Fines and fees are commonplace throughout the justice system. In many cases, fines are considered desirable because they are an intermediate form of punishment. In other words, slapping someone with a fine is less severe than incarceration but is tough punishment for many low-level offenses.

A person may be charged a fine for any criminal or civil infraction. In addition to any fines, they might also be charged a host of fees meant to cover court costs. The state court system in Florida is funded through general revenues, but a large share of funding for the state’s clerks of courts is provided by filing fees, service charges, and court costs that are collected from individuals when they interact with the court system.

Because fines and fees are not generally scaled based on income, they tend to disproportionately harm low-income people who are unable to pay. Failure to pay outstanding fines and fees can result in driver’s license suspensions and even incarceration. A recent report by the Fines and Fees Justice Institute found that nearly two million Floridians have their driver’s licenses suspended because of unpaid fines and fees. Considering that approximately 80% of Floridians drive themselves to work and many jobs require a driver’s license, suspending driver’s licenses for non-driving offenses reduces the likelihood those individuals will be able to pay their fines and fees. It is counterproductive to make it even more difficult for individuals to pay off their debts and create additional administrative costs for governments.

The fact that many people are financially unable to pay may provide some explanation for why governments are notoriously bad at collecting outstanding court debts. A report from the Brennan Center for Justice found that only 36% of the fines and fees assessed in Florida between 2012 and 2018 were actually collected, resulting in over $1.13 billion in cumulative unpaid fines and fees.

Even setting aside problems with collection, fines and fees are not a particularly stable source of revenue. In Florida, statewide fines and fees revenue has declined significantly over recent years—a fiscal issue that has been exacerbated by the COVID-19 pandemic. Florida’s courthouses were shuttered during the early months of the pandemic, leading to a substantial backlog of cases and disrupted revenue flows. Over that same period, lockdowns and stay-at-home orders kept many drivers off the road, reducing the number of traffic violations­­––a major source of fines and fees revenue in the state.

In the fiscal year ending in Sept. 2020, clerks of courts collected $377 million in fines and fees compared to $432 million in the year prior. Revenues in both years represent a dramatic decline from the $539 million collected in 2009. Declining revenues are already causing trouble for organizations and programs that depend on fines and fees revenue. Epilepsy Florida, for example, pulls in $5 from every seatbelt infraction in the state. In 2020, that translated to $240,000 compared to the whopping $1.1 million the group received in 2014, according to reporting by FL Keys News.

Fortunately, fines and fees revenue make up a very small portion of Florida’s budget, and there are many options for reform. Generally speaking, no program or agency should be specifically funded by fines and fees revenue. Instead, court revenue should be sent into the general fund to avoid poor incentive structures within the justice system.

Fees, which only exist to raise revenue, should arguably be eliminated. Meanwhile, fines, which serve as punishment, could be scaled to account for an individual’s ability to pay.

Florida could also eliminate fines and fees in juvenile cases and abandon the counterproductive practice of suspending driver’s licenses for failure to pay.

These basic reforms would help realign incentives for law enforcement and reduce the disparate impact of fines and fees on low-income communities. Florida lawmakers would be wise to address the fiscal challenges presented by declining fines and fees revenue and put an end to taxation by citation.

The post Florida must stop relying on taxation by citation appeared first on Reason Foundation.

The case was dismissed last month by United States District Court Judge Allen Winsor, who did rule that Fried held standing to bring the suit as she holds oversight over both Florida’s concealed carry licenses and medical marijuana programs.

Fried was joined by two plaintiffs who are registered medical marijuana patients and were barred from purchasing a firearm and a third co-plaintiff who is a gun owner with a qualifying medical condition who would like to participate in Florida’s medical marijuana program. The standing of all plaintiffs was affirmed by Judge Winsor because they suffer direct harm from the Justice Department’s enforcement actions. 

The Justice Department, through its Alcohol, Tobacco, Firearms, and Explosives (ATF) Division, bars participants in state medical marijuana programs from owning or purchasing a firearm. One method for enforcing this prohibition is the inclusion of a question on ATF background checks about whether the prospective gun buyer uses illegal drugs. Although marijuana is legal for medical use under some state laws and legal for adult use in some states, it remains illegal at the federal level. By contrast, the use of federally legal pharmaceuticals with intoxicating characteristics, such as oxycontin, is not necessarily a reason for ATF to deny a gun purchase.

In court briefings, DOJ argued that there is a public interest in prohibiting marijuana users from possessing guns and that its regulations are consistent with historical restrictions on the Second Amendment. The department pointed out that the federal government has previously barred Catholics, Native Americans, panhandlers, and the mentally ill from obtaining firearms, so it has adequate historical precedent to bar medical marijuana patients. The Biden administration received backlash for relying on these comparisons and eventually backed off its claims that marijuana use makes individuals more inclined toward crime. Yet, the administration has continued to argue—in spite of the evidence—that medical marijuana patients might be more disposed to engage in domestic violence. 

Central to Fried’s claim is that congressional riders to federal appropriations bills specifically restrict the Justice Department from using any financial resources to impair state-regulated medical marijuana programs. Judge Winsor seemingly dismissed this claim prematurely, arguing that the department can bar gun possession because marijuana possession is a federal crime: 

Regardless of whether Plaintiffs are prosecuted (or whether Congress allocates funds for their prosecution), possession of marijuana remains a federal crime. The Rohrabacher-Farr Amendment at best precludes prosecution now; it does not forever bless the plaintiffs’ actions. 

Winsor’s opinion does not consider that the Justice Department presumably spent financial resources to include its question about marijuana use on ATF background-check forms and pays staff to review these forms. While DOJ might argue that these enforcement actions are related to the regulation of gun ownership and not medical marijuana programs, it clearly has the effect of discriminating against medical marijuana patients using funds appropriated by Congress. On this basis, the ATF’s screening of prospective gun buyers on the basis of whether they use marijuana for medical purposes would appear as a clear violation of congressional appropriations directives. 

Also, there is no evidence that medical marijuana patients are any more disposed to engage in violent crime than other groups. On the contrary, the available evidence indicates that medical marijuana is associated with slightly lower crime rates. Fried expressed her disappointment in August that the Justice Department “would perpetuate such harmful and offensive prejudicial stereotypes that cannabis users are dangerous or mentally ill.” 

As Fried continues the appeal process, cannabis consumers in Florida and elsewhere should remain highly interested in the outcome. After all, any ruling against the Justice Department could result in positive outcomes for medical marijuana patients across the nation. 

The post Nikki Fried is right to sue for medical marijuana patients’ gun rights  appeared first on Reason Foundation.

Despite this rare bipartisan agreement in an increasingly polarized political climate, Congress has failed to pass such a data privacy law. Earlier this year, Rep. Frank Pallone (D-RI) introduced the American Data Privacy and Protection Act (ADPPA), which has serious flaws but is the closest Congress has ever come to enacting a federal data privacy policy.

House Speaker Nancy Pelosi (D-CA) refused to bring the bill to the floor because it did “not guarantee the same essential consumer protections” as California’s California Consumer Privacy Act (CCPA), the state’s 2018 harmful data privacy law. The ADPPA would not solve the developing state patchwork issue because it only acts as a floor for minimum required regulations where states could add additional regulations. California’s law is an example where the state regulations are heavier than the federal standard would be if ADPPA is passed. The federal standard for data privacy should instead act as a ceiling and should not be as extensive as the CCPA.

In the Senate, the ADPPA faced an equally hostile reception, with Sen. Maria Cantwell (D-WA), chair of the powerful commerce committee, refusing to hold a hearing because of her concerns surrounding “enforcement holes.” The ADPPA would require annual algorithmic assessments, which would create recurring compliance costs for firms and would also require considerable federal resources to enforce. These enforcement difficulties suggest that an entity like the government may not be in the best position to regulate something as dynamic and technical as algorithmic decision-making.

This begs the question of whether a data privacy law is needed at all. If it is, it would ideally be a bill that would address all these issues and create a reasonable data privacy standard for the country that solves the patchwork problem. But without that standard, more states may feel compelled to address privacy concerns and should be aware of pitfalls to avoid.

Since the implementation of California’s Consumer Privacy Act in 2020, four states—Colorado, Connecticut, Utah, and Virginia—have enacted their own privacy laws. Complying with a regulatory system in which data laws vary from state to state is the least efficient method for the economy. Most businesses have an online presence and more and more operate in all 50 states. The costs of regulatory compliance in this type of environment stifle competition—only businesses with sufficient capital can comply, and many smaller upstarts can’t.

For several years, it looked like Florida would join the growing number of states passing data privacy laws. Florida Gov. Ron DeSantis supported a data privacy bill in 2021, but the state legislature was split over a private right of action, which would have granted Floridians the right to sue and receive financial compensation for violations. With Florida’s 2023 legislative session approaching, it’s time to consider what a data privacy bill in Florida should look like, especially if Florida lawmakers want to avoid the mistakes of CCPA and Europe’s General Data Protection Regulation.

The most serious mistake would be including a private right of action in legislation. On the surface, allowing individuals to bring lawsuits against violators may seem like it would help hold firms accountable, but the unanticipated reality is much different. Even laws that govern more serious and personal information, such as the Health Insurance Portability and Accountability Act (HIPAA), do not include a private right of action. In other laws, like the Americans with Disabilities Act (ADA), a private right of action exists but has been significantly curtailed to reduce the number of “serial” cases abusing the ADA. If Florida passes a data privacy law with a private right of action, it would inevitably feed a cottage industry of frivolous lawsuits that trap businesses in litigation cycles, suppressing innovation and raising costs.

Burdensome data privacy regulations also stagnate innovation. For example, a Cato Institute study of the Fair Credit Reporting Act (FCRA), which regulates how credit bureaus manage consumer data, argues that because of data privacy requirements, the industry has become so tightly regulated and costly that innovation has stagnated and new entrants cannot enter the market. It is likely that only large and resource-rich firms will have the continued ability to comply with complex laws like data privacy.

Evidence from the European Union (EU) may support this claim. Two months after the EU implemented the General Data Protection Regulation (GDPR), 30% of US news sites blocked EU access due to an inability to comply. An HEC Paris study of 6,286 EU websites found a general 10 percent reduction in internet traffic, resulting in millions of lost dollars. The study also found that GDPR’s rules hurt smaller websites (10-21% drop) more than larger ones (2-9% drop), suggesting that similar to credit score regulation, data privacy regulation may help entrench current large websites while deterring entrants.

