Cincinnati pension fix is band-aid, not real reform

By Patrick Foley.

In 2014, Cincinnati Mayor John Cranley worked with city officials and workers to arrive at a “historic agreement” to avert a crisis and stabilize their pension system. The deal was finalized in early 2015 and took effect in January of this year. Both sides had to make sacrifices to come to an agreement, but officials optimistically project that, if everything goes as planned, the pension system could be fully funded in only 10 years.

Cincinnati Mayor John Cranley

However, things don’t always go as planned.  Another recession or a drop in city tax revenues could cause things to go south again in a hurry. For example, the Milliman Public Pension Funding Study for 2015 found that while public pension funding status increased from 70.7% to 75% last year, several years of strong market returns are beginning to tail off, and funded ratios will begin to decline again.

The study also points out, as The Buckeye Institute did in 2013, that pension sponsors continue to assume unrealistic investment returns, which results in actual funding ratios being overestimated. Therefore, there is reason to believe that the supposed groundbreaking agreement is little more than a band-aid solution.  With any sort of market downturn the already optimistic investment returns will be woefully inadequate to fund the city’s pension system.

Under the Cincinnati deal, the city will increase contributions to the pension system, including $38 million this year, and then 16.25% of payroll (up from 14%) for each of the next 30 years, or around $26 million per year. The deal will also move $200 million into pension from the more stable retiree health care system. Employees and retirees have agreed to a 3-year freeze on cost of living adjustments to their pensions, after which the COLA increases will be fixed at 3% simple interest per year.

This agreement may help stem the tide of unfunded pensions temporarily, but marginal improvements to an outdated system aren’t going to create a pension system with lasting stability.

The Buckeye Institute has already argued extensively that the solution is to shift from a defined benefit pension plan to one with defined contributions similar to private sector retirement plans.  Other states are already beginning to shift towards defined contribution or hybrid plans, saving taxpayer dollars while continuing to provide government employees with comfortable retirements.

Cincinnati’s efforts only temporarily address the pension problem; the issue isn’t going away at a local or statewide level. Ohio lawmakers can keep applying small reform band-aids, or they can be proactive and fix the system once and for all.

Patrick Foley, a senior at Ohio Dominican University, is Policy and Communications Intern at The Buckeye Institute.

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The Top 5 Most Ridiculous Budget Requests to Ohio legislators this year

The Ohio legislature is considering a new capital appropriations budget. Local groups from all over Ohio have submitted requests to get state money for their pet projects.

For nearly every one, the legislature should say N-O.

The Buckeye Institute ranks these the “Top 5 Most Ridiculous Budget Requests.” Privately funded, these may be great projects. But this is not how state tax money should be used.

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Thanks to intern Patrick Foley, a senior at Ohio Dominican University, for the research that made this list possible. 

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The Buckeye Institute: Rock and Roll Hall of Fame budget request named #1 Most Ridiculous

The Rock and Roll Hall of Fame in Cleveland is addicted to taxpayer money. It’s time to send the rock legend to rehab.

Today, The Buckeye Institute dubiously honors the Rock and Roll Hall of Fame for “The #1 Most Ridiculous Budget Request” made to legislators for inclusion in Ohio’s capital appropriations budget.

State renovation? Rock and Roll Hall of Fame’s exhibit of inductee signatures.

The Rock and Roll Hall of Fame wants $2 million from taxpayers to renovate an exhibit of rock star signatures and an accompanying theatre. Legislators, don’t enable. Just Say No.

The Rock Hall has hustled about $125 million from state and local taxpayers since it opened in 1995. If a Political Pork Hall of Fame existed, this museum would be an inaugural inductee.

The Rock Hall fools taxpayers and elected officials like the classic showman P.T. Barnum. It overpromises the future, then underdelivers when nobody remembers.

Hall of Fame promoters estimated in 1992 that it would attract 600,000 to 1 million visitors a year. In reality, it draws less than 450,000.

The false promise of a tourism jackpot did its job politically, though. State and local elected officials gave $65 million in tax money to the museum to help pay for a $93 million building designed by architect I.M. Pei.

The promised level of celebrity glitz hasn’t materialized either. Turns out rock stars (and fans) prefer televised induction ceremony concerts in New York and Los Angeles, not Cleveland.

Cheap Trick of Rockford, Ill., will be inducted into the Hall of Fame next month — in New York.

In fact, only four induction ceremonies have been held in Cleveland during the museum’s lifetime—and taxpayer honey was needed to get the event each time.

In 2009, the city of Cleveland paid $1 million to get the induction ceremony. The city—about to ask voters for a municipal income tax hike—paid $500,000 in both 2012 and 2015.

