COMMENTARY: The Manhattan Institute is a right-wing think tank that is part of the State Policy Network (New Mexico’s Rio Grande Foundation is part of that network as well). The funders and leaders of the Manhattan Institute include corporate titans and Wall Street billionaires, and as one might expect, they have an unhidden anti-public service, anti-government, anti-worker agenda.
That’s not to say that everything they publish is false, or even misleading. But when they do publish demonstrably false information, their funders, leaders, and supporters certainly help explain it. The State Policy Network’s most recent — and egregious — set of falsehoods comes in a paper written by Daniel DiSalvo, a “senior fellow” at the Manhattan Institute.
His paper, called “The Limits of Retrenchment,” makes allegations both broad and specific that are demonstrably false. I’m not in a position to fact check his analysis of each and every state. But I am very much in a position to fact check his claims about New Mexico’s reforms and to give a first-hand account of the roles of politicians in both parties and advocates in pension solvency reform in our state.
How New Mexico saved retirement
Senate Bill 27 from the 2013 legislative session is the primary reform bill for the Public Employee Retirement Association (“PERA”). Senate Bill 27 was developed over a five-year period largely by the PERA Board, AFSCME, and legislators in both chambers and in both parties. It was sponsored by moderate — some might say conservative — Democratic Senator George Muñoz. It was strongly supported by AFSCME, who represents more members in PERA than anyone else.
Largely due to the recessions at the beginning and end of the last decade, PERA faced about $6 billion in unfunded liabilities, and was on a trajectory to become totally bankrupt in the next 50 years. The fund’s 30-year projected funded ratio (assets divided by liabilities) skyrocketed from 29 percent to 109 percent in the first year of the reform.
The reform was ultimately passed by legislators in both chambers by an overwhelming bipartisan, bicameral total vote of 86-21 (including unanimously by Senate Republicans and nearly unanimously by House Democrats). Support crossed all ideological lines.
Senate Bill 27 was even signed by Republican Governor Susana Martinez — who very few people would call an ally of either public employees or public sector unions (she’s proposed pay freezes or cuts for almost all state and university employees in each of her five budgets, including the last three when New Mexico has had solid surpluses, and is an advocate of anti-worker initiatives like the ironically and deceptively named “right to work”).
But she and legislators in both parties did the fiscally responsible and morally courageous thing by ensuring the long-term solvency of a retirement plan that tens of thousands of New Mexicans rely on every year.
Just the facts
The Manhattan Institute’s factual allegations against New Mexico are the easiest to dismiss. DiSalvo lists 10 areas of reform and tracks which have been implemented by states during the 2010-2013 period. One of the factors doesn’t apply to New Mexico, but of the other nine, DiSalvo gets only two right and is factually incorrect on the other seven.
DiSalvo correctly notes that employees stepped up and increased contribution rates — putting in almost four times what employers put in in the reform (which he doesn’t say, but I will). He also correctly points out that New Mexico did not move toward a 401k system. Every other fact, though, he gets completely wrong.
First, DiSalvo claims that New Mexico did not decrease our COLA (cost-of-living adjustments). That’s totally false. Senate Bill 27 reduced COLAs from 3.0 percent to 2.5 percent for lower-income retirees and from 3 percent to 2 percent for others.
This was tough medicine to swallow, but AFSCME, the PERA Board, and legislators in both parties looked at the numbers and believed it was absolutely necessary to move PERA towards greater solvency and to protect the fund for decades to come without gutting the benefits already promised to retirees and workers.
Second, he claims nothing was done in New Mexico with respect to deferred retirement options (“DROP” plans). While New Mexico doesn’t call our double dipping a “deferred retirement option,” it is effectively the same thing. For those interested in the technical points, a DROP plan allows you to double dip but you get the “retirement” part of your double-dip money in a lump sum payment when you actually, finally leave employment.
New Mexico’s double dipping lets you get paid your full “retirement” simultaneously with your full salary as you continue to work, but it all ends up being the same whether an employer uses a DROP plan or allows double dipping.
New Mexico eliminated PERA double dipping in 2010 (on a bipartisan, bicameral vote of 101-9), although, unfortunately, there is a move to reinstate it as a way for some cities and counties to avoid fiscal responsibility by raiding the pension fund to supplement pay. Eliminating double dipping was a major boost to the long-term health of PERA, it was passed with overwhelming bipartisan support, and AFSCME was the major advocate for the reform.
DiSalvo’s failure to recognize New Mexico’s elimination of what is effectively a DROP plan is more than a factual oversight. It also is a shining example of how unions have supported — and often led the way on — legislation that helps the long-term solvency of retirement plans.
But that runs against the Manhattan Institute’s entire black-and-white caricature that unions are greedy and irresponsible, so DiSalvo would never be allowed to include it in his analysis — even if he had bothered with the basic research needed to find it.