Policymakers may also consider that many consumers’ ‘rights’ commonly included in data privacy bills could eventually become regulations that negatively impact consumers. For example, the right to opt-out of the sale and sharing of data sounds simple but becomes a prescription for how websites earn revenue and handle data. Websites share consumer data with advertisers and data processing companies to generate revenue. Florida lawmakers should note that allowing users to opt-out of this transaction, the primary form of revenue for many websites, would alter the fundamental business model at the internet’s core. Some websites may shut down if forced to accept users but cannot monetize their data through advertising because users have opted out. In other cases, they may have to charge these users for previously free websites to keep servers running. Policymakers should consider these downstream impacts on consumers as they decide what data rights consumers may have.

In addition, there is certain to be confusion around what constitutes the sharing of data. For example, if a website provides a temporary interface for advertisers to determine which data segment they want to market, that could reasonably be considered sharing. However, there is no industry-accepted definition of sharing data. Therefore, when considering data privacy legislation, Florida policymakers must provide clear guidelines for what constitutes data sharing.

Data privacy can happen without such burdensome regulations. Other rights, such as the right to correction and deletion, as long as they are given appropriate curing periods, such as 90 days, can be of minimal impact. Privacy notices with continued opt-in, which prevent users from having to accept cookies every time they visit a site, can smooth the experience while providing consumers with a transparent and understandable privacy contract available at any time. Distinguishing between personally identifiable data and de-identified data can also prevent needless regulations on non-personal data.

As people increasingly move their lives into the digital world, demands will inevitably grow for greater data protection rules and more restrictions on what private companies can do with this information. However, crafting data privacy rules that balance individuals’ demands and the needs of businesses is a perilous task that either risks providing too few protections or overregulating the digital space, ultimately harming Floridians. While perilous, if the Florida state legislature pushes forward on a data privacy law, it can start to strike this balance by excluding a private right of action, limiting the right to opt-out, and providing clear guidelines for data sharing with an open and transparent privacy agreement.

Florida can do better than California and Europe’s data privacy laws, but only if lawmakers recognize the promise and perils.

The post Florida should learn from the mistakes of California and European privacy laws appeared first on Reason Foundation.

Over the last few years, Wakulla County has added between 300 and 500 new homes annually. Higher home prices in Tallahassee have made Wakulla a relatively affordable and attractive place to settle for commuters. The rise of remote work during the COVID-19 pandemic has also drawn many residents from other states.

Impact fees are regulatory fees imposed by local governments to pay for the cost of infrastructure investments necessary to accommodate new development. Impact fees are typically charged for infrastructure and services, including roads, water, and wastewater. According to data from Florida’s Office of Economic and Demographic Research, 38  of the state’s 67 counties reported collecting some form of impact fee revenue in 2020. In fact, Wakulla County is the only county in the state that has grown more than 10% over the last decade that does not impose impact fees.

When properly designed and implemented, impact fees act as user fees. They raise money directly from those who benefit from the infrastructure and services funded by the fees. Because of this, impact fees can effectively offset the need to raise additional revenue from other fees and taxes, such as property taxes.

Unfortunately, impact fees are often poorly designed or used as a source of funding for services more appropriately funded through other channels. Many municipalities impose flat fees that are not adjusted to the size or impact of individual housing units. In cases where the impact of development is not uniform, flat fees are highly regressive, meaning that they disproportionately burden low-income families.

Practical limitations can also inhibit rural jurisdictions like Wakulla County from implementing highly complex fee structures. But the objective should be to develop fee schedules that come close to reflecting the relative impact of development without being overly complicated. Scaling impact fees to the square footage of homes or the number of bedrooms is a possible approach to making them less regressive.

To the extent that impact fees reduce the burden of infrastructure costs required by new development, they may serve as a bulwark against more exclusionary land-use policies. In fact, economic research on the subject suggests that impact fees can result in increased housing construction.

Earlier this year, Wakulla County commissioners issued a request for proposals (RFP) seeking bids to conduct an impact fee study to guide the design and structure of impact fees in the county. Yet, commissioners voted 4-1 against moving forward with the RFP after receiving three bids ranging from $69,350 to $99,850.

Commissioners, however, might want to revisit this decision. Impact fees are efficient, user-based revenue sources when they accurately reflect the marginal cost of development to local governments.

The growing pains experienced by Wakulla County are not unique. Rather than rejecting the benefits of growth or forcing existing residents to bear the brunt of new infrastructure costs, Wakulla County should consider implementing well-designed impact fees that accurately reflect the marginal cost of new development.

A version of this commentary first appeared in the Tallahassee Democrat.

The post Properly designed impact fees could help Wakulla County accommodate population growth appeared first on Reason Foundation.

In the United States, school assignments are determined by families’ residences, casting unseen dividing lines in communities throughout the country. These government-imposed district boundaries or catchment zones divide communities, sorting children—often by wealth or ethnicity—into schools based on where they live. Many are unaware of these divisions until they realize that access to certain public schools often comes down to where you live.

Open Enrollment Best Practices by State

For example, Kelsey Williams-Bolar—a single mom completing her degree and working as a teacher’s aide—realized that she could not continue to enroll her daughters in their assigned public school in Akron, Ohio. Not only were her daughters being bullied at school, but Akron public schools were low-performing and in poor condition.

She decided to have her children live part-time with her father in the suburbs. While there, she enrolled her children in the Copley-Fairlawn School District, where her father’s home was zoned. However, Williams-Bolar and her father were charged with felonies after a private investigator, hired by the Copley-Fairlawn School District, discovered that Williams- Bolar did not live inside the school district. Williams-Bolar received two concurrent five-year sentences (suspended to 10 days) for using her father’s address to enroll her children in a better school district. Nineteen cases, similar to Williams-Bolar’s, have been reported in eight states since 1996.

Williams-Bolar’s story illustrates how school district boundaries often serve as barriers to better education options for many families. Residential assignment can have long-term ramifications for students, even after they graduate from high school. For instance, Advanced Placement (AP) courses are a valuable tool for high school students, allowing them to receive college credit while still in high school. As of 2021, however, US News reported that nearly a quarter of high schools—mostly in rural areas—did not offer AP courses. This means that students assigned to rural public high schools could end up paying thousands of dollars more for college.

In fact, the Missouri Business Alert reported in 2020 that the difference in AP courses offered at two Missouri high schools, located less than 20 minutes from each other, could cost their respective graduates thousands of dollars. Students assigned to the rural Southern Boone High School could earn a maximum of five college credits, whereas students assigned to its more urban counterpart, Hickman High School, could earn a maximum of 18 college credits. This difference in available AP courses means that graduates from Southern Boone could end up paying nearly $4,000 more in college tuition at the University of Missouri than their peers from Hickman High.

These examples show that residential assignment locks students into their assigned schools even if they aren’t a good fit. Students need flexible education options that may not be available in their assigned district, such as specialized programming, school culture or learning philosophy, or better academic opportunities.

K-12 open enrollment provides a solution for families assigned to public schools that aren’t a good fit for their children. This policy would allow children to enroll in any public school so long as it has open seats. While 43 states have some sort of open enrollment, only 11 states have mandatory open enrollment laws.

This analysis is a roadmap for developing robust open enrollment. It explores the benefits of open enrollment, outlines the core tenets and best practices for open enrollment, examines which states have the best open enrollment policies on the books, and provides an open enrollment snapshot of all 50 states. These state snapshots show policymakers what each state is doing well, where each state falls short, and the necessary steps to establish robust open enrollment.

Reason Foundation’s Five Best Practices for Open Enrollment

1. Mandatory Cross-District Open Enrollment: School districts are required to have a cross-district enrollment policy and are only permitted to reject transfer students for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
2. Mandatory Within-District Open Enrollment: School districts are required to have a within-district enrollment policy that allows students to transfer schools within the school district, and are only permitted to reject transfer requests for limited reasons, such as school capacity. Policies, including all applicable deadlines and application procedures, must be posted online on districts’ websites.
3. Transparent Reporting by the State Education Agency (SEA): The State Education Agency annually collects and publicly reports key open enrollment data by school district, including transfer students accepted, transfer applications rejected, and the reasons for rejections.
4. Transparent School Capacity Reporting: Districts are annually required to publicly report seating capacity by school and grade level so families can easily access data on available seats.
5. Children Have Free Access to All Public Schools: School districts should not charge families transfer tuition.

This report evaluated each state on these best practices to get a snapshot of where each state stands and provides recommendations for each state to improve open enrollment practices.

State-by-state Open Enrollment Analysis

State	Total Best Practices (out of 5)	Cross-District Open Enrollment	Within-District Open Enrollment	Transparent SEA Reporting	School Capacity Reporting	Law Against Public School Tuition for Students
Alabama	0	X	X	X	X	X
Alaska	0	X	X	X	X	X
Arizona	4			X
Arkansas	1	X	X	X	X
California	0	X	X	X	X	X
Colorado	3			X	X
Connecticut	1	X	X	X	X
Delaware	3			X	X
Florida	4			X
Georgia	1	X		X	X	X
Hawaii	1	N/A	X	X	X
Idaho	1	X	X	X	X
Illinois	0	X	X	X	X	X
Indiana	0	X	X	X	X	X
Iowa	1		X	X	X	X
Kansas	4		X
Kentucky	0	X	X	X	X	X
Louisiana	1	X	X	X	X
Maine	1	X	X	X	X
Maryland	0	X	X	X	X	X
Massachusetts	1	X	X	X	X
Michigan	1	X	X	X	X
Minnesota	1	X	X	X	X
Mississippi	1	X	X	X	X
Missouri	0	X	X	X	X	X
Montana	0	X	X	X	X	X
Nebraska	2	X	X	X
Nevada	0	X	X	X	X	X
New Hampshire	1	X	X	X	X
New Jersey	0	X	X	X	X	X
New Mexico	0	X	X	X	X	X
New York	0	X	X	X	X	X
North Carolina	0	X	X	X	X	X
North Dakota	0	X	X	X	X	X
Ohio	0	X	X	X	X	X
Oklahoma	4		X
Oregon	0	X	X	X	X	X
Pennsylvania	1	X	X	X	X
Rhode Island	1	X	X	X	X
South Carolina	0	X	X	X	X	X
South Dakota	0	X	X	X	X	X
Tennessee	2	X		X		X
Texas	0	X	X	X	X	X
Utah	4			X
Vermont	1	X	X	X	X
Virginia	0	X	X	X	X	X
Washington	0	X	X	X	X	X
West Virginia	1	X	X	X	X
Wisconsin	3		X		X
Wyoming	0	X	X	X	X	X
Total States Implementing Best Practices		9/49	7/50	3/50	7/50	24/50

The post Public schools without boundaries: Ranking every state’s K-12 open enrollment policies appeared first on Reason Foundation.

