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Woe is California

This story about state financial and land-use planning from our neighbors to the west should underscore how imperative it is that Nevadans address their growing public employee pension problem with significant reform in the 2013 legislative session.

 

Teacher on Face to Face blissfully unaware of his own level of compensation

Here's the perfect example of why the government salary information on TransparentNevada is so vital.

Last night on Face to Face, Jon Ralston had as guests, two teachers from the Clark County School District, Theo Small and Kathleen Galland-Collins. In the course of their conversation, Ralston mentioned that the teachers made almost $100,000 and $80,000 respectively last year, which Small, who made almost $100,000 in total compensation last year, vigorously denied. (12:47 mark)


Ralston: Listen, you guys are paid well. You guys [make] close to $100,000, close to $80,000 with benefits.
[Small laughs]
Ralston: That's great, right? I think you should make that much money. Right? Why are you laughing? Those are good salaries. I don't think there's anything wrong with that.

Small: I don't know what teacher you're talking about that gets paid that much.

Ralston: Don't you get paid that much with benefits?  
Small: I don't. I wish I had that much.  
Ralston: That's what NPRI says.
That's not just what NPRI says on TransparentNevada, it's what the Clark County School District says. That's because all of the payroll data on TransparentNevada comes straight from government entities through public records requests.
If CCSD made a mistake, we'll be happy to correct it, of course, but all we do is take the payroll information that's produced by government agencies and make it easily available and searchable.

And that's a very good thing, because if it wasn't available to the public, Small would still be unaware that his compensation is anything but small. It's quite large, in fact, $96,270.96 in 2011. That includes $69,666 in base pay, $3558.15 in "other pay" and $23,046.81 in benefits. As a teacher, Small also gets three months of vacation every year.
Now if Small is an excellent teacher, I have no problem with him earning this much - or even more - but parents and taxpayers need to know how much he's making. Come to think of it, Theo Small needs to know how much Theo Small is making.

I'd bet many teachers and other government employees are also unaware of how generous their benefits package is.

For instance, as the CCSD salary schedule shows, all teachers receive a PERS contribution equal to 23.75% of their salary and insurance policy contributions worth $6,620. That means teachers are making between $14,858 and $23,072 in benefits alone.

That's a lot of money and certainly not the norm in the private sector, especially at a time when Nevada's unemployment is over 12 percent.

Next time, before a public employee comments about his compensation level, let's make sure he actual knows how much he's making.

And thanks to TransparentNevada, that's easy for both the employee and the taxpayer to find out.

 

The government-induced student loan bubble is the next housing bubble

With news coming out earlier this week that presumed-Republican presidential candidate Mitt Romney is supporting, along with President Obama, an extension of low interest rates for government-backed student loans, let's examine the student loan bubble, which has been caused by government intervention.

And if you don't think there's a bubble, take a look at these articles from Zero Hedge describing the nuts and bolts of the government-induced bubble in higher education and a few charts showing how dire the situation is.


As you can see, the amount of student debt being taken on every year has grown rapidly for the last 10 years.

Why have student loans grown this fast in the last 12 years?


Because of the intervention of the government, of course.
A key reason why a preponderance of the population is fascinated with the student loan market is that as USA Today reported in a landmark piece last year, it is now bigger than ever the credit card market. And as the monthly consumer debt update from the Fed reminds us, the primary source of funding is none other than the US government. To many, this market has become the biggest credit bubble in America. Why do we make a big deal out of this? Because as Bloomberg reported last night, we now have prima facie evidence that the student loan market is not only an epic bubble, but it is also the next subprime! To wit: "Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can't afford them." Re-read the last sentence as many times as necessary for it to sink in. Yes: just like before lenders were "pushing loans to people who can't afford them" which became the reason for the subprime bubble which has since spread to prime, but was missing the actual confirmation from authorities of just this action, this time around we have actual confirmation that student loans are being actually peddled to people who can not afford them. And with the government a primary source of lending, we will be lucky if tears is all this ends in. (Emphasis original)
What the charts can't do is describe how the government-induced student loan bubble is now hurting young adults. The Wall Street Journal though just put out an excellent article describing the impact of this debt in personal terms.
Between the ages of 18 and 22, Jodi Romine took out $74,000 in student loans to help finance her business-management degree at Kent State University in Ohio. What seemed like a good investment will delay her career, her marriage and decision to have children.
 
Ms. Romine's $900-a-month loan payments eat up 60% of the paycheck she earns as a bank teller in Beaufort, S.C., the best job she could get after graduating in 2008. Her fianc� Dean Hawkins, 31, spends 40% of his paycheck on student loans. They each work more than 60 hours a week. He teaches as well as coaches high-school baseball and football teams, studies in a full-time master's degree program, and moonlights weekends as a server at a restaurant. Ms. Romine, now 26, also works a second job, as a waitress. She is making all her loan payments on time.
 