As to the other five issues, for workers hired after our pension reform, New Mexico also reduced the multiplier (the amount you get for each year of service), increased age of retirement and/or years of service, increased vesting requirements, and limited “spiking” by increasing nearly doubling the number of years used for final average salary calculations.
Just in case DiSalvo secretly meant his analysis to apply only to New Mexico’s other major retirement plan (the Educational Retirement Board, or ERB) most of the changes made to PERA were also made in ERB, also with the strong support of unions like AFSCME, AFT, and NEA.
In an attempt to provide a sheen of respectability to the study, DiSalvo cites the bipartisan, policy-wonkish National Conference of State Legislatures as the source for its data. But NCSL’s own publications on pensions directly contradict much, if not most, of DiSalvo’s 50-state chart.
I called NCSL when I saw that incorrect data were attributed to them. Their pension expert, Luke Martel, told me that they were indeed well aware of the numerous pension changes made in New Mexico, and for some time have been including several pages about New Mexico in one of their national studies that they’ve presented all over the country. He was kind enough to send a link, which is available for anyone with a computer to see here.
There’s simply no excuse for such a total lack of research and so many factual mistakes by DiSalvo — and it’s especially bad to mis-cite other organizations as he does here. Even if DiSalvo weren’t willing or able to do his own original research by looking at New Mexico’s free, easily accessible legislative website, he could have, at a minimum, read NCSL’s report. (The linked version was produced in April 2014 — 17 months before DiSalvo’s paper. Other publications, including NMPolitics.net, the Santa Fe New Mexican, the Las Cruces Sun-News, the Albuquerque Journal, and the right-wing New Mexico Watchdog all covered New Mexico’s pension reform extensively.)
How does a ‘study’ go so wrong?
There is no excuse for such shoddy, false reporting — unless the Manhattan Institute and their funders’ real goal is to eliminate good retirement security for hundreds of thousands of New Mexicans and millions of Americans. Why would they want that?
Maybe this is a good time to note that the Manhattan Institute’s chairman of the board (and a funder of the Manhattan Institute) is Wall Street financial services billionaire Paul Singer. No one would benefit more from eliminating safe retirement plans like PERA and ERB than Wall Street barons like Singer, because the alternative to PERA and ERB is converting to a system that allows Wall Street to take hundreds of billions of additional dollars in fees and commissions.
The New Jersey model
The “study” cites New Jersey as a model for pension reform, yet New Jersey has done far worse than New Mexico’s bipartisan reform. The most recent data show that New Jersey’s state pension fund dropped from a 48.1 percent funded ratio on June 30, 2013 to 43.8 percent funded ratio on June 30, 2014 (from pages 19-20 of the Sixtieth Annual Report of the Actuary of the Public Employees Retirement System of New Jersey).
By contrast, New Mexico’s funded ratio continues to go up — from 74.2 percent on June 30, 2013 to 75.8 percent on June 30, 2014.
New Jersey had been underfunding its pension for years, skipping out on legally required payments. Gov. Chris Christie convinced the legislature to adopt a series of dramatic reforms by promising that the state would finally start to pay its share.
Workers were required to make major sacrifices to save their pensions, but Gov. Christie has continued New Jersey’s long tradition of failing to meet the employer’s financial obligations. Over the last 5 years, New Jersey has put in a paltry 14.03 percent of its statutorily required contributions. As a result, New Jersey’s promised “reform” has become a sham, with terrible funding that is trending in the wrong direction.
It’s nice to know that New Mexico has done something really well while far richer states haven’t been able to come up with (or at least abide by) a solution that is good for workers, retirees, and taxpayers.
Missing the big picture
The entire premise of the Manhattan Institute “study” is that politics, and unions in particular, are the cause of pension-solvency problems.DiSalvo’s solution is for more politicians like Gov. Christie to step up and eliminate guaranteed retirement security for seniors.
But here’s what’s really going on in states like New Mexico and New Jersey: Workers and their unions have stepped up to save their own retirements, and far-right ideologues like Gov. Christie are the ones who have jeopardized their own state’s financial position, credit rating, and pension solvency.
It’s hard to trust the Manhattan Institute’s analysis of the other 48 states when they got so many things so provably wrong in their analysis of New Jersey and New Mexico.
Let’s give credit to New Mexican politicians in both parties and to some New Mexico unions for caring about our seniors’ retirements and for putting sound solutions ahead of ideological posturing.
That strong bipartisan coalition has continued its vigilance of the funds by fighting off fiscally irresponsible and unpopular schemes like double dipping. Even the Manhattan Institute’s New Mexico sister organization, the Rio Grande Foundation, which doesn’t much like defined benefit plans in general, has taken the fiscally responsible position of arguing that our reforms shouldn’t be repealed or weakened (including arguing against double dipping).
Maybe, just maybe, an East Coast “academic” like DiSalvo can learn something from New Mexico instead of trying to force failed New Jersey schemes on us.