Is It Time To Garnish The IRS’ Pay?

The IRS has abused its power and misused its resources, so it deserves the budget cuts it got in the 2015 spending bill, a leading anti-tax group argues.

“If the IRS wants to see an increase in its budget, it probably should stop harassing conservatives,” Americans for Tax reform spokesman told The Daily Caller News Foundation. ”They used their resources in a completely inappropriate and political way that has basically ruined the reputation of the agency on the Hill.”

Congress cut the IRS budget by $346 million in the 2015 spending bill, reported Politico, and the agency has absorbed about $1 billion in cuts since 2010. It’s one of the only agencies whose budget was cut this year.

“[The cuts] are a logical response to the stewardship they’ve had with the resources they’ve been given,” Kartch told TheDCNF. “They’ve been given certain resources to implement the mission of the agency, and they’ve used them to harass Tea Party organizations. They’ve used them to harass conservative taxpayers. They’ve basically politicized the entire Cincinnati office for several years.”

Commissioner John Koskinen has already announced a hiring freeze and suspension of overtime hours, and said Thursday the most recent cuts could shut the agency down temporarily.

“People call it furloughs,” Koskinen said, according to Politico. “I view it as: Are we going to have to shut the place down? And at this point, that will be the last thing we do … but there is no way we can say right now that that wont happen.”

The cuts come as the IRS prepares to take on new responsibilities implementing Obamacare, and in the face of a mandatory government-wide pay raise Koskinen said will cost $250 million.

Kartch accused Koskinen of trying to extort Congress by purposely absorbing the cuts in a politically painful manner. In addition to the shutdown, Koskinen has warned taxpayers refunds could be delayed this year.

“They have a mandate to implement [the cuts], but the resources that they allocate is up to them,” Kartch said.

But Alan Viard, a budget and tax policy analyst at the American Enterprise Institute, said across-the-board cuts won’t fix the problem and are likely to hurt taxpayers.

“I’m very concerned about what the IRS did on the 501c4 applications by the tea party groups, and so it’s quite proper to try to stop that type of abuse or make sure it doesn’t happen again,” Viard told TheDCNF. “But just cutting the agencies overall funding is really not a good way to do that.”

Viard suggests a more targeted approach, such as clarifying 501C4 laws or reassigning certain responsibilities to other agencies, rather than the easier option of spending cuts.

“It really backfires by harming ordinary taxpayers who still have to comply with the complicated tax code Congress has imposed upon us,” he added. “Having given us this complicated tax system, I think it behooves Congress to try to give the IRS the resources to administer that system.”

This piece was originally published by the Daily Caller News Foundation

CalPERS Numbers Attract Fresh Scrutiny

The California Public Employees’ Retirement System looks to see 2015 as another controversial year, especially around four budding controversies.

First, attention has focused in recent weeks around the way CalPERS pays its board members and executives. An investigation by the Sacramento Bee revealed that, for 15 years, CalPERS has reimbursed the “government pay and benefits of five board members who are on full- or part-time leave from their jobs to conduct fund business.”

While some board members receive little or even no money for their service, others received hundreds of thousands of dollars. Priya Mathur — recently stripped of her administrative posts, but not fired after repeatedly violating state ethics laws — was paid just shy of $300,000 during the last fiscal year. During the same period, John Chiang, an ex-officio board member in his capacity as the state controller, received nothing. He also will receive nothing when he remains on the board in January when he becomes the state treasurer, another ex-official CalPERS board membership.

Bonuses

Second, CalPERS executives received a substantial increase in lavish bonuses. The San Francisco Chronicle reported a 14 percent increase in bonus payments over the fiscal year before last, with $8.7 million going to investment staff and nearly $300,000 to the fund’s non-investment executives.

“The rewards are based on three-year performance verses a benchmark, as well as the earnings of each asset class and individual portfolios,” according to CalPERS spokesman Brad Pacheco. In an effort to deflect criticism for the windfalls, the Chronicle noted, CalPERS maintained it “must grant bonuses to help compete with the pay that employees could make if they went to work on Wall Street.”