Florida Amendment 1 (2022): Disregard flood resistance improvements in property value assessments

Florida Amendment 2 (2022): Measure to abolish the Constitution Revision Commission

Voters’ guides for other states and policy issues can be found here.

The post Voters’ guide to Florida’s 2022 ballot measures appeared first on Reason Foundation.

Florida Amendment 2 on the November 2022 ballot would revise the Florida State Constitution to take out the section requiring and governing the Constitution Revision Commission (CRC). The Constitution Revision Commission meets every 20 years to consider and propose ballot initiatives to amend the state constitution. This would eliminate one formal means of putting on the ballot initiatives to change the state constitution, but a number of other ways to get initiatives on the ballot would remain.

Fiscal Impact

We could find no estimates of the cost of conducting the Constitution Revision Commission. Its members are not paid, and it only meets every 20 years, so the fiscal impact of Amendment 2 on Florida taxpayers would be very small.

Proponents’ Arguments

State Sen. Jeff Brandes (R) led the effort in the Florida legislature to put Amendment 2 on the ballot. Brandes has argued that both major political parties detest the Constitution Revision Commission, in part, because its members are appointed, not elected. Thus, they are not accountable to the voters. He tweeted “It’s rediscovered every 20yrs, has no rules, players have no experience, once it starts it can’t stop, crazy things pop out, and you never know how damaging they will be. Election night, you yell ‘Jumanji.’”

Brandes and other CRC critics say that citizens can amend the constitution with proposals from the legislature, citizen initiatives, a constitutional convention, and via the Taxation and Budget Reform Commission. They do not also need the CRC as a fifth mechanism, they say. 

Perhaps the single biggest criticism of the CRC is that many of the measures it proposes are things that should be legislative changes in law, not enshrined in the state constitution. Over the years, the fact that Florida citizens can only vote on ballot initiatives that change the constitution and do not have the option to change the law by initiative, as in other states, means the constitution is full of “issues of the day” rather than timeless rights and rules for the state.

Opponents’ Arguments

The Florida Sun-Sentinel editorial board has pointed out that decades of corruption led the U.S. Supreme Court to force a new state constitution for Florida and that the CRC was included in it “to protect Florida from ever being paralyzed again by the self-interests of an entrenched political empire.”

In that same spirit, the League of Women Voters of Florida opposes Amendment 2 because: 

“The Citizen Initiative process for amending the Constitution has already been significantly restricted by the state Legislature in recent years. Eliminating the Constitution Revision Commission will remove a generational opportunity for citizens to update their constitution. The League opposes any limits on citizens’ abilities to be architects of their own Florida Constitution.”

New College of Florida Professor Frank Alcock told us:

“The CRC is a mechanism that was intentionally built into our current state constitution during its formation in the 1960s. It’s unique among state constitutions and it reflects two important values of its designers: (1) the ability to adapt the constitution to changing times; (2) robust input and final approval of amendments on the part of the citizens of Florida. Like any institutional innovation, however, it can be exploited or used by those that control it. The CRC is what we make of it.”

State Sen. Darryl Rouson (D) served on the 2018 CRC and says:

“The CRC may not be perfect, but as lawmakers, we should work to improve it rather than scrap it. Abolishing the CRC along with other efforts to make it more difficult and more expensive to circulate citizens’ petitions to amend the Florida Constitution will make it harder for citizen voices to be heard in shaping the future of their state.” 

A 2020 poll by the LeRoy Collins Institute at Florida State University found that 87% of Floridians like having a commission do what the CRC does and provide an alternative to the legislature. About two-thirds of them also supported some changes to the CRC to address the concerns of critics.

Professor Alcock concluded:

“Amendment 2 would abolish the CRC entirely. While this would eliminate the political tactics that annoyed many Floridians this past cycle it would also remove an important feature of our state constitution that was deliberately put there by its designers. And let’s not forget that we have another 15 years before the next cycle that could be used to talk about less drastic reforms.”

Discussion

The Constitution Revision Commission (CRC) is a unique Florida institution, a commission that meets every 20 years to consider changes to the state constitution and agree upon ones to put before the voters as ballot measures. It is made up of 37 members. The governor appoints 15 members, the State Senate president appoints nine members, the speaker of the Florida house appoints nine, the Chief Justice of the Florida Supreme Court appoints three, and the attorney general serves on it.

Opponents of the CRC, like Sen. Brandes, argue that this gives the current political establishment too much power to change the constitution. Supporters agree with that, but say that making changes to provide for a more broadly representative set of members to the CRC would be better than abolishing it. 

Floridians have been through three rounds of the CRC since the state constitution was created. In 1978, the commission was appointed all by Democrats, and not even one of the measures they put on the ballot was approved by a majority of voters. In 1998, CRC was bipartisan and all but one measure they proposed met with voter approval. In 2018, Republicans appointed all the CRC members and all seven of their proposals that went to the ballot were approved by over 60% of voters. 

Carlos Beruff, a Manatee County developer who chaired the 2018 CRC, showed that the central goal of the CRC was to put measures on the ballot that people want. He said:

“The first one wasn’t terribly successful. The second one, I think eight of the nine items they put on the ballot passed, so it was pretty successful. So, we are going to be very careful with the taxpayer’s time and money and only bring forward things that we think will pass that 60% litmus test.”

Indeed, in the 2018 election, voters not only amended the state constitution by approving the CRC’s proposed changes but also got to vote on constitutional changes proposed by the legislature and ones put on the ballot by citizen initiatives. 

Discussion about reforming, rather than abolishing, the CRC has been going on for years. Among the organizations and experts engaging in the discussion is the LeRoy Collins Institute at Florida State University, University of Florida Professor Mary Adkins, other legal scholars, and the League of Women Voters.  

Some common reforms suggested include:

• Making CRC members more diverse and bipartisan rather than all being appointed by the party in control at the time the commission happens.
• Creating a simple set of rules and procedures for all CRCs in the future so they do not make up their own each time.
• Imposing a single-subject requirement so that the CRC cannot “bundle” different issues into one initiative. 
• Apply Florida’s open meetings laws to the CRC.

Another possibility would be to create a citizen legislative initiative process where Floridians could vote on legislative changes, not just changes to the state constitution. Most of the issues people bring to the CRC each time it convenes are legislative issues they are frustrated the legislature has not addressed. Lacking a direct democracy mechanism to change the law, they take the only route they have, addressing the issue via the state constitution. A constitutional amendment to create a citizen legislative initiative process and require the CRC to focus on issues appropriate to address in the constitution would both improve the CRC process and answer many of its critics and give citizens a more appropriate outlet for change.

Voters’ guides for other states and policy issues can be found here.

The post Florida Amendment 2 (2022): Measure to abolish the Constitution Revision Commission appeared first on Reason Foundation.

Florida Amendment 1, the disregard flood resistance improvements in property value assessments measure, would revise the state’s constitution, allowing the state legislature to pass laws exempt property improvements designed to protect against flood damage from property tax assessments.

For example, a homeowner could put drains and buried culverts on his property to improve the drainage of heavy rains or build a berm to protect against a wetland overflow. But, under current law, these improvements would increase the value of the property and the property taxes the homeowner must pay, which might be a disincentive to make the improvements.

The state constitution currently allows the legislature to exempt property improvements to protect against wind damage, but not from flood damage. So, Amendment 1 would simply add flood damage protection to the list of things the state legislature can exempt from property taxes. 

Fiscal Impact

Amendment 1 would result in small reductions in property tax revenues to the state for flood protection improvements that would be taxed under current law. But that may be offset by lower losses to Citizens Insurance, the state-owned insurer of last resort that has to cover flood damage to hundreds of thousands of properties across Florida. It could also reduce some need for public expenditures on flood control.

Proponents’ Arguments

Florida House Speaker Chris Sprowls (R) argues that the state has to spend hundreds of millions of dollars on flood control to protect properties and Amendment 1 would allow the state to incentivize private property owners to take on more of that responsibility. State Rep. Linda Chaney (R) says, “Homeowners who are taking proactive measures to protect their property from flooding should not only be rewarded but they should be incentivized.”

Opponents’ Arguments

There is no organized opposition to Amendment 1. 

Discussion

Florida’s state constitution currently allows property tax exemptions for wind damage protection improvements to properties. Since hurricanes tend to destroy properties by both wind and flood damage, extending property tax exemptions to flood damage protection improvements makes sense. It would incentivize property owners to reduce the damage storms inflict on their properties, and could reduce property insurance claims when the state property insurance market is in a crisis, and reduce the risks of expensive taxpayer bailouts. 

Voters’ guides for other states and policy issues can be found here.

The post Florida Amendment 1 (2022): Disregard flood resistance improvements in property value assessments appeared first on Reason Foundation.

The XBRL taxonomy was mandated and funded in 2018 by Florida House Bill 1073, a bill written in consultation with Reason Foundation policy analysts. Florida’s first-in-the-nation XBRL government reporting taxonomy is a notable point of progress, but advocates of this technology are still overcoming objections from within the government finance sector. 

After then-Gov. Rick Scott signed the Florida law, the influential Government Finance Officers Association (GFOA) put out a statement saying it “opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.”

GFOA also noted, “While numerous small-scale efforts have been made to develop a taxonomy that incorporates necessary elements of GASB {Government Accounting Standards Board] GAAP [generally accepted accounting principles] financial statements, there currently exists no viable taxonomy.” 

But, today, in 2022, two viable taxonomies have recently been published: one by the state of Florida and the other by the University of Michigan in conjunction with XBRL U.S., a group I’m affiliated with.

The latter taxonomy includes support for seven key financial statements and four notes that appear in annual comprehensive financial reports issued by governments nationwide and has been indexed to the Government Accounting Standards Board (GASB) pronouncements.  These are standards used by local governments in most states with only minor customization.  

