Congress resoundingly refuses to allocate funds to boondoggle project

One of President Obama’s key infrastructure initiatives is dead in the water, reports Michael Barone in National Review. Despite being allocated $8 billion from the 2009 Stimulus bill and another $2.5 billion from the Democrat-controlled Congress, the President’s $53 billion vision for a nation-wide high speed rail network has flatlined.

The majority-Republican House has declined to furnish this proposal with any further money, while the Democrat-controlled Senate Appropriations Committee voted to allocate it a meager $100 million. As Barone notes, coming from Democrats, this is a blatant vote of no confidence in the high speed rail initiative. Following this rejection, it is nearly impossible to see a revival of the President’s high speed plans in his remaining tenure.  

Allegedly, this sophisticated rail network was going to employ millions of Americans in construction, engineering, and railway jobs, while upgrading transportation access.  State governments, however, never warmed up to this proposition, because the costs vastly outweighed the benefits. Once the initial government subsidies end, states would be left to pay for the mammoth costs of a higher-speed version of the failing Amtrak model.  In fact, none of the lines would actually meet the technical definition of “high speed.”

The textbook example of high speed rail’s failure is the California High Speed Rail Authority’s gross mismanagement of taxpayer funds to build a veritable train to nowhere. Facing an upcoming Congressional  election, Democratic incumbent Jim Costa received a $900 million grant to build a high speed line connecting two barely inhabited communities. This train to nowhere now sits incomplete despite having nearly $5 billion allocated to it.

As this case illustrates, the idea of high-speed rail is a transparent ploy at “progress” by putting America back to work- except that it is wholly unnecessary and any temporary construction jobs will be cancelled out by the extraneous government spending and taxes needed to maintain it. That both parties seemingly recognize this speaks volumes about how utterly this idea is a dead-end one.

Cost-Efficient policies would drive down costs, reform Medicare and Medicaid

While conservatives have vigorously opposed President Obama’s health care law, they have struggled to produce a viable alternative. However, Rep. Paul Ryan (R-WI), who previously released a bold and intelligent budget plan last April, has released a health care proposal this week which would effectively replace ObamaCare and implement more efficient, stronger policies.

As Ramesh Ponnuru notes, two of Ryan’s central ideas have been well received, for good reason. Ryan pushes for Medicaid block grants, whereas ObamaCare gives states half of whatever cost they determine will cover their annual Medicaid expenses, with little regard for how much of this money is unnecessary or extraneous.

Ryan also advocates a transition from Medicare to “premium support”, an idea which he also offered last April. Like block grants for Medicaid, premium support would be far less costly than its alternative under ObamaCare. It would also enable patients to choose their own health care plans, rather being restricted to one plan and having to purchase supplemental care not covered by Medicare.

Also central to Ryan’s proposal is reforming the current relationship between taxes and insurance, which begets inflated costs. Under the current system, employers get larger tax breaks for more expensive employee coverage. Ryan’s idea is that employees receive a credit which they can either use on employer-based coverage or seek coverage elsewhere. The freedom to choose their own plans would increase competition and drive down costs. Ideally, this would also leave employers with more money to increase wages rather than spend on health care outlays.

This scenario is clearly preferable to that which is unfolding as a result of ObamaCare’s provisions: employers unwilling to hire and dropping coverage altogether, furthering the current economic malaise.

Rep. Ryan’s plan is at this point tentative, but it does a vastly superior job of remedying the largest problems underlying health care than does the President’s law. Namely, it reforms the currently-unsustainable Medicare and Medicaid programs, and targets the inflated costs which have distorted the market beyond recognition. These ideas should be heard, and optimally implemented, and not drowned out by partisan rhetoric.

States need to curb liabilities and relieve taxpayers as defined benefit systems head towards insolvency

A new report by Scott Beaulier for the Mercatus Center at George Mason University illustrates the perilous finances of defined benefit public pension plans and their political and economic implications. The report suggests that defined contribution plans would help return pensions to solvency.

Currently, the majority of public pension plans throughout the country are defined benefit plans, which are woefully underfunded. At the end of the 2009 fiscal year, promised pensions to public employees exceeded existing trusts by a shocking $1.26 trillion. This represents a 26 percent increase since 2008, and this estimate is more conservative than many other recent estimates.