According to Pacheco, “spending money on in-house investment management saves about $100 million a year that otherwise would be paid to Wall Street in fees.”

Secret deals

Third, in an area fraught with Wall Street competition of a different sort, CalPERS has proven itself willing to play political hardball to ensure financially stressed cities pay it first, and investor-creditors later. In an exclusive, Reuters cast a spotlight on how that process has played out secretly in the case of San Bernardino.

Speaking on condition of anonymity, a “senior city source” revealed details of CalPERS’ deal with the city that a judicial gag order had sought to keep under wraps. Although it hasn’t published a completed budget, San Bernardino has set aside over $10 million for an unnamed creditor — which the source identified as CalPERS.

The city’s decision “to strike a deal with CalPERS first, and begin paying arrears before a bankruptcy exit plan could be formulated, shows the reluctance of California cities to take on the pension giant,” concluded Reuters.

Demographic destiny

Fourth, CalPERS has faced a new round of investor skepticism over its approach to funding. The Moody’s ratings agency warned this week that cities like San Bernardino will face increasing pressure from CalPERS obligations, “even after the relief provided by the bankruptcy adjustments” authorized by the courts. “The ratings agency calculated that San Bernardino’s adjusted net pension liability for the 12 months to the end of June 2014 was $731 million — nearly 10 times its outstanding debt,” according to the Chief Investment Officer website.

CalPERS’ unfavorable demographics were likely responsible for the projected future increases in required contributions. At PublicCEO.com, Ed Mendel reported that “in a few years CalPERS retirees are expected to outnumber active workers, a national trend among public pension funds that makes them more vulnerable to big employer rate increases.”

CalPERS has managed in recent years to boost its funding level to some 77 percent. But now, Mendel observed, “some think getting to 100 percent funding may become difficult if not impossible. Employer contribution rates would have to be raised to an impractical level, crowding out funding for other programs, and investments would have to yield unlikely returns.”

According to prevailing interpretations of the California Constitution, taxpayers are on the hook for any fund shortfalls.

This article was originally published on CalWatchdog.com

CA Budget Worse Despite $2 Billion New Revenue

California’s budget picture is sort of like that old Sandy Dennis high-school movie, “Up the Down Staircase.”

Going up: Legislative Analyst Mac Taylor just reported tax receipts jumped $2 billion over projections in the fiscal 2014-15 budget the Legislature passed, and Gov. Jerry Brown signed, last June. And the state’s credit rating was bumped up to A+ by Standard & Poor’s after voters on Nov. 4 passed Proposition 2, which strengthened the state’s rainy-day fund. The last time the bond rating was increased to A+ was in 2006.

Going down: Despite the added revenue, the state has reached a limit on what it can spend, according to a new study by insurance-asset manager Conning and Company, “Municipal Credit Research: State of the States.”

Moreover, for October Conning ranked California 36th among the states on its percentage of Expenditure Burden, defined as a percentage of the burden on general fund revenues for debt, future pensions and Medicaid expenditures. That’s four ranks lower than for April.

And as CalWatchdog.com calculated, California also has the largest Expenditure Burden in terms of absolute dollars, as shown in the following table. (Expenditure Burden is the far-right column.)

States with Highest Expenditure Burden (Fourth Quarter 2014)

 

State Expenditure Burden, percent of general fund Total General Fund Budget 2014-15  (in $billion) Expenditure Burden in Absolute Dollars (in $billion)
Nevada 43.2% $6.6 $2.851
Ohio 36.4% $30.677 $11.17
Illinois 30.3% $65.9 $19.97
California 25.4% $107.987 $27.43
Kentucky 24.7% $5.776 $1.43

Pension burdens

Gov. Brown’s June budget report correctly projected the state’s “Wall of Debt” will be cut from $34.7 to $13.8 billion by the end of fiscal 2014-15 next June 30.  But this picture of the debt omits future unmet pension burdens and Medicaid spending.