Undoubtedly, these taxonomies can be improved, and a key source of ideas for improvement is GFOA and the government finance officers it represents. It is for this reason that I hope recent developments will encourage GFOA to review its current policy. 

GFOA was not always opposed to the application of XBRL to government finance. In its 2009 statement on “Best Practices for Web Site Presentation of Official Financial Documents,” GFOA stated, “Governments should monitor developments in standardized electronic financial reporting (e.g., extensible business reporting language [XBRL]) and apply that language to their electronic document process when appropriate.”

This contrasts with the organization’s current opposition to mandating any specific technology. It is certainly true that many government mandates should be opposed and there are alternatives to XBRL. For example, OpenSpending, a standard published by the Open Knowledge Foundation in the United Kingdom, offers a very easy way to produce visualizations of government revenues and spending. It is not, however, an ideal fit for U.S. audited financial reports which include balance sheets and cash flow statements as well as the income statement data supported by OpenSpending. 

By contrast, XBRL was developed specifically to handle accounting disclosures that present a comprehensive overview of an entity’s financial condition. Further, the XBRL standard has evolved over its 24-year lifetime to handle a wide variety of reporting scenarios while also attracting a community of software developers and subject matter experts. It is the best match for U.S. government financial reporting. 

Twenty years after academics first proposed applying XBRL to U.S. public sector financial disclosure, we may finally begin to see implementation. In the absence of a robust taxonomy and user-friendly tools for creating XBRL government financial disclosures, any government finance department interested in XBRL was faced with high implementation costs and a steep learning curve. And the absence of early public sector adopters deterred private software providers and accounting experts from making investments that would reduce the costs and complexity of adoption. 

While the Florida release is a major step forward, there is still a long way to go. First, no technical documentation or implementation guides were released with the taxonomy. These documents are commonplace with new taxonomies and help to ease new users into the process. Hopefully, these products will be forthcoming. Otherwise, Florida’s local governments may hold off on implementing the taxonomy, opting instead to hand-enter their results in the Division of Accounting and Auditing’s reporting portal. 

Second, the Florida taxonomy is specific to state reporting requirements which have historically been limited to a more detailed income statement than that included in annual comprehensive financial reports. Balance sheet concepts have been included in the newly released taxonomy, but it is still not a complete implementation of the GASB reporting model. Hopefully, the Florida taxonomy will evolve to cover more GASB reporting concepts in future releases 

The Florida release is an important step forward for XBRL in state and local reporting, but further advances may be slow in coming until GFOA reconsiders its stance toward machine-readable government financial reporting. 

The post Florida advances toward XBRL adoption, but Government Finance Officers Association opposes appeared first on Reason Foundation.

Among other provisions, Senate Bill 2508 would have created new requirements for the South Florida Water Management District (SFWMD) to certify “that its recommendations to the United States Army Corps of Engineers are consistent with all district programs and plans” before the release of state funds. A previous version of the bill required SFWMD to ensure that its plans did not “diminish the quantity of water available to existing legal users.”

This language was interpreted by environmental groups to favor the interests of agricultural producers in the region to the detriment of environmental restoration efforts. Flexibility regarding the management of water within Lake Okeechobee is key to several restoration goals in the region. While DeSantis noted that the final version passed by the legislature was “an improvement over what was originally filed,” he maintained that it would create “unnecessary and redundant regulatory hurdles that may compromise the timely execution and implementation of Everglades restoration projects, water control plans, and regulation schedules.”

As the Tampa Bay Times reported:

After opponents swarmed legislators with nearly 40,000 petitions and more than 1,200 phone calls, senators reversed course, removing provisions in the bill that advocates said would have led to toxic discharges, more Red Tide blooms and dead fish on beaches.

Still, advocates said the final version of the bill would have knelt to agriculture interests and been detrimental for Florida’s conservation and environment.

DeSantis on Wednesday announced the veto to loud applause during a news conference in Fort Myers Beach. “I’ve heard you; we’ve vetoed that today,” he said.

Gov. DeSantis has made the restoration of the Florida Everglades one of his policy priorities. The Florida Legislature has largely acted in lockstep with the governor’s agenda, passing substantial reforms in recent years. State lawmakers have allocated additional money to fund ongoing infrastructure projects, imposed harsher penalties on water polluters, and provided state and federal agencies greater flexibility in the management of water flows through the series of canals, storage reservoirs, and treatment areas.

Decades of water mismanagement have resulted in the deterioration of the Everglades ecosystem and a series of toxic blue-green algae blooms in waterbodies throughout central and south Florida. In July of 2020, Reason Foundation released a comprehensive report providing the historical context of Florida’s water management issues, an overview of current challenges and ongoing projects in the state, and several recommendations for future restoration efforts. The state’s actions have largely been in line with the 2020 report’s recommendations.

A significant problem restoration efforts seek to solve is that of algal blooms, which occur when large amounts of nutrients enter a body of water. The algae feed on the nutrients and grow until a slimy, green layer is formed on the water’s surface. The recent blooms in Florida originated predominately in Lake Okeechobee before spreading to St. Lucie and Caloosahatchee estuaries.

The spread of blooms to the coasts is the result of state and federal infrastructure projects which block the natural flow of water south to the Everglades and Florida Bay. Beginning in the 1850s, wetlands in the historic Everglades region were drained and cleared for human settlement. A series of devastating hurricanes and floods in the early 1900s prompted the construction of the Herbert Hoover Dike surrounding Lake Okeechobee and a series of canals to the east and west to divert water through the St. Lucie and Caloosahatchee rivers when water levels in the lake climb too high.

Severe algal blooms have become more frequent over recent years, prompting state of emergency declarations in 2016 and 2018. These episodes were largely triggered by major storm events and higher-than-average rainfall in those years.

Mitigating toxic algal blooms will require a reduction in discharges to the coast and, to some extent, allowing additional water to flow south. Such changes to the current management and flow of water will require flexibility on the part of the SFWMD and the Army Corps of Engineers. As Gov. DeSantis recognized, the requirements included in SB 2508 may have imposed unnecessary obstacles to that flexibility. 

Florida lawmakers have taken significant steps to advance restoration goals and speed up various projects that have been in progress for nearly two decades. Gov. DeSantis’ veto of Senate Bill 2508 will help ensure that progress continues.

The post Florida Gov. DeSantis continues to pursue Everglades restoration appeared first on Reason Foundation.

In March 2020, the U.S. Department of Health and Human Services announced that it would lend greater flexibility to healthcare providers, allowing the use of everyday communication platforms to provide telehealth services. Normally, providers must use Health Insurance Portability and Accountability Act (HIPAA)-compliant platforms which often require patients to acquire additional software or devices to access care. But throughout the pandemic, telehealth services have been available over popular apps including FaceTime, Zoom, and Skype.

Minor as such reforms may appear, rolling back regulatory hurdles is an effective way to expand access to health care. But, unfortunately, if you are waiting for federal leadership, don’t hold your breath—HIPAA is the reason why your doctor’s office probably still relies on fax machines for communication.

Fortunately, state-level responses to the pandemic demonstrate that states have the power to clear the way for telehealth. State actions included allowing providers to practice telehealth across state lines and allowing nurse practitioners to work without the supervision of a physician, among others. However, many of these temporary measures are beginning to expire.

One might wonder: if policymakers recognize the need for regulatory flexibility to access care during a pandemic, why wouldn’t the same flexibilities be beneficial under normal circumstances? It wouldn’t take much imagination to see what a permissive regulatory environment can do to improve healthcare. Florida has been leading the way on market-based reform for years.

A recent report published by the Reason Foundation, Cicero Institute, and Pioneer Institute rates each state’s telehealth policies according to a set of best practices that would extend pandemic-era flexibilities permanently. Unsurprisingly, Florida outperforms every other state in the report’s ratings.

Perhaps the greatest benefit of telehealth is its ability to connect patients to providers regardless of their physical location. Nearly every state took temporary actions allowing out-of-state providers to care for their residents during the pandemic. Once these measures expire, those states will return to an antiquated system of state-level licensing schemes that prohibits healthcare providers from practicing telehealth across state lines.

Forward-looking lawmakers in Florida understood that this outdated approach is bad for patients. In 2018, Florida created a streamlined telehealth registration process that allows out-of-state providers to practice telehealth without obtaining a Florida license. Now patients in Florida can access high-quality health care from specialists located across the country without the burden and expense of traveling to another state. Arizona is the only other state to have adopted a comparable registration process at this time.

Permanently eliminating barriers to cross-state telehealth is critical to expanding access, but it is only part of the solution. States should also seek to maximize the number of telehealth providers available by allowing nurse practitioners to provide telehealth services without the supervision of a physician. At least 20 states have taken temporary action to do so during the COVID-19 pandemic. Of course, such flexibility is also beneficial outside of a public health emergency. Enabling nurse practitioners to practice telehealth independently would help alleviate the growing shortage of physicians which is projected to reach up to 124,000 by 2034.

Twenty-nine states, including Florida, have permanently allowed nurse practitioners to work independently. Nurse practitioners are highly skilled health care professionals trained at the graduate level. Empowering them to practice to the full extent of their training is a safe and effective way to expand access to care––especially in rural communities that are most acutely impacted by the physician shortage. Research even shows that states allowing full independent practice have significantly lower outpatient and prescription drug costs.

As these and other responses to the pandemic have shown, states have the ability to act on health care while federal proposals continue to flounder. Telehealth is just one example of exciting developments made possible by private sector innovation and smart governance at the state level. On that front, Florida continues to lead the way, and, hopefully, more states will move to permanently reduce regulatory burdens holding back telehealth services for patients.  

A version of this column first appeared in Real Clear Policy.

The post States need permanent reforms to achieve the full benefits of telehealth services appeared first on Reason Foundation.

Since 2002, the FRS Investment Plan has served as a valuable retirement option for the majority of newly hired teachers and state employees that do not plan to spend their entire careers in public employment. Because the vast majority of public employees leave public employment before earning any meaningful benefit, in 2017, the Florida state legislature set the Investment Plan as the default for most employee classes, automatically enrolling new employees in the more portable plan, and leaving the FRS Pension Plan for those aiming to dedicate a full career to state employment.

Florida’s Investment Plan could be held up as a standard for other public employers to emulate but for one major flaw: insufficient contributions.

