocean State Current to Hire Investigative Reporter

The Ocean State Current, an online news bureau and a division of the non-partisan think thank – the Rhode Island Center for Freedom of Prosperity – announced today that it plans to hire an investigative reporter to complement its existing online content. The Current is actively conducting a search and is now accepting applications.

The full-time position will be tasked with developing and publishing investigative and human interest news stories having to do with public policy and should have a demonstrable related background.

 “We are pleased to be able to expand our journalism operation to include a dedicated journalist who will track down stories that may be of interest to Rhode Islanders”, said Mike Stenhouse, CEO, for the RI Center for Freedom.

The Ocean State Current, which can be viewed at www.OceanStateCurrent.com, is presently managed by Justin Katz, Managing Editor, who had previously founded AnchorRising.com. Interested journalists are asked to send their resume and an introductory letter to Mr. Katz at jkatz@oceanstatecurrent.com.

Would you tax Big Papi off the Red Sox?

Would you tax Big Papi right off the Red Sox?

Quick Links: Ernst & Young report – taxing the rich will cost jobs

Those who support the onerous tax structure that has ruined our state’s economy have wheeled out a new poll that shows public support of increased taxes on the rich … out of fairness, of course. Our Center has already shown how this tax increase would cost even more jobs for RI and further hamper our already struggling economy.  So let’s try another angle …

Imagine the Red Sox as a last place team having already lost many of its superstars to free-agency. Now imagine that the Red Sox decide to levy a tax on its superstar players like David Ortiz (Big Papi). After all, it’s not fair that Ortiz should get all those at-bats where he can hit home runs, RBIs, and otherwise produce results for the team. No, instead, Big Papi should give 9.9% of his at-bats to players on the bench, who don’t get to play as much. That would only be fair, right?

But consider if it would help or hurt the Red Sox if one of their top producers didn’t get as many at-bats, and instead, those at-bats went to a lower producing teammate? How would Red Sox Nation feel about that?

Then imagine it’s the end of the year, and Ortiz is a free-agent. Is he more likely to re-sign with the Red Sox, who will tax his at-bats by almost 10%, or might he decide to sign with the Yankees who will not tax him at all? Would the Red Sox, with their “at-bats tax”, be able to attract other free-agents to replace him? Again, how would this help the Red Sox?

The same questions can be asked about our state’s “rich”: How is it good for Rhode Island if we limit the capacity of our top producers to invest in our economy? How is it good for us if we make it less attractive for our top businesses and individuals to remain in or move to our state?

Just like the Red Sox, Rhode Island should embrace and encourage our best performers, not give them reason to reduce productivity …  or even leave outright.

In sports, teams actually give bonuses to incentivize performance. In Rhode Island, those who defend the status quo want to to do the opposite. Imagine yourself as a “fan” of Rhode Island … how would you choose to treat our own Big Papis?

The Whole Truth

Open Letter to RI Municipalities: Tell us the Truth!

ALL CITIZENS ARE ENCOURAGED TO CONTACT THEIR LOCAL OFFICIALS

Quick Links: See the OPEN LETTER below, Automated Online Contact Form , Locally-Administered Municipal Pension Plans Evaluations, About the National Pension Task Force

April 19, 2012. Providence, RI – An “open letter” to Rhode Island municipal officials was released today by the national Task Force organized by the Rhode Island Center for Freedom and Prosperity to provide research and analysis on Rhode Island’s underfunded municipal retirement systems. The open letter is in response to the evaluations of locally administered pension plans recently submitted by each city and town.

The letter requests that City officials utilize the same realistic assumptions used in the private sector, when evaluating the true scope of their pension and OPEB liabilities and assets.

“It is obvious that our city’s are using un-realistic methods to determine the true scope of the problem”, said Mike Stenhouse, CEO for the RI Center for Freedom & Prosperity. “We urge every Rhode Islander to contact their city officials and demand that accurate accounting figures be put forward. How can a problem be solved if we don’t accurately quantify the problem?”

“We all remember the public outrage when Enron and other corporations were exposed for conducting fraudulent accounting practices … and rightly so. But why should we be any less concerned about accounting malpractice when it comes to our public pensions”, asked Rich Danker, member of the task force and project director for economics at American Principles Project, which is hosting the online form to contact municipal officials.

