Monday, February 22, 2010

To furlough or not to furlough

Government furlough days are in the local news again, with a report in the Milwaukee Journal Sentinel on Saturday that Milwaukee County may consider up to 10 additional required days off without pay this year for certain employees. But Milwaukee County isn't the only place where furloughs have become a key budget-cutting strategy.

Governing Magazine columnist Girard Miller recently wrote that "furlough fever" has taken hold across the nation, as state and local governments struggle to respond to budget problems without resorting to permanent layoffs. In light of this trend, he asks what will happen if scores of government workers are forced to work four-day weeks and the public doesn't notice?

The question is especially pertinent given that the extreme fiscal pressures facing state and local governments in Wisconsin and nationally are unlikely to ease any time soon, despite indications of economic recovery. In light of that reality, if public officials sense that government furlough days are met with a shrug from taxpayers, it certainly will be tempting for some to view them as an appropriate annual budget-cutting strategy.

Whether that's a good thing or a bad thing from the perspective of ordinary citizens depends, of course, on the number and applicability of furlough days. Here in Wisconsin, furlough policies include the City of Milwaukee's four scheduled furlough days in 2010 for most city employees (certain public safety personnel only are subject to two days); the State of Wisconsin's 16 furlough days over two years for non-emergency personnel; and Milwaukee County's current 12 furlough days in 2010 for most workers (employees who work for certain Constitutional officers, such as the sheriff and register of deeds, are among those exempted).

This is relevant because citizens may not notice if their city human resources office is closed for a few days. Conversely, they may care more if their Division of Motor Vehicles office is closed for several days, and they likely would care a lot if their state university classes are cancelled or their local fire station is closed for even a day or two.

Another key question is the extent to which furlough days - while producing savings on paper - truly save actual dollars. An article from points out some of the practical fiscal impacts of furlough days that may reduce their ability to generate real savings - including the potential need to replace employee work time lost to furloughs with more expensive contracted work time; the loss of productivity from government workers whose job it is to collect revenue for the government; and the potential need to pay time-and-a-half for overtime to ensure that critical services continue in the face of furloughs. This latter factor contributed to Milwaukee County's decision to exempt sheriff's department personnel from furloughs.

It also is important to consider the impact of furloughs on the effective functioning of government. As a former government administrator, I know one of the most difficult parts of the job - particularly when budgets are tight - is motivating staff and battling poor morale. What does it say to government workers when their leaders find their daily tasks so inconsequential that they require them to stay home for several days each year?

Finally, a more subtle impact is the types of tasks that will be ignored should more than a few furlough days per year become the norm. When positions are cut or hours are shortened, the first tasks that fall off the shelf for short-handed government departments are tasks like quality assurance, preventive maintenance, performance measurement and research-based problem solving. Are government leaders really doing themselves and their constituents a favor by risking that such activities don't get done?

It can be argued that as a short-term strategy to help offset temporary recession-induced budgetary problems, or as a response to unanticipated mid-year budget crises, furloughs may make a great deal of sense. But public officials who might be contemplating furloughs as a longer term strategy would do well to carefully cost out and deliberate the full range of impacts.

Friday, February 19, 2010

New rules for voucher schools having an impact

In the Forum's 12th annual census of schools participating in the Milwaukee Parental Choice Program (MPCP), we found that recent regulation changes have had an impact on the number of schools participating in the program. Between the 2008-09 and 2009-10 school years, the program saw far fewer new schools join and many other schools close or drop out of the program. Thirteen of the 14 schools that closed were not accredited, which was a new requirement that became fully phased-in last year.

In addition, a rule put in place for the 2009-10 school year that requires schools new to the program to obtain pre-accreditation seems to have dramatically reduced the number of new schools this year. Over the past decade the program was averaging 11 new schools a year, but this fall just three schools joined the program. Many, if not most, of those new schools were start-up schools, but the three schools joining the program this year are all established schools. The pre-accreditation requirement, which was intended to ensure new schools have a solid operational and educational footing, seems to be having an impact.

We also examined the potential impact of new regulations requiring schools to administer state standardized tests and to report MPCP student test scores. Starting in the 2010-2011 school year, all MPCP schools will be required to administer to MPCP students the same state standardized tests as public schools.

Nearly all schools in the program administer standardized tests and 37% of schools administer the Wisconsin state test. This rule will require the two-thirds of schools that use a test other than the state test to either switch tests or to add in the state test.

Another new rule kicks in this August, when schools will, for the first time, be required to report MPCP student test scores to the state Department of Public Instruction. Of the 112 schools in the program this year, 102 administer at least one type of standardized test and are expected to be able to report test scores in the fall.

For more information and for updated data on enrollment trends, schools gaining and losing the most MPCP students, schools’ racial make-up, and the aggregate high school drop-out rate see the full report.

Click here for complete 2009-10 data and a directory of all participating schools.

Tuesday, February 9, 2010

The decade of infrastructure?

The Governing Magazine web site recently published a provocative piece declaring the first decade of the 21st century the "decade of infrastructure."

While acknowledging the many infrastructure challenges still facing the United States, the piece argues the past decade was the one in which Americans came to grips with the importance of their roads, bridges and transit systems. It also cites increased use of transit nationally and creative approaches to highway and bridge reconstruction as evidence of an infrastructure epiphany.

