Pension Malpractice and Fund Raids

Everyone's doing it!

A Wall Street Journal editorial bemoans gimmicks used to “pay for” a federal road funding bill without either raising taxes or cutting other spending, which was passed by the U.S. House of Representatives yesterday:

“Ways and Means Chairman Dave Camp is paying for the additional spending with a combination of new custom fees, transfers from a fund to repair leaky underground fuel-storage tanks, and changes to pension taxes. This "pension-smoothing"—which will supply $6.4 billion of the revenue—is an especially ugly budget ruse, and thus increasingly a Congressional favorite.

“Under smoothing, employers are given permission to delay contributions to pension plans, thereby increasing corporate taxable income. That pushes immediate money to the Treasury, but at the cost of piling up pension liabilities in the longer-term, hurting employees and potentially the taxpayers who might have to bail them out. Congress used the same imaginary revenue-raiser to fund the 2012 highway bill, and the Members know most of the media won't report the boring pension details.”

Congressman Camp served one term in the Michigan House of Representatives back in 1988-1990, and as a Congressman perhaps he’s been looking to the gang at his old gig for bad ideas, because both the pension dodge and the raid on a fuel tank cleanup fund have both featured in the Michigan Legislature’s playbook over the past decade, as documented by

2004 House Bill 6074: Fuel tank cleanup tax "fund raid"
Public Act 390 of 2004

To extend the 7/8ths cent-per-gallon fuel sale "regulatory fee" (tax) levied for the cleanup of underground fuel tanks, and authorize a $43 million "fund raid" on the underground tank cleanup fund to avoid making spending cuts in the 2005 budget.

Passed 87 to 13 in the House on July 14, 2004 - Who Voted "Yes" and Who Voted "No"

Passed 32 to 5 in the Senate on September 29, 2004 - Who Voted "Yes" and Who Voted "No"

Signed by Gov. Jennifer Granholm on October 12, 2004.

2007 House Bill 4530: Balance budget with reduced school pension fund contribution
Public Act 15 of 2007

To allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required. One of the elements in the formula is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount.

Passed 107 to 1 in the House on April 17, 2007 - Who Voted "Yes" and Who Voted "No"
Passed 37 to 0 in the Senate on May 22, 2007 - Who Voted "Yes" and Who Voted "No"
Signed by Gov. Jennifer Granholm on June 6, 2007.

This is not to beat up too much on Mr. Camp, who as much as anyone is a captive of a growing institutional breakdown in Washington under the current administration. The Journal explains:

“Mr. Camp's hand was somewhat forced by a last-ditch Democratic effort to raise the 18.4-cents-a-gallon gas tax. With the failure of President Obama's $300 billion blowout, the House Democratic fallback was to pass a patch that would expire at the end of this year. Their betting was that they and the business community (which wants higher gas taxes) could then leverage a lame-duck session to jam Republicans into a tax hike. Mr. Camp's 10-month extension at least avoids that box canyon.”