They can't buy a house, visit their families in Ohio as often as they would like or spend money on dates. Plans to marry or have children are on hold, says Ms. Romine. "I'm just looking for some way to manage my finances."
Now the story of Romine and Hawkins isn't a call for loan forgiveness or reducing interest rates - just the opposite. Artificially cheap government loans and well-intentioned do-gooders pushing too many students to college have done enough damage.

This bubble's going to pop - they always do - and it's going to be painful for many. The best thing we can do now is get the government to quit interfering with higher education financing and let parents and their children, after evaluating the real costs and benefits of higher education, make the best decision for each child.

And as a bonus, once the government stops interfering with the financing or virtual schools take over, tuition will stop its skyrocketing rate of growth, as well.

 

Union boss: Attempts to remove ineffective teachers an attack on 'human rights'

Lynn Warne is the president of the Nevada State Education Association, and she appeared on Anjeanette Damon's "To the Point" show over the weekend, where she made the following comment about AB 225 and some other minor education reform bills passed by the 2011 Legislature. (7:30 mark)


Warne: Provisions in those bills [including AB 225], much of which we supported, really struck at the heart of what we feel are educators' rights, workers' rights, human rights really, and there was no compromise to be had. (Emphasis added)
Striking at the heart of "human rights" is a serious charge, so let's consider what AB 225 did.

Now, while AB 225 certainly represented an improvement over the old system, where 95 percent of teachers received tenure after one year of teaching and became virtually impossible to fire afterwards, the new system only allows a bad teacher with tenure to be removed after three years of poor performance.

In other words, a poor teacher would be able to harm the education of 50 to 100 or more students before a school is able to remove him or her for subpar performance. The stakes here are exceptionally high for students, because students with poor teachers learn only half as much as they would with an average teacher and a third as much as they would with an excellent teacher.

So Warne, union boss of and representing NSEA, believes that removing a bad teacher from the classroom is a violation of "human rights."

Keep in mind that having an ineffective teacher three years in a row often cripples a student academically for years or a lifetime.

In other words, union boss Warne believes ineffective teachers have a "human right" to potentially permanently harm your child's future.

That's outrageous.

Students vs. union. Your child vs. union bosses. An effective education for your child or dues for the Nevada State Education Association.

Those are the stakes. Those are the sides.

The political fight over education reform is about deciding which side you're on - the side of students, like the kids in your neighborhood, or of union bosses, who want to preserve the failing status quo.

Union bosses like Warne stand with the failing status quo.

We stand with excellent teachers committed to providing a challenging education for your children.

Union bosses like Warne stand with ineffective, dues-paying teachers.

We stand with students.

Whose side are you on?

 

Sandoval's deal with Amazon is NOT a tax increase


Yesterday, Gov. Brian Sandoval announced that he had reached an agreement with Amazon that would allow the State of Nevada to begin collecting sales tax revenue on purchases made through the online retailer's websites.

I'm sure that this announcement will spur a plethora of misinformed opinions about whether the governor is again raising taxes, so I thought it worthwhile to immediately clarify that no new tax liability would be created by this agreement. The Amazon agreement begins to address a long-standing collection issue; it does not impose a new tax.

The collection of sales taxes for online purchases has been a tricky issue since sales first began to take place over the internet. Technically, all states that impose a uniform sales & use tax, like Nevada, already tax these purchases through the use tax. Individuals in Nevada who make purchases over the internet are responsible for reporting these purchases to the Nevada Department of Taxation and remitting their "use" tax liability. The use tax rate is identical to the sales tax rate; the only difference is that the seller is responsible for remitting sales taxes whereas the buyer is responsible for remitting use taxes.

Of course, most online shoppers have routinely neglected their legal responsibility to remit use taxes for online purchases. This doesn't mean that the tax liability did not exist for these purchases, but it's been easy for shoppers to evade their tax liability because it's cost-prohibitive for state tax departments to audit individuals based on their online purchase history. The result has been a pervasive noncompliance with the tax code and a leakage of tax revenues that are legally due to state and local governments.

As a result, several states have attempted, in recent years, to transfer the onus of tax collection from online purchasers to vendors-shifting from a use tax to a sales tax for these transactions. Court decisions have rendered this change challenging, however. In 1992, the U.S. Supreme Court declared that states could not force retailers to collect sales taxes if they did not have a physical "nexus" within the state in question. As the only legislative body with the power to regulate interstate commerce, said the Court, Congress alone could provide for a system of interstate sales tax collection.

A controversial law passed by the State of New York later defined marketing firms who advertise on websites like Amazon as part of Amazon's physical "nexus," which, claimed state policymakers, gave them authority to force Amazon and similar online retailers to collect and remit sales taxes. That law has been the subject of ongoing legal dispute over the past several years as Amazon and Overstock.com have sued the State of New York, claiming its law to be unconstitutional. North Carolina and Rhode Island have enacted similar statutes, prompting threats from Amazon that the retailer would not do business with any firms that have a physical presence in these states.