Citizens are asked to contact in their city and town officials in one of two ways:

1) Copy and paste the open letter below into a personalized email or letter to your own selected officials

2) Contact multiiple officials in multiple municipalities with a version of the same letter by utilizing an automated online contact form

OPEN LETTER

Dear Mayor / City Official,

“Truth in Numbers” was a key theme for the historic pension reforms that were implemented last fall in Rhode Island, and, as a concerned citizen, I am requesting that the same level of transparency be implemented when it comes to dealing with the pension and other post employment benefit (OPEB) problems facing our city. All public officials and citizens need to be made aware of the full extent of the liability as well as the true condition of our public finances in order to be able to make informed decisions about proposed solutions.

We all remember the public outrage when Enron and other corporations were exposed for conducting fraudulent accounting practices … and rightly so. But why should we be any less concerned about accounting malpractice when it comes to our public pensions?

We are all in this together. How our city handles this significant problem will impact each and every resident: from retirees, to municipal employees, to property and vehicle owners, to business owners, to students and to all those who receive city services.

In order to instill honesty in public finances the city should publish the data associated with its retirement system that is comparable to what is demanded of the private sector. This means:

1) The city’s pension liabilities must be valued according to a discount rate that matches the true market value of the debt. Even if this means conducting a second valuation of the liability based on this more realistic rate assumption.

2) An open accounting of the city’s OPEB liabilities

3) The city’s pension assets must be valued on a true market basis

4) The projected total benefit contributions expected to be borne by taxpayers for the next ten years must be based on these more realistic figures

We know the horror stories of how public pension debt may have been dramatically undervalued by state and municipal governments, by as much as a factor of three-to-one. The assets that are meant to support this debt are also not always reported according to market values. Therefore, taxpayers are in the dark about what they owe in terms of pension payouts to government workers and retirees. This impedes an honest discussion about spending and taxes that needs to take place for cities like ours to achieve good fiscal health.

We are asking you to enhance your relationship with your constituents and fulfill your fiduciary responsibility to us, the taxpayers, by promptly disclosing the true scope of the pension data requested above. We deserve nothing short of full “truth in numbers” when dealing with this critical matter of public finance.

Thank you for your service to our community,

National Popular Vote – Right or Wrong for Rhode Island and America?

 
April 4, 2012:

National Popular Vote

Imagine the likely scenario thatRhode Islandvoters will overwhelmingly support the re-election of President Obama, Democrat, this November by the same 63%-35% margin as they did in 2008. Then imagine the possible scenario thatRhode Island’s (4) “Electoral Votes” would instead be assigned to the President’s Republican opponent! In future Presidential elections the reverse scenario could also occur.

Outrageous? Yes, but possible if the National Popular Vote (NPV) initiative is passed inRhode Islandand in a number of other states. This potential sham would clearly not represent the constitutionally guaranteed voice ofRhode Islandvoters.

This Policy Brief summarizes some of the key shortcomings of the NPV compact as well as to list more extensive research and analysis on this subject. Most of the following material was reproduced from a Policy Memorandum previously published by the Center for Competitive Politics[1].

The National Popular Vote (NPV) proposal would represent a fundamental shift in how our nation elects the President. While many well-intentioned individuals and organizations support this cause and compelling arguments can be made in its favor, the NPV plan ultimately represents a scheme that creates more problems than it purports to solve and would largely fail to achieve the outcomes desired by its proponents.

In addition to the scenario presented above, there are six major reasons why the NPV initiative should be of major concern for citizens and policymakers:

 1)     The Electoral College is a critical part of our constitutional checks and balances

 2)     The NPV proposal would remove any connection between a state’s voters and its electoral vote

 3)     The NPV compact would cause chaos if a state attempts to withdraw

 4)     Differing election standards make the NPV plan impractical and confusing

 5)     The National Popular Vote plan would not achieve its main goal

 6)     The National Popular Vote plan may be unconstitutional

The Electoral College is a critical part of our constitutional checks and balances

 The NPV plan would jettison a nearly 220-year-old system for electing our nation’s President. In doing so, it would reject one of the many carefully-crafted checks on majority rule designed by the Founding Fathers to safeguard minority rights. The Electoral College ensures that in order to be elected President, a candidate must appeal to not only a majority or even  plurality of voters, but also to voters from a geographical cross-section of the country. This system requires that candidates for the highest office in the land are not able to simply rely on highly energized, sympathetic, and homogenous voters concentrated in only a few densely-populated parts of the country.

 Instead, candidates must be able to appeal to multiple constituencies, building broad coalitions based on policies that address the needs and interests of Americans across the country. The plan would eliminate the need for candidates to build these coalitions in support of their candidacies, allowing them instead to focus on issues that appeal to and motivate their partisan base. The requirement that candidates appeal to voters across the country and not just in a handful of populous areas is an important check on the power of a narrowly-focused majority to trample the rights of the minority. The NPV scheme would eliminate this important check.