The evidence demonstrates that current trends in defined benefit plans are unsustainable. Whereas the ratio of public workers to retirees in 1970 was 5.3 to 1, it is now 4.5 to 1 and is estimated to be 2.1 to 1 in 2050. Unfortunately, politicians have been reluctant to encourage necessary reforms out of political expediency. As a result, state governments have resorted to measures like tax increases and benefit cuts to temporarily close the gap. Still, most are nothing more than pay-as-you-go schemes.

These policies are a recipe for economic stagnation and recession. States suffering from fragile economies face the specter of huge pension shortfalls, and governments want to avoid austerity measures. A transition to the defined contribution system, or a hybrid of it, is a sensible solution.

Defined contribution plans may not be perfect, but they are 100 percent funded. A defined contribution plan, like a 401(k), is one where the individual is guaranteed to receive the amount of his contributions, plus or minus market returns. As Beaulier explains, “a defined contribution system is one no longer supported by taxpayers, but, rather, by the responsible investment choices of individuals.”

Defined contributions also provide the employee with more flexibility in how to invest their money, empowering individual choice over where their pension money goes and protecting against external factors like inflation. As explained within the report, they function much like savings plans, whereas defined benefits offer no control to the individual.

The report points to the success found by Michigan, Georgia, and Utah in transitioning over to defined contribution systems, while also highlighting the dismal state of affairs in Illinois and Kentucky, which have largely resisted any substantial pension reforms. Though the transition incurs unavoidable costs, Beaulier presents compelling evidence that the change will be rewarded with solid economic health and a more sustainable pension system.

Report indicates sharply rising premiums, family plans, and employer plans

Fulfilling the prognostications of opponents of President Obama’s health care law, the cost of employer-based family health care plans has risen by 9 percent over the past year, according to a study by the Kaiser Family Foundation.

Kaiser’s report determines that the average cost of an annual premium for employer-based coverage is now $15,073. This amount is double the average premium in 2001 of $7,061. To make matters worse, while premium costs have risen by 9 percent over the last year, wages have only increased by 2 percent.

The implications for this steep increase are uncertain but alarming. As Kaiser CEO Drew Altman states in the New York Times, “The open question is whether that’s a one-time spike or the start of a period of higher increases.” Regardless, the timing of this increase could hardly be worse, as the economy is fighting stagnancy and high levels of unemployment. The Times also notes that many employers are avoiding hiring new employees because of the high costs of coverage.

While most of ObamaCare’s provisions are not activated until 2014, many are attributing this rise in cost to anticipation on the part of insurers and employers, creating market uncertainty similar to stocks dipping in apprehension of regulations. This uncertainty is crippling in a period which needs price stability urgently.

The argument that expenses will even out once the provisions take effect and the market stabilizes is a tenuous one. As long as expenses clearly outpace wage growth and employers are hesitant to hire, recovery will be suppressed. Moreover, escalating health care costs over the last decade have erased concurrent middle class growth wage growth. The specter of even more pronounced rising costs, as evidenced by Kaiser’s study, may not only keep the economy stagnant, but exacerbate the already fragile situation.

While the new health care law’s provisions have not yet fully taken effect, it is nonetheless already making a hugely detrimental impact on the economy. Increased regulations are leading insurers to raise costs, and in turn, employers are not hiring new workers, keeping American unemployment at historic levels.

Cato Institute, National Review deride blueprint as another tax-and-spend plan

In his speech last Thursday, President Obama enunciated his tentative vision for a soon-to-be-revealed $447 billion job creation bill entitled the American Jobs Act. Most of the proposals fall in line with what one has come to expect from the Obama administration, namely spending paid for with targeted tax hikes on the highest bracket. New Orleans City Business provides a complete rundown of the policies alluded to in the President’s speech.

The tenets of this act have been met, not surprisingly, with ardent resistance by economic conservatives. Alan Reynolds of the Cato Institute equates Obama’s plan to a $447 billion tax hike on high income earners and businesses. Despite Obama’s assertion that these increases are meant to offset the temporary pay roll tax cuts, Reynolds notes that they actually subsidize 54% of the $447 billion price tag.

Reynolds also points to the valid concern that this new $447 billion act, putatively “paid for,” will threaten to exceed the debt ceiling which Congress arduously agreed to raise in July among hysteria of a government default. Reynolds may very well be correct in arguing that the President is dangling politically irresistible elements such as the temporary payroll tax cut and unemployment benefits to deflect attention from the overall tax burden and increased spending.