Most retirement experts advise that to sufficiently fund a dignified post-employment lifestyle, employee and employer contributions into a plan like Florida’s should total at least 10 percent—and preferably 12 to 15 percent—of pay for those participating in Social Security. As has been the case since its inception, the Investment Plan’s Regular Class—the grouping that includes teachers and most state workers—uses contributions of 3.3 percent from the employer and 3 percent from the employee, totaling a paltry 6.3 percent. This combined contribution rate places Florida well below other states that offer a defined contribution plan as a primary source of retirement.

Contribution Rates for State-Run Primary Defined Contribution Plans

Insufficient contributions from employers weaken the Investment Plan’s ability to provide a secure retirement for Florida’s public servants, making this one of the largest challenges facing state policymakers. A generation of retirees who are not adequately prepared for retirement could increasingly rely on public services to take care of them as they age.

Gov. DeSantis’ budget proposal addresses this issue head-on with a 3 percent increase in contributions from employers to the Investment Plan, for all employee classes. This near doubling in employer contributions would bring total contributions to Regular Class accounts to 9.3 percent, still below industry standards, but a marked improvement. This change would be a significant increase in total compensation and would bring the state closer to providing a secure retirement for its employees.

According to the appropriation report attached to the budget proposal, the aggregate cost of this contribution increase will be $270 million over the next year across all units of government. Much of that additional cost will be the responsibility of local governments, with the state estimated to pay $42.4 million of that increase in the 2022-23 fiscal year.

The proposed contribution increase would be in line with recommendations from the Pension Integrity Project, which has spotlighted the Investment Plan’s contribution insufficiencies in several reports and commentaries. A recent Reason analysis explored the idea of increasing Investment Plan contributions by 4 percent (2 percent from employers and 2 percent from employees), finding that this, along with several risk reduction policies applied to the FRS pension plan, could improve retirement security for most new workers while reducing long-term risks and costs for the state and its taxpayers.

The proposed increase is also expected to make the FRS Investment Plan more attractive to new workers and thereby reduce the inherent risk of cost overruns associated with the FRS Pension Plan.

While Florida’s retirement system would benefit from a number of reform efforts, Gov. DeSantis deserves credit for recognizing a major challenge facing Florida employees. As they consider the proposed budget, state legislators ought to see this as an opportunity to reaffirm their commitment to the retirement security of Florida’s public workers.

The post Gov. DeSantis’ proposed budget would improve Florida’s defined contribution retirement plan for teachers, workers appeared first on Reason Foundation.

During the 2021 legislative session, Florida lawmakers considered a proposal that they hoped would eliminate the financial risk public sector pensions currently pose for the state. The legislation, Senate Bill 84, aimed to limit the growth of the nearly $30 billion in Florida Retirement System (FRS) unfunded liabilities by requiring newly hired state and local employees to join the state’s defined contribution FRS Investment Plan. The measure ultimately stalled in the Florida House of Representatives after being approved by the majority of senators. Since then, Senate President Wilton Simpson has signaled interest in renewing the conversation during the 2022 legislative session while Governor Ron DeSantis included FRS Investment Plan benefits increases as part of his 2022-2023 budget recommendations.

Senate Bill 84 intended to close the defined benefit FRS Pension Plan to all new hires (except Special Risk members). But the bill did not include other funding or risk-related policy changes. Increasing contributions to bring FRS Investment Plan benefits up to industry standard is required for long-term solvency but only if reform includes a plan to tackle current liabilities.

The following analysis examines Senate Bill 84 and its impact on risk and cost compared to maintaining the state’s retirement plan status quo. Drawing on public pension policy best practices, the analysis offers an alternative policy package that, unlike Senate Bill 84, preserves the current retirement choice structure and applies solutions to pay down current debts, avoids future unfunded liabilities, and build on making the FRS Investment Plan much more attractive to future public employees.

The alternative reform scenario offered by the Pension Integrity Project keeps both the FRS Pension Plan and FRS Investment Plan open but also institutes the following changes:

• Gradually reduces the FRS Pension Plan’s assumed rate of return from 6.8% to 6% over 8 years.
• Adopts a 50-50 cost sharing policy for new Regular employees.
• Raises by 2% each the employee and employer contribution towards a member’s FRS Investment Plan – a 4% increase in total. (Governor DeSantis 2022-2023 Budget Proposal)
• Reduces the amortization period for new UAAL layers from 25 years to 15 years.

In order to make a comparison between the status quo, SB 84 and the alternative reform scenarios, the following assumptions were made:

• FRS is assumed to reset amortization payments and UAAL bases to zero after full funding.
• FRS is assumed to reset the AVA to match the MVA after full funding.

The alternative scenario intends to:

• Allow current unfunded liabilities to be paid off under most future market scenarios,
• Cost approximately the same or less than SB 84, and
• Ensure benefit adequacy.

Full Analysis: Modernizing Florida Retirement

The post Modernizing Florida retirement: Analyzing recent reform concepts appeared first on Reason Foundation.

This means that many families’ public education options are limited by where they can afford to live, which leads to unequal education options for children because housing and schooling options have long been intertwined.

As the U.S. Senate Joint Economic Committee reported in 2019, “Despite public education’s promise of being a free, inclusive and equalizing force, families are faced with the reality that attending a high-performing public school often requires paying more for housing, and many students’ educational opportunities are limited as a result.”

Attendance zones and district boundaries place geographic limitations on the education options available to children that all too often reflect historic racial and socioeconomic divisions.

A straightforward policy reform — open enrollment — eliminates or weakens school attendance zones and district boundaries so families’ education options are not tethered to their geographic locations. With open enrollment, students can enroll in any district-run school so long as the schools have available capacity.

Open enrollment ends the monopolies districts maintain through residential assignment and forces district-run schools to compete with one another. In fact, a 2016 report by California’s Legislative Analyst’s Office showed that a robust education marketplace can have positive effects for students and school districts.

Of the 10,200 students participating during the 2014-15 school year “more than 90% of students (transferred) to districts with higher test scores than their home districts.”

At the same time, California school “home districts” (school districts that lost students) improved their instructional offerings and expanded efforts to engage with their communities to better compete with other school districts.

As school districts responded to market forces, many home districts experienced an increase in student test scores over time. California’s open enrollment program showed that competition between school districts can encourage improvements. Research indicates that increased competition from school choice options, such as charter schools or private school scholarships, can also incentivize district-run schools to improve.

Recognizing the advantages of a vibrant education marketplace, Florida’s public school choice program — Controlled Open Enrollment — is one of the most robust in the nation. In fact, nearly 10% of students enrolled in Florida’s district-run schools did not attend their assigned school in the 2018-19 school year.

Controlled open enrollment allows Florida children to enroll in any public district-run school with open seats since 2016. Not only does COE allow students to cross attendance zone boundaries inside the school district (intradistrict open enrollment), but students can also attend any school in another school district (interdistrict open enrollment).

Parents, however, of students participating in COE must often provide transportation to their children’s new schools.
All 67 school districts in the state are required to participate in COE and annually report the number of available seats to the Florida Department of Education. All COE policies must abide by a variety of requirements, including adhering to all federal desegregation requirements and permitting parents to declare school preferences including placement of siblings in the same school.

The state requires school districts to ensure preferential admission to transfer applicants who currently reside in the school district or who relocate due to foster care, a court-ordered change in custody due to a divorce, their active-duty military parent receiving a new station assignment.

If there are more COE applicants to a particular school than available seats, the district must implement a lottery to determine transfer student admission.

Florida, however, can make its COE program even better. Specifically, state policymakers should require the Florida Department of Education to publish data on transfer students. This change would ensure that schools don’t reject transfer applicants without good reason.

Nonetheless, Florida’s COE remains a prime example of how families exercise public education choice and should serve as a model to other states.

In the first three years of the program, more than 787,500 students participated in Florida’s COE. The fact that nearly 55% of COE students participated in the federal Free and Reduced-Price Lunch program during that time shows that COE gives low-income families access to education options outside their geographically assigned school.

Sarasota County Public Schools has participated in COE since the program’s beginning in 2016. By the 2018-19 academic year, the school district’s number of COE transfer students increased by nearly four times more than during the program’s first year there.

Almost half of COE students between 2016-17 and 2018-19 also participated in the Free and Reduced-Price Lunch program. During that time frame, most of Sarasota County Public Schools’ 8,977 transfer students were intradistrict transfers, with only 1.4% of transfer students living outside the school district.

During the 2018-19 school year, Sarasota County Public Schools accepted the most inter-district transfer students when compared to five other Florida school districts of similar size (Escambia, Lake, Marion, St. Lucie and St. Johns).
However, both Escambia County School District and St. Lucie Public Schools gained more intradistrict transfers that year than Sarasota County Public Schools. In fact, approximately 66% of students enrolled in St. Lucie Public Schools as intradistrict transfers during the 2018-19 academic year.

These enrollment patterns illustrate how families, especially those from low-income households, are willing to vote with their feet when unfettered from geographic attendance zones and district boundaries. K-12 open enrollment laws can break down the lingering effects of antiquated policies that intentionally divided communities based on wealth and race. Most importantly, they are student-centered, letting families make the education decisions that are best for their children, regardless of where they live.

A version of this column previously appeared in the Sarasota Observer.

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In future retirement reform efforts, Florida policymakers trying to address the challenges facing the Florida Retirement System should recognize that a more collaborative process, which brings together important stakeholders like taxpayer advocates, public employee unions, and retirement experts, is a necessary component to enacting comprehensive reforms.

Using actuarial modeling of the Florida Retirement System (FRS), the Pension Integrity Project identified key policies and practical solutions that could both provide retirement security for state workers and reduce long-term costs for taxpayers.

In 2000, the FRS defined benefit pension plan for state and local government employees had a surplus of $13.5 billion for employee retirement benefits and was 118 percent funded. Today, the pension plan stands at just 82 percent funded, meaning it has only 82 cents of every dollar it owes in retirement benefits.

The Florida Retirement System also has a total of $36 billion in unfunded liabilities, more simply viewed as public pension debt. Perhaps even more concerning, FRS’ debt is growing quickly and over $6 billion of the system’s debt has accumulated in the last two years, as shown in Figure 1 below.

Figure 1 – Florida Retirement System’s Pension Plan Debt Accrual

This pension debt is the result of a variety of factors, including policymakers waiting too long to adjust to changing market conditions and economic trends.