Just before the election, Controller John Chiang – on Nov. 4 himself elected as the new state treasurer – released figures on pension debt that confirmed a crisis long raised by pension critics. He warned:

“The unfunded actuarial accrued liability of the state’s pension systems — or the present value of benefits earned to date that are not covered by current plan assets — shows it has steadily risen from $6.33 billion in 2003 to $198.16 billion in 2013.”

That warning was confirmed by Paul Mansour, Conning’s head of muni research. He told Bloomberg, “California is still being held back by relatively high debt and pension levels…. We are more cautious on them than the [bond] rating agencies.”

Bloomberg also reported:

“California has $87 billion of bonds paid from the general fund, more than twice as much as a decade ago, according to data from the state. Voters also approved $7.5 billion for water infrastructure bonds this month [Propositon 2]. Its $2,465 of debt per resident is the third-highest burden among the 10 most-populous U.S. states, according to a report issued last month by Treasurer Bill Lockyer. New York ranks first, with $3,204 per person. The median among all states is $1,054.”

Forecast

There’s another reason why the new $2 billion in revenue the LAO forecast doesn’t much help long-term pension and medical-expenditure burdens. Proposition 98, passed in 1988, mandated about 40 percent of any revenue – including new revenue – must go to public schools.

As the LAO reported:

A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges.”

So of that extra $2 billion, just $1.2 billion of it can be used for other spending, debt reduction or reserves — about 1 percent of an $108 billion general-fund budget.

Moreover, according to the LAO, despite the new revenue, the general-fund’s balance actually has declined due to adjustments, including “a $358 million downward adjustment relating to an allocation of state sales and use tax (SUT) to local governments to correct for past accounting issues. All told, these adjustments result in an entering fund balance of $2.2 billion, or $243 million lower than the budget’s assumptions.”

Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.

This article was originally posted at CalWatchdog.com

The California Redevelopment Dispute

The fate of California’s redevelopment agencies (RDA’s) is frequently discussed in the news these days. However, resolution is close—on November 10th, oral arguments will be heard by the State’s Supreme Court in the case California Redevelopment Agencies v. Matosantos.

The issue at hand in this important case is the constitutionality of Governor Jerry Brown’s proposed elimination of all 400 of the state’s redevelopment agencies. A critical facet of his budget proposal, Brown claims the move will save the state $1.7 billion this year. Characterizing the state’s redevelopment agencies as a “piggy bank” from which the state must now draw, he plans to redistribute the money back to counties, schools, cities and other special districts.

However, he’s also proposed that RDA’s can avoid elimination if certain steps are taken by their local jurisdictions, including an agreement that the RDA’s will pay $1.7 billion this fiscal year and $400 million in subsequent budget years in statutorily mandated revenues to school entities and other special districts.

Panicked redevelopment agencies are contending that the proposed cuts violate Proposition 22, passed by voters in November 2010, which prohibits the state from borrowing or taking funds used for transportation, redevelopment or local government projects.

Opponents to Governor Brown’s proposal feel that RDA’s are needed more now than ever as the state struggles to recover from the recession. The wholesale elimination of RDA’s, they maintain, eliminates important tools to spur job creation, increase tax revenues, and induce economic growth.

However, proponents of Governor Brown’s proposal, including State Controller John Chiang, claim that RDA’s are mismanaged and waste funds that would be better used to pay for schools and other critical services. Chiang, who recently reviewed 18 RDA’s statewide, cited numerous reporting flaws, questionable payment practices and inappropriate uses of affordable housing money.

This issue –like so many the justice system and voters encounter– begs the question: which decision will positively impact the most people? If political radical and philosopher Jeremy Bentham, an early advocate of utilitarianism, were to ponder the situation, would he lend support to Jerry Brown, attempting to balance a budget and mindfully funnel funds into what he believes are our most critical areas of need; or would he cast his vote with the RDA’s, who enable and encourage local government autonomy and revitalization?

There’s no denying that the ruling by California’s top court – whether in favor, or a rejection of Governor Brown’s controversial move – will impact taxpayers and jurisdictions across the state.

The court has promised a decision by January 15, 2012, which is when the first RDA payments would be due.

(John Hancock is the President of the California Channel.  This article was first posted in Fox & Hounds.)