Likewise, Eric Stiles, on the National Review’s Corner, breaks down just how exactly the American Jobs Act will be paid for, and the unequivocal answer is with taxes. The vast majority of the money ($400 billion) will come from limiting itemized deductions, including charitable giving, on the $200,000 and above income bracket. The remaining money comes from a variety of taxes designed specifically with corporations and the wealthy in mind, notably the elimination of tax breaks for oil and gas companies. The administration rosily projects that “not a dime” will be added to the deficit, but this ridiculous promise is left to Congress to fulfill.

As Stiles and Reynolds explain, this latest proposal is nothing more than a repeat of past failed policies which seek to offset extravagant government spending by penalizing employers and industries. Temporary labor in “infrastructure” construction is no substitute for long-term, secure employment. The misleadingly named American Jobs Act is certain to face an uphill battle in Congress.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be contacted at jbeuerman@pelicaninstitute.org

Landrieu crosses party lines to defend 2006 legislation

Democratic Representatives Ed Markey of Massachusetts and Rush Holt of New Jersey are determined to repeal 2006’s Gulf of Mexico Energy Security Act, authored by Louisiana’s Sen. Mary Landrieu, which would rob Louisiana, Mississippi, Alabama, and Texas of billions of dollars in mineral revenues in the future.

Markey has filed legislation which would repeal Landrieu’s 2006 triumph, which gives Louisiana and the other coastal states 37.5 percent of offshore oil and gas revenues starting in 2017. According to Markey and Holt, this law unfairly benefits a few states, in turn hurting the majority of the nation. If Markey and Holt succeed, coastal states would lose out on approximately $150 billion over the next 60 years, according to Department of the Interior estimates.

Rep. Markey’s description of the revenue stream as “oil-well welfare” overlooks the environmental risk which  Gulf states expose themselves to in order to provide the rest of the nation energy. This was exemplified by the BP oil disaster, which occurred because the federal agency Mineral Management Service abdicated its duty in safe-checking drilling operations.

It would not be cynical to chalk this effort up to a continuation of the liberal assault on a secure energy policy for the country. The Gulf States, Louisiana included, have continually opposed Washington’s efforts to impose a moratorium, followed by a “permitorium,” on Gulf oil drilling. This has incited oil-state Democrats such as Sen. Landrieu to cross party lines and oppose Obama Administration energy policies.

The losses Louisiana would be looking at transcend mere revenues. As noted by Congressman Jeff Landry, these revenues would be going towards badly-needed coastal restoration. Much coastal erosion has been the man-made result of constructing waterways to facilitate exploration which benefits the rest of the country. If Reps. Markey and Holt win, however, these revenues would disappear into the coffers of the federal government.

This debate is a continuation of the stalemate pitting Gulf coastal states against Washington following the oil spill disaster. Once again, an ever-expanding federal government seeks to usurp the remaining independence of states. The irony, as pointed out by Rep. Doc Hastings, is that if the Obama energy policy continued unfettered, there would be far less oil and gas revenues for Washington to claim as its own.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be contacted via email at jbeuerman@pelicaninstitute.org or followed on twitter @jbeuerman.

Increased Internet technology would facilitate economic growth

Last Wednesday at the University of New Orleans, a press event was held to release a study titled “An Assessment of Business Opinion Regarding Expansion of Broadband Access in Louisiana.” The study was coordinated by UNO’s Division of Business and Economic Research and the Internet Innovation Alliance (IIA), an organization promoting broadband access, particularly in areas which are rural and underserved.

The report, not yet available online or to the public, gathered information from hundreds of businesses across the state to assess both the usage and importance of broadband internet access in the economy. Businesses of all sizes were queried to determine how more prevalent broadband access might spur increased economic output and employment.

The results demonstrated the importance of broadband technology in the state business community.  89.9 percent of responding businesses indicated that their business had an online presence, while only 5.5 percent said that they did not have broadband internet. Respondents uniformly agreed that increased broadband access would increase productivity, better and free services for customers, and improve communication, ultimately serving both consumers and the greater economy.

The findings were grouped by major media market. Interestingly, the Baton Rouge area had the highest percentage of businesses without broadband access (8.6 percent) and the lowest anticipated economic growth in the next five years.  Likewise, Baton Rouge also has the lowest anticipated job growth in that same window. One can infer that these statistics are correlated.

New Orleans, meanwhile, is already realizing the benefits of broadband access. New Orleans and Lafayette responded with the highest expected economic growth. In 2006, New Orleans was ranked 49^th in technology employment among major cities nation-wide. Last year, however, New Orleans saw the most growth in information technology in the country. With New Orleans becoming a burgeoning hub for start up businesses and entrepreneurs, increased high speed internet is a must.