This year’s induction ceremony and concert will be in New York on April 8th. (Of course, you can pay $23.50 to watch it simulcast at the Rock and Roll Hall of Fame in Cleveland.)

The Rock and Roll Hall of Fame doesn’t publicize one bit of history: It spends about $100,000 a year on lobbyists. State records show it currently has three.

The Rock Hall’s lobbying produces an impressive return on investment. Unfortunately, taxpayers are on the losing side of the transactions.

The Rock Hall got $15 million from the state in 2010 to move its library and archive to Tri-County Community College. It has received 11 other checks for a total of $3 million since 2009, according to the Treasurer’s OhioCheckbook.com web site.

One of the dozen checks taxpayers have written to Rock Hall of Fame since 2009.

That’s enough.

The legislature needs to cut off subsidies entirely—cold turkey—to this trust fund baby who turns 21 years old in September. Cleveland, Cuyahoga County and other local governments need to do the same.

Taxpayers shouldn’t contribute more to keep the Hall of Fame afloat than Sir Paul McCartney, Madonna and other rich rock stars honored there.

Next thing you know, someone will be asking state legislators for money to build a Funk Music Hall of Fame in Dayton. Oh wait, they already have!

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Get up and dance to the Ohio Players’ classic, “Lover Rollercoaster!”

YouTube Preview Image

 

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Goodbye, Ohio. A talented massage therapist forced to leave state because of crazy licensing rules

 

Excessive licensing requirements are forcing talented Ohioans to leave for other states to achieve career success. The Buckeye State needs to reform its burdensome and bureaucratic occupational licensing rules so the young and ambitious can prosper here.

Read this letter from Jennifer McClellan, a massage therapist who returned to her native Columbus last year to be near family, to get a sense of the problem.

Ohio won’t accept her Minnesota license or give her an Ohio massage therapy license for reasons that are beyond ludicrous. Jennifer is considering a move to Indiana or North Carolina where licensing is sensible, efficient and pro-work.

“I don’t want to leave Ohio, but I need to support my family. Moving back to Ohio was the worst career decision I’ve ever made. The barriers to work are higher here than I ever imaged,” she says.

Should an experienced, college-educated, professional massage therapist with a spotless record should be able to work in Ohio with minimal bureaucratic interference? Of course.

Occupational licensing reform is essential to job growth in Ohio.

The Buckeye Institute has fought to end the only-in-Ohio salon manager’s license — needed by licensed cosmetologists to get promoted to store manager.  The Ohio Senate voted unanimously February 10th to kill the license. The bill awaits House action.

Jennifer’s Letter

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Profile: Daniel J. Dew, the new criminal justice fellow at The Buckeye Institute

As a young man of dubious athletic skill, Daniel J. Dew started at quarterback for James A. Garfield High School in Garrettsville, Ohio. He mostly handed off.

Daniel led the “G-Men” (actual team name) to victory over the Rootstown Rovers. Unfortunately, he also led G-Men to defeat nine times for a 1-9 season.

Better results are expected in the coming year from Daniel J. Dew, the new criminal justice research fellow at The Buckeye Institute. Daniel, a 31-year-old lawyer, will provide in-depth research and forceful advocacy on serious issues, such as asset forfeiture, overcriminalization and the pending rewrite of Ohio’s criminal code.

On Friday, we will publish Daniel’s first article: on the need to reform Ohio’s civil asset forfeiture law, often used against individuals never charged or convicted of a crime.

But, today, we introduce you to the personal side of a talented young lawyer poised to make his home state a better, fairer, and safer place to live.

Who is Daniel Dew?

He is the oldest of nine children – six boys, three girls – who were born on a remarkably punctual schedule: every even year between 1984 and 2000.

His mom, Kristina, is a public school librarian. His dad, Roy, works in information security at a health insurance company. They still live north of Youngstown.

After high school, Daniel spent a year at Kent State University, then left Ohio for two years as a Mormon missionary in an unusual place: Utah. As a missionary in a state that is mostly Mormon, Daniel was sometimes helpfully pointed to doors that neighbors thought could benefit from a missionary’s knock.

After his mission work, Daniel attended Utah State University, where he met his future wife, Amanda, in 2006. They married a year later. The couple have a four-year-old son, a two-year-old daughter, and a baby girl expected in July.

Daniel interned after college with the U.S. Senate Judiciary Committee, chaired at the time by U.S. Sen. Orrin G. Hatch, R-Utah.

Holding a political science degree, Daniel was pointed to a career that forced him to choose between the lesser of two evils. He became a lawyer rather than a politician.

He got a law degree from the Cleveland-Marshall College of Law at Cleveland State University in 2012. Amanda, aka “the smart one in the family,” earned a master’s degree in statistics while Daniel studied law. (Editor’s Note: She might be a better athlete, too. Daniel loves golf but struggles to break 100.)