In 2021, the Florida legislature considered Senate Bill 84, a pension reform bill that was a priority of Senate leadership. The reform bill aimed to stop the state government from accumulating future pension debt. The measure, which passed the State Senate, would not have fundamentally altered the conditions driving the rapid growth of FRS’ unfunded pension liabilities and ultimately the legislation failed to receive consideration in the House before the legislature adjourned.

If enacted, SB 84 would have completely closed the FRS Pension Plan to most future hires. This move would have built upon Senate Bill 7022, which was enacted in 2017 and switched the FRS enrollment default from the defined benefit (DB) plan to the primary defined contribution (DC) plan known as the FRS Investment Plan.

The Pension Integrity Project evaluated SB 84 during the 2021 session, identified the bill’s shortcomings, and proposed substantive areas of improvement. Our analysis found that closing the defined benefit option for new workers would produce some long-term risk reduction for taxpayers because the remaining defined contribution plan would have fixed costs and could not accumulate debt, but this positive impact would take decades to realize. That’s because closing the FRS Pension Plan to new employees alone would do nothing to address the system’s existing debt, which would continue to grow even if the FRS Pension Plan was closed. Thus, SB 84 was not a sufficient proposal to meet the state’s debt challenges and additional provisions would be needed to solve the problems that helped create the system’s $36 billion of debt. Senate Bill 84 also met serious opposition from special interest groups, primarily public education associations. Although the concerns levied by these groups were generally misdirected and sometimes ill-informed, including these groups in future reform efforts may help minimize future policy conflict.

With the failed 2021 attempt at retirement reform now in the rear-view mirror, Florida is still in need of a polciy solution to its public pension problems. Below we outline a few of the issues that still face both the FRS defined benefit pension plan and the FRS Investment Plan. Using actuarial modeling we present our long-term evaluation of SB 84’s proposed closure of the existing defined benefit plan for new workers, along with an alternative reform option that would better address the challenges facing stakeholders and the state of Florida. Under the Pension Integrity Project alternative reform option, future workers would still have the option to participate in a defined benefit plan and, with the introduction of improved risk and contribution policies, the alternative would reduce long-term costs and financial risk in ways that SB 84 would not have achieved.

Florida Retirement System’s Funding Challenges

The first pension-funding challenge that Florida policymakers need to face is the system’s unrealistic expectations for market returns. Over the last 13 years, $16.4 billion of Florida’s pension debt has come from failing to meet overly optimistic investment return assumptions.

Every year that FRS fails to meet its investment return assumption, public pension debt grows. Adopting more realistic investment return assumptions should be a top priority for state policymakers because this problem will likely continue to add debt to the system if it is not addressed.

FRS historically assumed an investment return rate as high as 8 percent before lowering the assumption to 7.75 percent in 2004. The system has adjusted the investment return assumption annually since 2014, to reach the current assumed rate of 7 percent for 2021.

Although progress has been made on this front, the system’s expectations are likely still too high for the long term. The FRS modeling that was developed in 2017 by Milliman and Aon Hewitt found that the 50th percentile geometric average annual long-term future returns would be in the 6.6 percent-to-6.8 percent range. Models developed in 2018 by Milliman and Aon Hewitt showed FRS should expect average annual long-term future returns in the 6.4-6.7 percent range, yet the FRS Actuarial Assumption Conference adopted a 7.4 percent return assumption. Presenters at the 2020 FRS Actuarial Conference suggested return assumptions within the range of 6.46 percent (Aon) to 6.56 percent (Milliman).

The Florida Retirement System’s average investment return for the last 20 years was 6.81 percent, well below the current 7 percent assumption (see Figure 2). The market forecasts for the next 10 to 15 years indicate that FRS is more likely to see returns around 6 percent. That means FRS is still likely to experience perpetually growing pension debt unless the system’s investment return assumptions are reduced even further.

Figure 2 – Florida Retirement System’s Investment Return History, 1996-2020

Source: Pension Integrity Project analysis of FRS actuarial valuation reports and CAFRs.

Florida’s policymakers also need to address the amortization policies of the state’s retirement system. Long debt-payment schedules have contributed to Florida’s inability to pull itself out of its pension debt over the past decade. It is expensive to hold large amounts of unfunded pension liabilities and the longer the state takes to pay off these pension debts, the more it will cost taxpayers in the long run. Florida policymakers need to address this challenge going forward by shortening amortization schedules for any newly accrued debt.

Furthermore, the existing defined contribution option, the FRS Investment Plan, which is offered to new hires, has major problems of its own that are worth tackling as part of any future retirement reform effort. The employer and employee contribution rates for the Investment Plan are low relative to typical private-sector standards, suggesting that many government employees could eventually retire without having sufficient post-retirement income.

Retirement professionals recommend contributing between 10 to 15 percent of an employee’s annual income toward the main retirement account for those participating in Social Security. FRS Investment Plan members, however, contribute just 3 percent of their salaries to their individual retirement accounts, with the state contributing another 3.3 percent. In total, about 6.3 percent of an employee’s pay is going into employees’ retirement accounts, far below even the low end of industry norms. 

Sadly, many workers in the defined contribution plan may be under the false impression that they are saving enough for retirement. If these issues are not addressed, many FRS Investment Plan members may find themselves with income replacement that is substantially below their needs or expectations when they retire.

Evaluating Retirement Reform Options

The Pension Integrity Project has incorporated the above reform elements into actuarial modeling to demonstrate the varied impacts of potential reforms. The analysis below displays the contribution and funding outcomes of three different options:

• Status Quo (baseline)—Represents the current state of FRS, no changes are made.

• Senate Bill 84 (as passed in Senate)—Closes the DB Pension Plan to all new hires except special risk members. Includes no other funding or risk-related policy changes.

• Alternative (a better option for future retirement reform efforts) — This option gives all new hires, regardless of class, the choice between a new, risk-managed, 50/50 cost-sharing FRS Pension Plan and a higher funded FRS Investment Plan. It gradually lowers the FRS assumed investment rate of return to 6 percent and adopts 15-year layered amortization for any new unfunded liabilities as risk-reduction measures for the legacy defined benefit plan.

Reason’s analysis of SB 84 during the legislative session indicated that simply closing the state’s defined benefit plan for new workers would do little to affect contributions into the fund over the next 30 years and therefore would not sustainably improve the state’s ability to fully fund FRS amid a volatile and unpredictable financial future.

By contrast, the alternative reform proposed in this analysis would gradually reduce the Florida Retirement System’s assumed rate of return and would reduce the amortization period used for paying down any new pension debt. These moves would noticeably alter the state’s contributions to the plan over the next three decades. As shown in Figure 3, if we assume a 7 percent constant rate of return over 30 years, the alternative will require higher employer contributions upfront to accelerate the elimination of unfunded liabilities. But in return, rates level out near or below the status quo and SB 84 over the mid-and long-term, a prudent tradeoff to eliminate risk.

Figure 3 – State Contributions for Reform Options if Experience Matches FRS Assumptions

Source: Pension Integrity Project actuarial forecast of FRS. The state is assumed to make 100 percent actuarially required contributions. Values are adjusted for inflation.

Assuming economic uncertainty in the decades ahead, the next figure models two recessions, in 2021 and 2036, and 6 percent constant returns in the remaining years. Figure 4 shows that the changes proposed in SB 84 would make little difference to year-to-year state contributions. Since these rates would be based on the same assumptions and amortization policies that generated the system’s current $36 billion in pension debt, SB 84 would not have prevented further debt from accruing if FRS’ assumptions prove inaccurate.

Figure 4 – Contributions for Reform Options in Volatile Market Scenario

Source: Pension Integrity Project actuarial forecast of FRS. The state is assumed to make 100percent actuarially required contributions. Values are adjusted for inflation.

Under the proposed alternative reform the state would agree to higher up-front contributions that would be more reflexive to market returns, as shown in Figures 3 and 4. This change would be the key to establishing a more resilient retirement system that could maintain a path to full funding even under market stress scenarios. Actuarial modeling of the system’s unfunded liabilities (see Figure 5) shows that outside of the idyllic and unrealistic status quo assumptions, FRS is still very vulnerable to the same pressures that caused the system’s $36 billion shortfall in the first place. The reforms proposed in SB 84 would have done nothing to rectify this issue.

Committing to more realistic return assumptions and accelerating amortization payments, however, would insulate the system from future market volatility. Adopting the reform options outlined in our proposed alternative would ensure that Florida is on a path to reducing unfunded liabilities, even while facing a volatile and unpredictable future.

Figure 5 – Florida Retirement System Funding Under Reform Options

Source: Pension Integrity Project actuarial forecast of FRS. The state is assumed to make 100 percent actuarially required contributions. Values are adjusted for inflation.

Table 1 shows that under the current 7 percent investment return rate assumption, SB 84 would have only marginal reduced the system’s debt and would have failed to generate the same cost savings as the alternative reform design under most market scenarios. Under stress-tested scenarios, SB 84 outperforms the status quo but fails to contain the overall debt, leaving taxpayers still exposed to major risk of continuing unfunded liabilities at the end of the 30-year forecast period.

Florida is facing the very real possibility of dedicating hundreds of billions of additional dollars toward FRS over the next 30 years. Apart from the unrealistic status quo investment return assumption, these extra funds would make practically no progress in reducing the state’s expensive pension debt. While requiring a commitment of higher annual contributions upfront, the alternative proposal would steer FRS away from this no-win situation.

Table 1 – Long Term Results of Different FRS Reform Options

Source: Pension Integrity Project actuarial forecast of FRS. The state is assumed to make 100 percent actuarially required contributions. Values are rounded and adjusted for inflation.

A Summary of Policy Suggestions

Florida policymakers are right to be concerned about the solvency of the state’s pension plan. However, simply closing the Florida Retirement System’s Pension Plan for future hires isn’t a complete solution. For Florida legislators seeking to implement meaningful pension reform next session, it is important that the state address the structural issues plaguing FRS in order to restore solvency and avoid making costly long-term mistakes. This means both tackling the still-growing debt of the defined benefit FRS Pension Plan and building a better-defined contribution FRS Investment Plan for current and future workers.