Diane Smith, author of TheNewRural.com, emphasizes that rural Louisiana stands to benefit greatly from exposure to broadband. Increased wireless technology will facilitate increased growth in the massive agriculture sector of Louisiana’s economy, as well as allowing rural businesses to better communicate with prospective client bases.

Smith notes that 25% of Americans live in rural areas, which more often than not have not yet been saturated with consistent broadband access or wireless technology. Successful businesses must react quickly and responsively to the needs of consumers, and this can best be done using the most recent and efficient forms of communication.

Despite the notable growth of broadband access and wireless technology in Louisiana, there remains vast untapped potential for this market. Continued access will catalyze future growth and optimally employment in urban areas, but expanding to the sizeable rural populace and industry can further stimulate the economic engine to an enormous degree.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be contacted via email at jbeuerman@pelicaninstitute.org or followed on twitter @jbeuerman.

Government action at odds with drilling safety record

Over a year has passed since the blowout of the Macando well and oil spill that followed in the Gulf of Mexico. As we look back on that tragic event, we first and foremost remember the lives of those eleven men who were lost. Another memory is of course the federal government’s decision to shut down all offshore oil & gas operations in the Gulf region.

The imposition of the deepwater drilling moratorium has done little to increase offshore operational safety procedures, and it has done more to cripple the U.S. oil & gas industry and jeopardize our national security. Now that we are approaching almost a year since the drilling ban was ordered, we should ask ourselves some very important questions. What was the purpose of the moratorium and was it necessary?

Throughout its long history, Louisiana’s offshore industry has maintained an impeccable drilling safety record. Thousands of wells have been drilled in all depths of the Gulf of Mexico without the occurrence of a Macando-like incident. Instead of arbitrarily shutting down all business in the Gulf, could the government have allowed those who were operating safely to continue to do so while it worked towards new safety rules and regulations? Would we not be exactly where we are today without the negative repercussions of the moratorium?

First, as a result of the drilling ban, we are losing approximately 500,000 barrels of oil production per day. Secondly, the U.S. has seen the exodus of ten rigs to other parts of the globe. According to documentation compiled by Senator David Vitter’s office, ten rigs that were scheduled to drill in the Gulf have relocated to Brazil, Nigeria, Egypt, Congo, French Guiana, and Liberia. Along with each rig went over 500 direct and indirect American jobs.

According to its recent July 12th Gulf Permit Index, Greater New Orleans Inc. reports that over the past several months, deepwater drilling permits are down 71 percent from their historical monthly average of 5.8 permits per month. Shallow-water permits have plummeted by 34 percent from the historical monthly average of 7.1 permits.

Earlier this week, IHS-CERA released a report claiming that faster permitting of offshore oil & gas projects in the Gulf could create almost 230,000 new jobs in 2012 alone. The study estimated that the increase in permitting could result in $44 billion injected into the national economy, including a significant increase in federal and state tax revenues.

In a recent op-ed, Senator David Vitter noted, “Restoring these energy jobs and creating capital is not a complex budgetary equation; it’s simple economics. We have abundant resources, and allowing access to them will create jobs and generate revenue.”

So was the drilling moratorium necessary?  No it was not.

The fact is the oil and gas industry would have developed the proper responses and containment systems and would have worked closely with BOEMRE to develop the regulations that are currently in place today. It was industry’s ingenuity and expertise that designed the containment systems and provided the guidelines to prevent a similar catastrophe, not the government. It’s safe to assume that without the moratorium there could potentially be over sixty rigs operating in the Gulf, instead of the thirty-four currently in operation today.

Don Briggs is president of the Louisiana Oil and Gas Association.

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Brookings Institute report advocates more government spending and new bank to prop up industry

A new study issued by the Brookings Institute evaluating the number of “clean jobs” on the local, state,  and national level has determined that New Orleans and Louisiana lag behind in the growth of this industry.

Titled ‘Sizing the Clean Economy: A National and Regional Green Jobs Assessment,’ the report focuses on the development of “clean jobs” on all three regional levels. According to the Brookings Institute, a “clean job” is “any economic activity measured in terms of establishment of jobs that produce goods and services with an environmental benefit. “ This definition is further broken down into categories of renewable energy, energy efficiency, green house gas reduction, agriculture, and education.

According to the results, metropolitan New Orleans ranks 67^th overall with 7,298 clean jobs, while Louisiana ranks 30^th with 28,673. Nationwide, the report found 2.7 million jobs count as “clean jobs.”