The athlete-not-to-be worked as an extern at the Cuyahoga County Department of Law during law school. After getting his license, he worked as the Visiting Legal Fellow at the conservative Heritage Foundation in Washington, D.C., where he wrote extensively on criminal justice reform and worked with reform organizations across the political spectrum.

Daniel briefly practiced oil and gas law in northern Ohio before being appointed Buckeye’s first criminal justice fellow. He will work for The Buckeye Institute’s chief executive Robert Alt, a constitutional law scholar.

The Dews will relocate to Columbus after selling the family’s home in Warren.  Daniel views his legal mission through a small government lens.

“Criminal justice reform can limit government overreach, save tax payer money and, most importantly, keep morally blameless citizens from becoming criminals,” he says. “I believe the current environment is ripe for real change.”

Daniel is living proof that change often comes from unexpected directions.

In college, Daniel dressed almost exclusively in hoodies and baggy basketball shorts. Then, he met Amanda.

Today, the barrister is a rather stylish young Mormon man, modeling clothes that display a subtle and nuanced interplay between color and fabric. Amanda picks out clothes. Daniel is a mannequin who walks.

Amanda’s rebranding of Daniel is clear and convincing evidence that longstanding practices can be reformed for the better.

Next up: The Ohio criminal code. That’s Daniel’s job.

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Buckeye joins legal brief challenging Clear Power Plan in federal appeals court

The Buckeye Institute joined West Virginia and other states in filing two important legal briefs Friday challenging the Clean Power Plan in the U.S. Court of Appeals for the District of Columbia Circuit.

A 198-page filing challenged the federal government on procedural grounds for attempting to regulate carbon emissions, a function that belongs to the states. Another 193-page brief attacked the regulatory overreach on the legal merits.

“EPA’s audacious assertion of authority in this Rule is more far-reaching than any previous effort by the agency,” the brief says, attacking the overtly anti-coal nature of Environmental Protection Agency’s plan.

The brief adds: Emission “reduction requirements can be met only by shutting down hundreds of coal-fired plants, limiting the use of others, and requiring the construction and operation of other types of facilities preferred by EPA—a directive EPA euphemistically calls ‘generation shifting.’”

The full brief can be read at the attached link. Oral arguments are scheduled for June 2. The U.S. Supreme Court has put implementation of the plan on hold until federal courts have ruled on the plan’s legality.

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Residency quotas on public works projects: “Rolling the dice with public health and safety.”

Don Mader, executive director of the American Council of Engineering Companies of Ohio, retires in June after 34 years with his respected Ohio trade association. Before stepping down, Don gave an exceptionally eloquent explanation of the harm caused by local Ohio governments imposing residency quotas on public works projects. 

Don Mader

Don made his presentation Wednesday to the Ohio House State Government Committee. He urged approval of S.B. 152, which would prohibit local governments from requiring contractors hire a certain percentage of workers from a specific political subdivision. We appreciate Don’s approving a reprint of his testimony. 

I represent 120 companies that design all kinds of constructed facilities; everything from highways and bridges, to water and wastewater plants, to buildings and industrial and manufacturing facilities.

Our member companies range in size from very small specialty engineering firms of only one or two people to some that employ hundreds. Our average size company employs 50 persons.

We work very closely with contractors, inasmuch as they end up building what we design, so we sympathize totally with their concerns regarding municipalities that require contractors to hire a quota of municipal residents in order to bid on city projects.

These residency requirements cause major problems for engineering firms, as well, although our problems are somewhat different from our contractor friends. Unlike contractors, engineering firms compete for work on the basis of their professional qualifications, not by low bid. In order to be selected by either public or private owners to design their projects, it behooves an engineering firm to retain the very best engineering talent that is available. And that talent is very hard to find.

Residency requirements cause major problems.

The Inner Belt Bridge in Cleveland. Should projects like this be built and designed by our most talented professionals?

In order to be licensed as a professional engineer, you must obtain a four-year degree from an accredited engineering program, accumulate four years of engineering work experience and then pass a rigorous license exam.

An engineering degree and a professional engineer’s license are highly valued credentials and, as you can imagine, individuals who have obtained these credentials are highly compensated. When an engineering firm succeeds in obtaining the services of a skilled professional engineer, they normally will do everything to retain the services of such an individual.

What this means is that it is much more difficult for an engineering firm, just as it would be for a law firm or accounting firm, to add and subtract from its staff just to meet arbitrary municipal residency requirements and compete for a single project.

