The ‘What the Heck’s Really Going on Book’

By Steve Brawner
© 2016 by Steve Brawner Communications, Inc.

Rep. Doug House, R-North Little Rock, metaphorically calls it the “What the Heck’s Really Going on Book,” and the thing about that book is that pages are handed out only one at a time, and not necessarily in order. A while back, another page was torn out and handed to him.

“I was ready on the Personnel Subcommittee to start cutting (state) employees,” he said. “And the staff pulled me off to the side, and they said, ‘Mr. Representative, you can do what you want to. That’s what your job is, but understand something: If you do not have more employees coming in, that’s how we fund the public employee retirement system. You stop that inflow of new employees and payments they make, you bankrupt that system.’”

So state government’s labor force won’t be cut much because current and new government employees’ retirement contributions help pay for retired government employees’ benefits. That’s what the heck’s really going on.

Here’s what else is really going on: That “balanced budget” that the state produces every year through a mechanism called the Revenue Stabilization Act – it’s not really balanced.

House has spent the past year-and-a-half researching what the state really owes. It hasn’t been easy to find out – not because things are purposely hidden, but because the debts are strewn out in different places. It’s like my desk: You can find things, but you have to look. Those debts include $1.7 billion in bonds for things like highways and the Big River Steel project, $2 billion in higher education revenue bonds, capital leases and notes payable, and $2.2 billion for “other employee benefits” – mostly liability for health insurance and also for post-employee benefits, such as unused vacation time.

Public schools owed $4.1 billion as of June 30, 2015. As with colleges and universities, the debts are technically the responsibility of the entities, not the state. But if they can’t pay, the state’s taxpayers surely would be expected to pick up the tab, House said.

Meanwhile, the state’s six retirement systems – public employees, teachers, state highway employees, etc. – had $5.95 billion more in liabilities than assets as of June 30, 2015. That would be a problem in itself, but House said the systems assume 8 percent annual growth in their assets. Maybe that’s doable in good times, but it’s now been seven years since the Great Recession ended, and eventually another will come around.

Add it all together, and the state appears to have about $16.75 billion in debts and liabilities (my math, not his). That’s $5,600 for every Arkansan – hardly the $61,000 that is every American’s share of the $19.8 trillion national debt, but it’s money owed nonetheless. While each Legislature goes through the exercise of ensuring a balanced budget under the Revenue Stabilization Act, these other instruments – bonds, pension plans, etc. – are a huge loophole.

“Congress has a balanced budget,” he said. “They spend whatever they want to, and then they go borrow the money to cover their checks … and we’re doing essentially the same thing.”

The news is not all bad. House said interest rates are low, the state’s bankers have treated it fairly, and pension plan managers are very good at what they do. Moreover, much of the state’s debt has produced valuable assets – schools, roads, educated students.

What now? House wants the state to pay off all its bonded debt within 10 years. Also, he would replace lifetime defined benefits with defined contribution pension plans where the state contributes to beneficiaries’ accounts while they’re working. Most private companies and the federal government have already made this switch.

House would like to see the state go from being a debtor to a creditor. Instead of borrowing money that it then loans to a local utility to build a wastewater plant, for example, it could lend the money and keep the interest for the general fund.

So according to the “What the Heck’s Really Going on Book,” the state is in debt, though not nearly as deeply as the federal government is. The good news is that when those pages are torn out, they can be rewritten and replaced.

The challenge is that the Legislature contains 135 authors, and state government has a lot of editors.

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