Unfortunately, the study falls into the misguided rubric that government largesse is the sole engine for spurring job creation, while ignoring the notable private investment within our area. The recommendations for promoting clean energy growth by Brooking’s Bruce Katz are fallacious. He advocates a clean energy standard, $16 billion in annual clean energy research and development, tax provisions, and a “green bank” to provide financing within the industry.

With government spending in the crosshairs of politicians, it is unreasonable for the federal government to needlessly increase outlays for research which can, and is, financed privately, especially when the stimulus plan allocated an excessive amount for this very purpose. Likewise, various think tanks have repeatedly expounded on the job-killing implications and costs of a broadly imposed energy standard.

The notion of a separate, federally-created bank for green industries is unacceptable to anyone who has witnessed the trajectory of existing government administered banks. Aside from an overreach of government, federally administered entities lack the market discipline and accountability which private industries should have. This echoes the distortion of the housing market under Fannie Mae/Freddie Mac, but sensible Americans have no wish to see another government-subsidized industry implode at massive cost to taxpayers.

What is overlooked are the private efforts to promote clean jobs and energy in New Orleans as reported by the Times-Picayune. New Orleans has recently made strides towards becoming an entrepreneurial hub, which is visible in the collaborative venture between the Greater New Orleans Foundation and the Idea Village to provide a grant towards decontaminating ground water.

These are the initiatives which are necessary to spur job creation and innovation in this industry. The market should determine the legitimacy of these jobs, not an agenda-driven government.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be contacted via email at jbeuerman@pelicaninstitute.org or followed on twitter @jbeuerman.

Lack of accountability in state’s pension plans allows trustees to lose tens of millions of dollars

A recent report from Bloomberg News illustrates how police pensions have rapidly deteriorated in Louisiana. Three trustees of the state’s Municipal Police Employees’ Retirement System (MPERS) took control of the pension plan, made disastrous investments, and frittered away tens of millions of dollars. The report also demonstrates the astonishing lack of oversight and transparency that allowed such reckless expenditure of taxpayer money to continue.

In 1999, three members of MPERS’s board of trustees decided to invest pension funds in an unfinished country club in North Louisiana. They bought the still-under construction property for $6 million dollars, $400,000 more than a hired consulting firm advised. Since this purchase, MPERS has invested $15.3 million to maintain the club, while the club’s appraised value has fallen to $3.2 million.

For the fiscal year ending in June 2001, the MPERS system still had a surplus of $141 million. By 2002, these poor investments decisions turned that into a deficit of $195.2 million. MPERS responded in 2003 by relaxing investment standards to allow for higher risk and potentially greater returns. They also doubled the period for MPERS to pay back its unfunded liability to 30 years.

In 2003, the trustees also hired their Chief Investment Officer as their actuary, built a $3 million headquarters to accommodate their staff of six, and invested over $70 million into hedge funds, which require large initial investments and essentially operate with high-risk techniques. These particular investment aggregations have received criticism for their relative lack of transparency and regulatory oversight compared to mutual funds.

Ultimately, the trustees spent $73.4 million on properties which are now worth only $11.7 million.

MPERS gambled with public money, and lost. If this were a private company, these disastrous mistakes would surely result in bankruptcy. This outrage demands reforms that don’t leave the taxpayers with the bill for the shortsighted decisions of a select few.

Having taxpayers increase contributions to help cover pension benefits, losses, and expenses is not a tenable solution. Doing so would only further punish taxpayers, who already pay 56 percent of state police pensions, while doing nothing to increase accountability.

Meanwhile, the state has relatively simple options at its disposal that would raise accountability and transparency in the pension process, namely, raising individual contributions to 10 percent from 7.5 percent. This is the preferred option, rather than making taxpayers dole out more money.

Furthermore, it would be beneficial to reconstitute the board of trustees to include mandatory legislative oversight. In the past, as the story notes, the board nominally included two “honorary ”members from the state legislature. However, neither of these representatives went to a single board meeting over the last decade. Including representatives from the Legislature or state departments would help ensure accountability over these publicly held pensions.

MPERS operates with the public’s money, which it ought to use responsibly and efficiently. Only the implementation of legislative reforms to increase oversight and decrease taxpayers’ burden will allow this goal to be accomplished.

Jamison Beuerman is a contributing writer and policy analyst at the Pelican Institute for Public Policy. He can be reached via email at jbeuerman@pelicaninstitute.org or on Twitter @jbeuerman.