 The NPV proposal would remove any connection between a state’s voters and its electoral vote

 Another important deficiency with the plan is that is severs the intrinsic link between a state’s citizens and a state’s electoral votes. Instead of each state’s electoral votes being determined based on the interests of its citizens, a state’s electoral votes are allocated based on criteria having little, if anything, to do with the interests and preferences of its own citizens.

 Advocates of the NPV plan claim that states have not always relied on citizens’ votes to allocate their electoral votes. For example, early in American history several states gave the power to appoint electors directly to the state legislature. However, even then, the electors were appointed by official that were accountable to the state’s voters, and presumably were required to heed the interests and preferences of their citizens. The NPV compact breaks this vital connection, allowing for a state’s electoral votes to be awarded based on criteria wholly unrelated to the interests and preferences of the state’s citizens.

 For example, if the state legislature can award electoral votes based on election results outside of its jurisdiction, could the legislature also simply delegate the power to appoint electors to a special commission? Could they establish a system of choosing electors that sought to “correct” or “balance out” perceived inequities in the demographics of who votes and who does not? Could they substitute for the recorded totals of nationwide votes an estimate based on how the vote would have turned out if only other states had run “fair” elections?

 By cutting the link between a state’s voters and a state’s electoral votes, the NPV plan would open a Pandora’s Box of possibilities for alternate methods of awarding electoral votes.

 The NPV compact would cause chaos if a state attempts to withdraw

 Abandoning the Electoral College as it presently operated would also create significant opportunities for political gamesmanship as states may seek to obtain partisan advantage for one party or another by entering or leaving the compact (or threatening to do so), if it seems advantageous at any given moment.

 For example, a state legislature may conclude late in the election cycle that a candidate overwhelmingly favored by its voters is unlikely to win a majority or plurality nationwide, but might win the Presidency if the state were to revert to the traditional Electoral College. As state legislators are only accountable to their own voters, and not any sort of national majority, they may conclude it is in their best interest to abandon the NPV plan.

 The temptation to withdraw from the compact under such a scenario would be irresistible to some. One need only recall the partisan maneuvering regarding a Massachusetts U.S. Senate seat in 2004, when a legislature controlled by Democrats stripped a Republican governor of the power to appoint a replacement in the event that John Kerry won the presidency, and again in 2009 when the Democratic legislature restored the power to appoint a replacement to a Democratic governor when it appeared doing so would provide the U.S. Senate with a timely 60th vote for health care reform.

 Because the authority to determine how a state’s electors are appointed is given exclusively to the state legislature, it may well be that a state cannot delegate that power to a body not under its jurisdiction, i.e. the other 49 states. It is thus uncertain whether a state could legally withdraw from the compact even though NPV supporters claim that states cannot. Nevertheless, simply the attempt to do so would spur nationwide outrage and chaos, leading to court battles reminiscent of Bush v. Gore in the 2000 election.

 Differing election standards make the NPV plan impractical and confusing

Concerns over ballot fraud, controversial election management practices, and different recount processes would also create the potential for chaos and conflict. Under the present system, a specific instance of ballot fraud can only impact the state in which it occurs. Thus, only in a handful of states, where the vote is likely to be very close, can election fraud affect the outcome. While still undesirable, the damage is contained to a single state.

 However, under this plan, a fraudulently-cast ballot in any state doesn’t simply affect how that one state awards its electoral votes; it affects how a majority of electoral votes are cast. Thus, a fraudulently-cast ballot in Texas or New York, or rather thousands or even tens of thousands of fraudulently-cast ballots in these or other states, would help to determine how 270 Electoral College votes will be cast; not simply the electoral votes of the state in which the fraud occurred.

Similarly, each state has different sets of election laws, determining who may vote and what process they must follow. Practices such as expunging felons from voter rolls, same-day voter registration, voter identification, and countless other procedures differ from state to state, creating significant problems because not all voters will be treated the same way nationally.

 ConsiderUtahandWyoming, states which have dramatically different policies on voting by felons.Utahbars currently incarcerated felons from voting, but that ban is lifted once they are released.Wyoming, however, permanently bars felons from voting even after release.

 Under the Electoral College system, both states select their electors based on the election rules and standards they have chosen – in Utah, to include citizens with felony convictions in their past and in Wyoming to prohibit such citizens from participating.

But under the NPV plan, both states risk having their electoral votes allocated through processes that they have otherwise rejected:Utahmight see their electoral votes determined without the votes of citizens they believe should be allowed to vote, whileWyomingmight see their electoral votes cast based on the votes of released felons, in contrast to their laws.