As I mentioned earlier, engineering firms tend to be small operations. Our average size firm has only 50 employees, and they may be spread out over three or four offices in various cities throughout the state. Unlike construction, engineering is not site-dependent. Thanks to advancements in electronic communication and engineering design software, an engineer in Ohio can work on a project in Cincinnati today, one in St. Louis tomorrow and one in Paris the third day.

This kind of efficiency should be encouraged because it enables local governments to obtain high quality engineering service at a reasonable cost.

Akron residency requirements

As you can see from the attached letter, the city of Akron’s recently announced Professional Workforce Goals require that 31 percent of an engineering firm’s employees must be Akron residents in order for an engineering firm to obtain a contract with the city. That percentage requirement increases to 35 percent by 2018.

Akron City Hall

Akron’s requirements are actually much more onerous than even these mandated residency quotas would suggest, in that the city also requires that “66 percent of all hours worked (including sub-consultant work) on a particular project [are] to be performed by employees paying city of Akron income tax.”

So as an engineering firm manager, I not only have to make sure 30 percent of my office staff lives in the city, I’ve somehow got to make sure that two-thirds of the hours worked on any given project are performed by city income taxpayers.

I have been associated with this industry for nearly 35 years, and I’d like for someone to explain to me how – on any engineering project – one might reasonably manage this.

Most skilled shut out

Let’s say your firm has a strong track record of designing major water plants. A city in the next county intends to expand its water plant, and normally your firm would be a strong contended for the project. But this municipality requires that 31 percent of your employees be residents of that city and they insist that 66 percent of all design hours be performed by employees who also pay city income tax.

How do you meet this 66 percent requirement? Do you put your best environmental engineers to work on the project until it’s a third designed, then replace them with other, less accomplished engineers who happens to live within the city?

I would hope reasonable people would agree that this is not good public policy, but that’s exactly what these municipal residency requirements would force us to do – discriminate for or against employees based merely on their place of residence.

Further complicating matters, the city says that to ensure a firm meets the 66 percent requirement it will have a third-party organization monitor how many employees are working on a project and where those employees live. This means the firm will be required to divulge confidential employee information, such as employee addresses, to a third party, which can expose the firm to legal liability for failing to protect employee privacy rights.

As you might imagine, the design of any major construction project is extremely complicated and technical, and involves a team of engineers, technicians and other professionals. What these residency requirements mandate is that, instead of assigning the firm’s most highly qualified technical experts to the design of a particular project, the engineering firm’s first consideration must be to make sure that two-thirds of the work is performed by city taxpayers.

No reputable engineering firm that will make these kinds of arbitrary and unfair hiring and firing decisions – which is what these residency requirements force an employer to do – just to win a single contract. Rather, they will not pursue such work, which ultimately drives down competition and drives up prices the public pays for engineering services.

The contradictions implicit in these residency requirements are ironic on several levels. The Ohio Supreme Court has already ruled that a municipality can’t dictate where its employees live, yet some municipalities apparently believe they are justified in dictating where the employees of third parties must live.

The most unfair aspect of this is that these restrictions cannot be enforced on out-of-state companies.

Out-of-state companies don’t comply

The most unfair aspect of this is that these restrictions cannot be enforced on out-of-state companies, as courts have repeatedly ruled that doing so violates the U.S. Constitution’s Privileges and Immunities Clause. We believe these arbitrary residency requirements have the potential to do real, long-term economic damage to Ohio’s construction and design industries.

If I owned a construction company or engineering firm and I were barred from competing for a municipal contract just because too few of my employees resided in that jurisdiction, my response is going to be to go back to my home town city officials and ask them to enact similar restrictions.

If I owned a construction company or engineering firm near the state border, I’d have to seriously consider moving to an adjoining state to skirt these residency requirements that thwart me from competing in the marketplace.

Taken to its logical extreme, if these residency requirements are allowed to stand, we will end up with a situation in which contractors and designers will be frozen out of being able to compete in many jurisdictions. That will lead to less competition and higher prices for public works design and construction contracts. It’s simple supply and demand.

Most worrisome, however, is the threat these residency requirements pose to the public health and safety. These municipal residency requirements conflict directly with a key section of the Ohio Revised Code that specifies how local governments are to select engineers and architects for the design of public works projects.

Section 153.65-.73 requires that when a local government seeks to contract with an engineering firm to design a public works project, that contract award must be made to the “most highly qualified firm,” based on a defined set of criteria – and where the employees of competing engineering firms live is not listed as a qualification factor that may be considered in the evaluation process.

Few of us ever think about the vital importance of our water systems until problems occur, such as we have seen in Toledo, and Flint, Michigan and Sebring.

We believe that to allow the designers of these critical systems to be selected on the basis of anything other than professional competence is simply rolling the dice with the public health and safety.

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