Next session, pension reform efforts should be centered upon the goals of all stakeholders. State policymakers can do this by considering the following:

• Reducing risk
  • Close the existing FRS pension to new hires and offer a new FRS defined benefit pension option for new workers with the same level of benefits as the current plan, but with features to reduce long-term governmental risks and costs (e.g., 50/50 employer/employee cost sharing and a conservative investment return assumption).
  • Gradually lower the assumed rate of return for the legacy plan to 6 percent.
  • Reduce the amortization period to 20 years or less for legacy debt and to 15 years for new debt.
• Improving the defined contribution plan rates.
  • Gradually increase both employer and employee contributions to the DC plan so contribbutions are above 10 percent of pay.

Conclusion

Florida’s policymakers, public workers, and taxpayers should seek to secure the Florida Retirement System so its ability to keep promises made to workers does not depend on everything going exactly as planned—a recipe that has not panned out over the last decade. The above analysis demonstrates the importance of testing any future potential reforms with an actuarial analysis that includes a variety of potential market outcomes, including those that fall below the plan’s expectations, a practice that is commonly known as stress testing.

There are various ways to achieve the legislative goals of eliminating or vastly reducing current and future public pension liabilities while improving the overall resilience of the Florida Retirement System. However, if Florida doesn’t address the rising debt within its defined benefit plan and continues to use insufficient contributions into the defined contribution plan, taxpayers will likely continue to be saddled with billions more in debt and the long-term retirement security of many public workers will be at risk.

The latest retirement reform effort fell short, both in the actual proposal and the ultimate legislative outcome. The good news is that state legislators do appear to be aware of the problem. Going forward, policymakers should try to foster a more collaborative process that involves as many stakeholders as possible, which will improve the chances of success in the end. To avoid perpetually growing public pension debt and costs, policymakers should also seek out a more comprehensive solution. Lastly, it is crucial to use actuarial analysis and stress testing to properly identify the changes that will effectively address all of the challenges FRS faces.

The post The Florida Retirement System Is Still in Need of Reform appeared first on Reason Foundation.

As this state legislation worked its way to the governor’s desk, it was widely pointed out that these restrictions are blatantly unconstitutional.  The First Amendment, as interpreted by many court precedents, clearly says the government cannot mandate that private companies carry speech they find objectionable or offensive—just like Christian cake makers cannot be forced by the government to bake gay wedding cakes, or a liberal newspaper can’t be forced to publish conservative op-eds.   

So, it took less than six weeks for a federal court to block the Florida social media law. The judge pointed out the clear violation of the First Amendment, writing, “The legislation compels providers to host speech that violates their standards—speech they otherwise would not host—and forbids providers from speaking as they otherwise would.” And adding that, “[T]he Governor’s signing statement and numerous remarks of legislators show rather clearly that the legislation is viewpoint-based.”

The state’s GOP leaders really did give themselves away in their joint statement at the signing of the bill. Gov. DeSantis said big tech would no longer be able to censor and discriminate in favor of their ideology. Florida Lt. Gov Jeanette Nuñez claimed the bill “fights against big tech oligarchs that contrive, manipulate, and censor if you voice views that run contrary to their radical leftist narrative.”

Florida Senate President Wilton Simpson said Florida would “stop the abuses that are possible when big tech goes unchecked.”

Florida House Speaker Chris Sprowls said it is time to “stop the abuses that are possible when big tech goes unchecked.”

And numerous other GOP legislators chimed in, claiming big tech oligarchs threaten free speech. 

Virtually everything they said is untrue and deeply contrary to the conservative principles they claim to uphold.

Social media platforms, or any private person or company, cannot censor anyone. Only the government can forbid the promulgation of speech by a person—that is what censor means.

A popular company is not an oligarchy or a monopoly. It is deeply disturbing to see Republican leaders decide their desire to force popular social media companies to do their bidding is more important than standing up for the First Amendment and the rest of the Constitution. 

Nor has the governor applied his justification for the law consistently and fairly. The law exempts some favored companies from the restrictions—like Disney. Yes, Disney does social media, which might be a clue that Twitter and Facebook are not monopolies: they compete against each other and Disney. And if that sentence didn’t give you a headache you are not paying attention.

So Florida’s state lawmakers thought it important that Disney, with its Walt Disney World Resort in Orlando, be allowed to not include posts it finds objectionable, but those lefties in Silicon Valley should not be able to do so. You begin to see why the judge said the law is rather clearly viewpoint-based. 

You can see that even more in Gov. DeSantis’ reaction to Twitter blocking Rebekah Jones, the former Florida Department of Health web employee who accused his administration of covering up COVID-19 deaths. The governor says he opposes social media companies blocking people and the sharing of stories based on their ideology, and the new law he signed forbids it. Yet when Jones was blocked by Twitter, DeSantis said, “This decision was long overdue. Rebekah Jones is the Typhoid Mary of COVID-19 disinformation and has harmed many hardworking DOOH employees with her defamatory conspiracy theories.”

So, he actually only opposes social media blocking people or statements he doesn’t like.

The state attempting to control the decisions of private parties like social media platforms on what content they will or will not share cannot help but fall into this kind of political opportunism. As the lawsuit against the Florida law stated, it “was motivated by animus toward popular technology companies—animus specifically driven by disapproval of the companies’ perceived political and other viewpoints.”

The First Amendment explicitly was created to prevent that. If the Florida law were legitimate, then any Democrat state would be equally legitimate with a law restricting conservative social media.  It’s a vicious cycle of political manipulation and control with no good end. 

Many people who consume social media want moderation by the social media platforms. They want some lines to be drawn so that the platform doesn’t get swamped by hate or other unacceptable behavior. The companies provide that in a competitive market, and the ones that do a good job of providing a system people enjoy using get more customers. It’s pretty straightforward and consistent with what Florida’s GOP leaders say when they talk about the rest of the market.  

Replacing private moderation in a competitive market that lets all of us find the social media platforms we prefer with government control of content would be a disaster for free speech and the rest of our liberties.  

There are a multitude of search engines and social platforms to choose from. The right response to behavior by any one of them that you don’t like is to go try a different one. And recognize that social media is still simply one of many ways any person or political candidate can get their voice out. There remain all the instruments of conventional media from newspapers to talk radio to rallies and podcasts, and who knows what we will see next. Investor websites highlight dozens of “new social media startups to watch in 2021.”

There is plenty of competition and no need for dumb and unconstitutional laws that try to control social media companies the politician of the day doesn’t like.  

A version of this column originally appeared in the Sarasota Observer.

The post Florida’s Social Media Law Is Unconstitutional appeared first on Reason Foundation.

In Florida, the average total state gas tax rate is 36.7 cents a gallon. That generates about $4 billion a year to pay for Florida’s roads. But as vehicles get more fuel-efficient and more consumers switch to electric cars, we will pay less in fuel taxes for using the same amount of roads.

Combining forecast data from the Energy Information Administration and Bloomberg, Florida would need to raise its state gas tax over 75 cents a gallon by 2050 just to keep revenue even with today’s levels.

But a new revenue proposal is gaining traction: mileage-based user fees, which are sometimes called road-user charges. This is the concept of charging road users based on the distance traveled rather than by a per-gallon gas tax.

Major Advantages of Mileage-Based User Fees

Here are five major advantages to user fees:

• Fairness. Ensures that those who use the roads and pay the user fees are the ones who receive the benefits.
• Choice. Provides users more control of what, when, and how often they pay.
• Flexibility. Allows state transportation departments the ability to adjust revenues and expenditures as the economy, demand, and technology change.
• Better incentives. Creates incentives for drivers and transportation departments to think seriously about the efficiency, quality, and costs of transportation infrastructure.
• Constraint. Helps prevent over-consumption and negative externalities, such as traffic congestion and pollution.

The fuel tax has largely been a successful user fee in the United States, but its days are numbered. As a replacement to the gas tax, mileage-based user fees (MBUFs) are being tested in pilot projects or used in limited cases. There are still technology, system design and cost issues to be resolved before mileage-based user fees could be fully implemented.

Around the world, New Zealand and Germany have a distance-based fee for trucks. Australia and several European countries are doing pilot projects on applying mileage fees to passenger vehicles.

Here, states have been testing MBUFs for more than a decade. Six years ago, the federal Fixing America’s Surface Transportation Act created the Surface Transportation System Funding Alternatives federal program that awards tax dollars to states to accelerate testing of mileage-based fees.

The Issues for Mileage Fees

• Privacy. The top concerns about mileage-based fees are privacy-related. Many of the privacy issues can be addressed by having users choose to pay a calculated fee with no data collected on their road use. Alternatively, users who choose an option with a technology that measures their road use can determine what data to share and can use private vendors to ensure that the data is not shared with the state—unless users explicitly agree to share it.
• New tax? Some motorists have raised legitimate concerns about MBUFs being an additional user fee. But pilot programs are testing mileage-based fees as a replacement for fuel taxes, not as a new additional charge to drivers.
• Cost of collection. Currently, the cost to collect mileage-based fees is higher than for fuel taxes but does appear to come down with scale. Pilot projects are increasingly exploring how to reduce those costs.
• Equity. All user fees are levied according to use, not according to income or wealth, so they tend to be regressive. A mileage fee is no more regressive than is the fuel tax, so the shift in user fees will not reduce, or increase, the regressivity of the main transportation user fee.
• Rural residents. Many rural residents are concerned MBUFs are not fair to them. But mileage-based fees are often better for rural drivers. Rural residents already pay more in fuel taxes because they tend to use more fuel and have fewer fuel-efficient vehicles.

Research by RAND and by the states of Oregon, Washington and North Carolina found that rural drivers benefit from a shift to mileage-based fees and would pay slightly less. This is appropriate because rural roads also tend to be less expensive to build and maintain than urban ones.

Some environmental groups are worried that MBUFs will discourage the purchase of electric vehicles.

Currently, electric car drivers avoid paying fuel taxes. Asking them to pay a fee for the roads they use is reasonable and fair to other drivers. States that have imposed road-use charges on electric vehicles report no change in the trend of electric vehicle adoption.

MBUFs are a long-term replacement for the gas tax. In the meantime, it is important to continue state pilots, expanding their scale and scope and starting to address the transition issues.

A national mileage-based user fee pilot program should build on tests already done at the state level and could be helpful if it is well designed and executed in ways that allow for larger-scale and more extensive testing.

A version of this column previously appeared in the Sarasota Observer.

The post How Florida Can Use Mileage-Based User Fees to Fund Roads appeared first on Reason Foundation.