 This example and countless others demonstrate how each state has determined, through 50 separate political processes responsive to each states’ citizens, who can and cannot vote and under what circumstances. The NPV compact would instead force states to allocate their electors based on an election process that is contrary to the wishes of that state’s residents.

It’s also important to note that the prospect of a recount would create confusion and outrage in the case of a close election. States have different standards and requirements for triggering recounts and it is not at all clear whether recounts would be held in all 50 states in the event of a close national vote, or only in those states in which the vote was close. If only “close” states go through a recount, voters in other states are not treated equally, and if the recount is nationwide, the nation will endure a crisis equivalent to fifty Florida 2000 recounts.

What if no state recount was automatically triggered because of close statewide vote, but the national vote was exceptionally close?

In addition, standards for recounts vary from state to state, and what is counted as a vote in one state may be disqualified in another. This sparked considerable controversy inFloridaduring the 2000 recount, when standards varied by county. The NPV plan would magnify the confusion and controversy over how to determine valid and invalid votes in a nationwide recount.

The National Popular Vote plan would not achieve its main goal

Finally, the belief of NPV advocates that abandoning the Electoral College will ensure candidates reach out to and address the concerns of more voters is simply not accurate.

 All elections require candidates to make strategic decisions about which voters to reach out to, in what manner, and how often. Because resources are scarce, especially candidates’ time, a presidential campaign under the NPV system would simply require candidates to allocate their scarce resources differently, perhaps choosing to ignore different voters than they do now but inevitably choosing to devote few if any resources to broad swaths of the public.

 In fact, the NPV plan is likely to increase candidates’ time spent on addressing the needs and issues of “base” voters while decreasing outreach to undecided and independent voters. Rather than appealing to a broad cross-section of voters in different states around the country, it would be in a candidate’s self-interest to appeal primarily to well-organized constituencies with large and motivated national memberships.

Candidates are also likely to spend more time in urban and suburban areas, where potential votes are far more plentiful. Whereas, under the current system, doing a Presidential campaign event in smaller, rural communities might make sense in order to garner enough votes to win a specific state’s electoral votes, under the NPV system, there is little reason for candidates to venture outside of densely-populated areas.

 NPV May Be Unconstitutional[ii]

Supporters of the NPV claim that because the Constitution gives state legislatures the power to determine how electors are chosen, the NPV is constitutional and requires no approval by Congress. Such claims, however, are specious. The NPV is unconstitutional because it would give a group of states with a majority of electoral votes “the power to overturn the explicit decision of the Framers against direct election. Since that power does not conform to the constitutional means of changing the original decisions of the framers, NPV could not be a legitimate innovation.”[iii]

 The Constitution’s Compact Clause provides that “No State shall, without the Consent of Congress…enter into any Agreement or Compact with another State.”[iv] The Founders created the Compact Clause because they feared that compacting states would threaten the supremacy of the federal government in matters of foreign affairs and relations among the states.[v] If states could make agreements among themselves, they could damage the nation’s federalist structure. Populist states, for example, cannot agree to have theirU.S. Senators vote to seat only one Senator from a less populous state.

The very purpose of this clause was to prevent a handful of states from combining to overturn an essential part of the constitutional design. The plain text makes it clear that all such state compacts must be approved by Congress.

By circumventing the checks and balances of Congress, the NPV would risk setting a precedent that states can validate non–congressionally approved compacts as a substitute for a constitutional amendment.

 Further Reading:

 A Critique of the National Popular Vote Plan for Electing the President, John Samples, Cato Institute, October 2008, available at: http://www.cato.org/pubs/pas/pa-622.pdf.

 Enlightened Democracy: the Case for the Electoral College, Tara Ross, Colonial Press, September 2005.

 The Importance of the Electoral College, Dr. George Grant, Vision Forum Ministries, August 2004.

 Securing Democracy: Why We Have an Electoral College, Professor Gary L. Gregg, Intercollegiate Studies Institute, January 2008.


[iii]  Bradley A. Smith, Vanity of Vanities: National Popular Vote and the Electoral College, 7 Election L.J. 3, 217 (2008); Samples, supra note 13, at 9

[iv] U.S. Const. amend. XII; 3 U.S.C. §§ 1–21. Congress meets in joint session to count the electoral votes in January. If no candidate wins a majority of the electoral votes, the House selects the President and the Senate selects the Vice President, with each state delegation in the House having only one vote; art. I, § 10, cl. 3

[v]  The Heritage Guide to the Constitution 178 (Edwin Meese III et al. eds., 2005).