Regardless of whether one agrees with this premise from a national perspective, it is interesting to think about it from a regional point of view. Was the past decade the one in which southeast Wisconsin came to grips with its longstanding transportation infrastructure problems?

The answer to that question is in the eye of the beholder, but certainly we can point to the following signs of success:
  • After years of controversy, the $810 million Marquette Interchange reconstruction project not only happened, but happened pretty darn well. The project came in on time and on budget, and the disruption associated with it was far less onerous than many had feared.

  • Milwaukee gained national attention from its decision to tear down the Park East Freeway and replace it with a ground level boulevard. While the projected economic development benefits have not come close to materializing so far, most would agree the plan has not produced more congestion and otherwise has worked well from a transportation perspective.

  • The Sixth Street viaduct project showed that roads and bridges, in addition to connecting commuters between two points, can serve as neighborhood gateways and points of architectural pride. The related Canal Street reconstruction, meanwhile, has been a significant factor in the rebirth of the Menomonee Valley.

  • After years of planning for the day when federal funds might be available for high speed rail, Wisconsin was rewarded with a recent $823 million federal pledge to a Milwaukee-Madison rail line. Undoubtedly, there will be plenty of future debate regarding the merits of this project, but it certainly is a sign that our state's political leaders can successfully compete for federal infrastructure dollars.

On other major transportation issues, success is more difficult to define. For example, significant progress was made on planning and building diverse support for the Kenosha-Racine-Milwaukee commuter rail line, but lack of a local funding source has prevented the project from moving forward. Meanwhile, an act of Congress broke a 17-year logjam and divvied up $91 million in federal funds reserved for a Milwaukee transit project, allowing the City of Milwaukee and Milwaukee County to independently pursue downtown streetcars and bus rapid transit, respectively. Still, lack of local funding sources looms as a major obstacle to those projects as well.

Which brings us to perhaps the region's biggest transportation infrastructure failure of the past decade: the inability of elected leaders to agree on a dedicated funding source for the Milwaukee County Transit System. As the Forum has documented in great detail, MCTS' funding problems escalated throughout the decade. Receipt of stimulus dollars to buy new buses has delayed a full-fledged crisis for now, but that crisis is expected to re-emerge within the next three years. While a new regional transit authority proposal from Governor Jim Doyle could solve the problem, its fate remains uncertain.

So, as we begin a new decade, those looking to enhance the region's mass transit infrastructure find themselves asking the same two questions they asked at the beginning of the previous decade and the decade before that: how will we pay for our basic bus service, and how can we even think about new transit options until we solve that fundamental problem first?

Friday, February 5, 2010

Redefining Pension Benefits... A National Trend

Recent stock market volatility has had a negative impact on public pension systems and governmental budgets. Even the best managed systems have seen unfunded liabilities grow dramatically, causing governments to rethink the basket of public services provided. Many governments are also considering cuts less noticeable to the public, but impactful to public employees.

Does the tremendous need for cost cutting measures make public sector pension reform inevitable? A recent study published by the American Legislative Exchange Council (ALEC), an association of state legislators, entitled State Pension Funds Fall Off a Cliff, discusses the losses that state government pensions have taken and pushes governments to further reform their pension systems. The authors argue that the only viable long-term solution is to replace current defined benefit plans with 401(k)-style defined contribution plans for new employees.

In addition to pursuing a defined contribution approach, many governments may seek retiree benefit reductions within the defined benefit schema. Milwaukee County, for example, has included a provision in its 2010 budget extending the normal retirement age from 60 to 64 for new employees and reducing the pension multiplier from 2% to 1.6% for new employees and for future years of service for existing employees. Though this has only been implemented so far for non-union employees, it reflects the types of adjustments being sought as governments become more strapped for cash.

Demonstrating that Milwaukee County is not alone, the Colorado Senate recently passed a measure that would make significant changes to pension benefits for current and future employees, including a five-year increase in the retirement age, a reduction in the cap on inflationary increases for pension payments from 3.5% to 2%, a five-year service increase for retirement eligibility, and increases of 2% for both employer and employee contributions to the pension system. Colorado projects a savings of $80 million annually from these pension reforms.

In addition, Massachusetts Governor Deval Patrick recently filed legislation that would dramatically reform pension benefits of current and future public employees. The proposal would increase the retirement age for all state employees and cap pensions at a percentage of the federal pension limit, or roughly $85,000. In addition, pension benefits would be based on the five highest-paid consecutive years of service rather than three years to better reflect an individual’s career pay. Judges would begin paying into the system as well. The state would save an estimated $2 billion over the next 30 years as a result of these changes.

This is not to say that 401(k) plans have been off the table. On the municipal level, last October, Orange County developed a two-tier pension system that gives general employees an option between the existing defined benefit pension formula and a new hybrid pension formula. Though the new hybrid pension will have a lower benefits formula, it will also include a 401(k)-type benefit that the county would match by up to 2%. This initiative is expected to save the county a projected $10 million in the first year. Orange County has also taken on other reforms that produce more modest savings, including negotiated benefit reductions for sheriff deputies.

The trends discussed above indicate that public sector employees and retirees should brace themselves for significant reductions in retirement benefits. Whether that's fair is subject to debate, but given the severe loss of assets experienced by many public pension funds, it may well be a necessity.