What the Centers for Disease Control and Prevention (CDC) termed EVALI (e-cigarette or vaping device use-associated lung injury) spurred several states to issue executive orders banning e-cigarettes or e-cigarette flavors outright. After an exhaustive investigation, however, the CDC found nicotine e-cigarettes were not responsible for EVALI. 

EVALI resulted from an existing prohibition on marijuana, with victims inhaling black market THC cartridges laced with a Vitamin E acetate. Nevertheless, the debate on e-cigarettes continued to intensify, with critics claiming vape flavors were luring kids into nicotine addiction. In response, President Donald Trump’s administration raised the federal age for using tobacco products to 21 and removed some flavors of the most popular devices from the market until the Food and Drug Administration (FDA) approves them.

In Florida, the state legislature passed a bill banning e-cigarette flavors. The bill would have killed the state’s vape shops and denied smokers the most popular alternative to cigarettes. Gov. Ron DeSantis, however, listened to Florida vapers and public health experts and vetoed the bill. 

“While originally conceived as a bill to raise the legal age to buy tobacco to 21 (which is superfluous given this is already mandated by federal law), SB 810 effectively bans tobacco-free vaping flavors used by hundreds of thousands of Floridians as a reduced-risk alternative to cigarettes, which are more dangerous,” Gov. DeSantis said in his veto message. 

The case for the governor’s veto has only strengthened since then. The youth vaping rate fell dramatically in 2020, before school closures and lockdowns. The Cochrane Review, the gold standard for evidence-based medicine, released a report concluding more smokers quit with e-cigarettes than with nicotine gum or patches. A study from the Yale School of Public Health found adult vapers who used the kind of flavors DeSantis saved were more likely to quit cigarettes than those who used tobacco flavors.

All e-cigarettes are now subject to review by the FDA, determining if their benefits outweigh any potential costs. If they fail this test, they will be removed from the market, preempting the need for any state prohibition.

The fears that youth vaping was somehow a gateway to smoking have also been found wanting. A report by the Taxpayers Protection Alliance shows the percentage of Florida’s high school students who smoked at least once in the past month is at a record low of 4.8 percent. Even among those young adults who could legally purchase cigarettes, the number of those smoking continues to decline.

Although Florida made the right call on vaping, other states have decided to pursue the prohibitionist path. Last June, Massachusetts became the first state to implement a ban on flavored tobacco products, including menthol cigarettes. The experiment is not going well.

According to the Tax Foundation, Massachusetts could lose over $120 million in tax revenues related to the ban in the first year. Meanwhile, cigarette sales in nearby New Hampshire and Rhode Island have skyrocketed. And the purchase of nonmenthol cigarettes jumped 14 percent in the first six months, undercutting claims the ban would reduce smoking. 

Unfortunately, misinformation around vaping continues to plague much of the media, state legislatures, and the general public. In Florida, at least, the DeSantis administration refused to be taken in by moral panic on this particular issue and public health and the state’s small businesses are both better off for it.

A version of this column previously appeared in the Sarasota Observer.

The post Florida Protected Public Health by Rejecting Vaping Ban appeared first on Reason Foundation.

In This Issue:

Articles, Research & Spotlights 

• Analyzing Florida’s Proposed Pension Reform
• North Dakota Pension Reform Should Prioritize Paying Down Pension Debt
• Recreational Marijuana Revenues Could Help Pension Solvency in Montana
• What Factors Impact Pension Reform?
• Protecting Public Workers from Retirement Risks
• Alternative Assets and Pose Risks to Pension Systems

News in Brief
Quotable Quotes on Pension Reform
Contact the Pension Reform Help Desk

Articles, Research and Spotlights

Analysis of Florida’s Proposed Pension Reform

As Florida’s unfunded pension liabilities have grown to $36 billion, the debate over potential reforms to the Florida Retirement System (FRS) pension plan continues. Reason Foundation’s analysis finds that over the next eight years, FRS’ annual employer costs are estimated to rise by $2.3 billion, which is the same amount the state currently spends on highway and bridge construction each year. The pension reform currently under consideration in the state legislature would limit future accrual of pension debt by directing all new workers, except public safety workers, to the state’s existing defined contribution plan. Unfortunately, despite this proposed change, the legislation would leave FRS nearly as vulnerable to market stresses as it is now.

Testimony: Pension Reform in North Dakota Should Tackle Pension Debt, Funding Risks

In an effort to address the state’s growing public pension debt, the North Dakota legislature is considering reform to the North Dakota Public Employees Retirement System (NDPERS). As currently written, the legislation—Senate Bill 2046—would close the current defined benefit plan to most new workers, diverting them to the existing defined contribution plan. The reform would also include additional payments to cut down on the system’s growing debt. In testimony given to the House Government Affairs and Veterans Committee, and in a more detailed commentary, Reason’s Raheem Williams explains that while the reform would help the state by limiting financial risk and capping future liability accrual, more funding policy challenges would be needed to complete the job of putting NDPERS on a sustainable path.

Testimony: Using Marijuana Tax Revenue to Pay for Montana’s Unfunded Pension Liabilities

Earlier this month, the Montana legislature considered how revenues from the legalization of adult-use recreational marijuana could help fund the state’s retirement plans. Due to ongoing funding challenges, Montana’s two largest pension plans will likely not be able to rely on market returns to achieve full funding in the future. Reason’s Steven Gassenberger and Geoffrey Lawrence recently testified that tax revenues from legalized recreational marijuana sales could be appropriately directed as an ongoing payment for long-term pension liabilities.

What Factors Impact Public Pension Reform?

As state pension plan funding shortfalls and annual costs continue to grow, public pension reforms are becoming more common. While pension funding challenges are largely ubiquitous nationwide, some states have done more to address their public pension challenges than others. A new Reason Foundation policy brief by Grace College Professor Michael Bednarczuk, Ph.D., and Reason’s Jen Sidorova examines the factors that could encourage or stand in the way of pension reform across the states. The analysis finds that the variables with the largest positive effect on the likelihood of reform were passing a prior law or having nearby states pass reform. These findings reinforce the importance of continued, year-after-year efforts to fully address pension funding challenges.

Addressing the Retirement Risks Facing Today’s Public Workers

Pension Integrity Project senior fellows Rod Crane and Rich Hiller examine why many of the factors that affect an individual’s ability to have a financially secure retirement are not being considered by many state retirement plans. They emphasize the importance of accounting for all types of risk that both employers and members face in the design of public retirement plans. A clearer understanding of these risks could help policymakers build retirement options that better serve today’s employees, employers, and taxpayers.

Pension Plan Investments in Alternative Assets Can Pose Serious Risk to Taxpayers and Members

As returns from traditional investments in bonds and large-cap public equities have declined, public pension plans are increasingly moving towards greater allocations in “alternative assets,” such as private equity. These assets can potentially provide higher returns but also come with higher risk and volatility. Reason’s Steven Gassenberger warns about the growing use of private equity in pension fund investment, noting the high fees paid to many of these investment firms and the general lack of transparency involved in these types of investments.

News in Brief

Pension Contributions Continue to Grow

An update to NASRA’s annual brief on public pension contributions is now available with results through 2019. This analysis uses historic and current contributions from over 100 state and local pension plans around the country. They find that aggregate contributions in 2019 grew by 4.9 percent (from $116.6 billion to $121.9 billion) since the previous year. Annual contributions in the aggregate are still lagging behind actuarially determined rates, but plans have improved in this area over the past decade.

Do Smaller Public Employer Pensions Spur More Saving?

A new brief by the Center for Retirement Research argues that workers are unlikely to change their saving habits in response to lowered pension benefits. Laura Quinby and Geoffrey Sanzenbacher of the Center expand upon a recent study to investigate the relevance of a simple lifecycle model, which assumes that workers will respond to a one-dollar decrease in their pension benefit with a one-dollar increase in their supplemental saving. They find that the actual effect upon supplemental saving is small, potentially due to low levels of additional financial resources by workers.

Quotable Quotes on Pension Reform

“This is a financial problem that will not go away without legislative action…Now is the time to address ERS [Employees Retirement System] to illustrate that Texas can continue to be fiscally responsible with taxpayer funds by paying down existing debt to save on future interest payments.”

­—Texas State Sen. Joan Huffman, sponsor of Senate Bill 321, in an April 19 press release

“Had we paid our full pension (payment) every year between ’96 and this budget, the number I would have put up this year would have been $800 million. If you do the math, we are, in our [fiscal year 2022] budget, paying $5.6 billion, in one year’s budget, for the delinquency of the past 25 years.”

—New Jersey Gov. Phil Murphy quoted in “Murphy’s promise of full public-worker pension payment breaks 25 years of underfunding,” NJ Spotlight News, March 15, 2021

“Texas taxpayers will ultimately have to cover the fund’s liability. The failure to address this problem today means it will be even more expensive for taxpayers to fix in the future. Plus, unfunded pension funds can wreak havoc on the state’s bond rating, which increases the cost of borrowing and makes it more expensive to operate state government every day.”

—Richard Jankovsky, president of the Texas Department of Public Safety Officers Association, cited in “Texas’ public servants need a healthy retirement system,” Austin American-Statesman, April 3, 2021

“I think we need to look at…really incrementally decreasing that rate of return. What we end up doing are these large drops, which sort of cost a lot of money to do. We should really look at getting down and getting the pensions to 7 percent, or lower than that…From a dollar and cents standpoint, that big of a drop is very hard for the city to handle.”

—Mike Gormany, New Haven City budget director, cited in “City Plans $17.5M Pension Fix Start,” New Haven Independent, March 31, 2021

Contact the Pension Reform Help Desk

Reason Foundation’s Pension Reform Help Desk provides information on Reason’s work on pension reform and resources for those wishing to pursue pension reform in their states, counties and cities. Feel free to contact the Reason Pension Reform Help Desk by e-mail at pensionhelpdesk@reason.org.

Follow the discussion on pensions and other governmental reforms at Reason Foundation’s website and on Twitter @ReasonPensions. As we continually strive to improve the publication, please feel free to send your questions, comments and suggestions to zachary.christensen@reason.org.

The post Pension Reform Newsletter: Using Marijuana Revenue to Pay Pension Debt, Pension Reforms in Florida and North Dakota, and More appeared first on Reason Foundation.

Download the pdf here.

The post Florida Retirement Cost Increases Highlight the Need for Pension Reform appeared first on Reason Foundation.