Center for Freedom presents at RI Hospitality Board Meeting

Mike Stenhouse, CEO for the RI Center for Freedom & Prosperity, presented the findings from the Center’s Policy Brief on the Governor’s proposed “sales tax hike” to the Board of Directors of the RI Hospitality Association this morning. Also discussed was the upcoming “Eliminate the Sales Tax” report that the Center hopes to release before the end of April.

The presentation was well-received by the 25 or so Board members on hand. Following Stenhouse’s presentation and a brief Q & A session, the two organizations agreed to seek to work more closely together on issues of common interest.

The Board presentation was requested following Stenhouse’s popular speech at the Anti-Meals Tax Rally held in March., which was organized by the RI Hospitality Association. See the entire speech, photos, and a post-event interview on the Dan Yorke show … by clicking here.

Special thanks to Executive Director, Dale Venturini, and Chairman, Ken Cusson, for inviting our Center to make its presentation.

Task Force OpEd in ProJo: All RI Communities in Deep Trouble

by MIKE STENHOUSE and RICK DANKER

Rhode Island has become ground zero for the public-employee pension crisis owing to the size of the unfunded pension liabilities the state and its cities face along with the sad story of the Central Falls bankruptcy.

But, unlike other states stuck in similar situations, the Ocean State has been proactive in making solid reforms to reduce this debt load. This month, Governor Chafee introduced a municipal pension reform plan that will enable localities to make cuts similar to what the state made with its reform late last year.

The centerpiece of the governor’s proposal is legislation to let the state’s independent pension plans suspend annual cost-of-living adjustments (COLAs). Eileen Norcross, senior research fellow with the Mercatus Center at George Mason University, and a member of the Rhode Island Center for Freedom and Prosperity’s national pension task force, finds that a 1 percent reduction in the COLA reduces the overall pension plan liability by 10 percent.

The magnitude of this cost savings is clear in the data on the task force’s transparency website, RIOpenGov.org? , which shows the difference in a 3 percent COLA and no COLA on projected future pension payouts to the top-earning retirees to be around $1.5 million. Cranston, for one, would cut its total projected future pension costs associated with its 421 public police and fire retirees from $579 million to $410 million with this change.

To qualify for the COLA suspension — which the state already enacted with its own reform legislation — local pension plans must be in a “critical status” of a funded level below 60 percent. As the governor’s plan notes, the most recent average reported funded level for the plans is just 40 percent.

But this reporting doesn’t tell the whole story of local pension debt. When these liabilities are calculated using private-sector valuation rather than assumed investment returns, the picture gets even worse.

Norcross and her Mercatus Center colleague Benjamin VanMetre in November 2011 calculated the average funded level to be 29 percent using Treasury bond yields. The unfunded liabilities belonging to the 36 Rhode Island cities with their own pension plans was therefore $6 billion rather than the reported $2.4 billion.

Utilizing private-sector valuation, every locality in Rhode Island would be funded below 60 percent, according to this same Mercatus report. We question, then, why there should even be a “critical status” test in the legislation.

This truth about local pension debt means that many of these municipalities will ultimately need to do more than suspend COLAs. They will need to consider adjusting benefit formulas, capping pension payments, or offering buyouts to pare down this debt. The alternative is to let the burden remain on taxpayers, either in the form of higher taxes, cuts in public services, or both. Those are particularly bad options in Rhode Island, where emigration to other states and towns is just a short trip away.

Governor Chafee should be commended for acting decisively on the public-pension crisis and introducing a plan to give the municipalities a head start on reform. It is now up to the legislature to quickly pass this into law. But the hard work will remain for those cities and towns deemed to be in “critical status.”

They should now calculate and disclosure their pension debt using market valuation so their citizens know full extent of the unfunded liabilities. Then they should come up with reform plans that use every legal option available to spare those citizens from having to prop up uncontrollable pension plans. Rhode Island will benefit when the state’s enablement of the COLA suspension is combined with the opportunity for its fiscally-distressed cities and town to design their own reform plans.

When adding the often-overlooked burden of other post employment benefits (OPEB), the public retirement crisis — decades in the making as benefits outstripped contributions through government overpromising — is the state and local finance issue of our time. It threatens foundations crucial to making government work, such as truthfulness about finances and fairness in allocating public services and benefits. When they get the state’s go-ahead to start reducing their pension obligations, Rhode Island’s cities and towns will have no excuse not to take it on.

Mike Stenhouse is CEO of the conservative Rhode Island Center for Freedom and Prosperity. Rich Danker is director of economics at American Principles in Action, a conservative Washington policy organization. Bot individuals are part of the RI Center for Freedom’s national task force on Pension Reform in the Ocean State.

Click here for image of the actual ProJo OpEd page …