Colorado lawmakers took a different approach, when, in 2010, they passed a law requiring online retailers to notify purchasers from Colorado, as well as state tax authorities, of each individual's use tax liability. The intent was to increase compliance with the state's existing use tax laws. Last month, however, a U.S. District Court decision found that even this requirement placed undue restraints on interstate commerce and that an individual state lacked the authority to enact the law.

Amazon's agreement with Sandoval, as well as the retailer's apparent willingness to now support federal legislation allowing for interstate sales tax collection marks a watershed in the evolution of what's become known as the "Amazon tax" debate.

Regardless, one should be careful not to confuse a change in whose responsibility it is to collect and remit the tax with the imposition of a new tax. If one disagrees with the tax liability that is assessed on online purchases, then that disagreement should be directed toward the current construction of the use tax. The liability already exists-it's just been easy to ignore the law until now.

 

Compensation of average CCSD employee has increased by nearly 20 percent in last four years

And here's the perfect end cap to a week of detailing how teachers making over $82,000, $93,000 and $193,000 (where the husband and wife are both teachers) in total compensation complained about not being paid enough.
According to the tentative budget document prepared by CCSD (p. 8) and dealing only with positions funded through the general fund, in 2007, there were 25,650 full-time equivalent positions, which I'm going to refer to as employees for ease of reading. Compensation for those employees totaled $1.54 billion. That's an average compensation of $60,038.99 per employee.

The next chart details the number of employees and their compensation levels at the end of 2013, but it assumes pay freezes from 2011 - 2013.


It shows $1.78 billion spent on 24,805 full-time equivalent positions*, for an average compensation of $71,759.73 per employee.


Going from $60,039 a year to $71,760 a year, that's a 19.5 percent increase in pay and benefits for the average employee in just four years.

During the worst economic downturn in recent memory, as Nevada lost 170,000 jobs, the average CCSD employee, including teachers, administrators and support workers, had his or her salary and benefits increase by nearly 20 percent from 2007 to 2011, which was right during the heart of the economic downturn.

Keep that in mind the next time a CCSD employee claims they aren't being paid enough. Did the "average" worker in your company get a 20 percent salary increase in the last four years?

This also explains, but doesn't justify, why school districts and elected officials claim education is facing cuts, if school districts don't receive as large of a spending increase as they want. When salaries and benefits make up 89 percent of your budget and those expenses are going up by four to five percent a year, even a two percent funding increase is going to produce a "shortfall" if you aren't honest about the cost of compensation increases.

In that case and going forward, it's incumbent on elected and school officials to explain what's happening with contracts, and let the public understand that while taxpayers are facing job losses or reduced pay or hours, teachers and other CCSD employees are receiving raises of four to five percent every year.

That will give citizens the information they need to accurately evaluate the compensation of CCSD employees and claims of hardship from teachers earning $82,000, $93,000 or even $100,000 a year.

*Note: The chart on page 8 deals with the number of employees in 2013, but assumes the same salary per employee as in 2011. (If CCEA wins arbitration, the cost of wages described here will be even higher over the next two years.)

Since an increase or decrease in the number of employees would produce a corresponding increase or decrease in total compensation, it's reasonable to project that the average compensation in 2011 was around $71,759.73, even without knowing the exact number of employees or cost of compensation.

So, while I can't claim that $71,759.73 is to the penny accurate, it is a fair and reliable way to support my central claim here - that the compensation of the average CCSD employee has increased by nearly 20 percent in last four years.

 

The misunderstanding of economic development

After listening to Gov. Brian Sandoval's speech today about his team's strategy for economic development, I was struck by several components and extremely disappointed that he declined to take questions.

Now, let me get this straight-I like and respect Brian Sandoval very much. During my many conversations with him, I've always found him to be intelligent, engaging and sincere. I've also, on many occasions, praised most of the major policy initiatives he's pursued as governor. This includes everything from performance-based budgeting to education reform.

However, as a free-market (and, especially, Austrian) economist, I have remained critical of his state-centric plan for economic development. This dissent has not been based on blind ideological adherence or unfounded assertions. Instead, the field of economic science has produced an overwhelming body of literature which concludes that similar efforts at state economic planning will produce an outcome that is sub-optimal to what the market would produce on its own. Ludwig von Mises became famous by pointing out that when government takes money out of the pockets of consumers and then relies on supposedly sage bureaucrats to distribute that money directly to private businesses in order to "create jobs," there is no way for these bureaucrats to know what types of investment consumers would have preferred on their own. So, instead, they substitute their own, personal viewpoints for those of private consumers and force society to collectively subsidize industries from which consumers do not derive as much value as those that would be chosen through strictly market forces. The result is a net loss of consumer welfare and society suffers.

Sure, there is the visible sign of money moving from bureaucrats into the hands of those businessmen whom they favor. These businessmen then hire on workers, creating the visible manifestation of "jobs." But these are jobs that produce less value than those that would be created if capital had not been diverted to the government in the first place.

Still, Sandoval, who may or may not understand these economic fundamentals, today defended his plan by alluding to other popular governors around the country who have implemented similar plans, including New Jersey Gov. Chris Christie and Texas Gov. Rick Perry. I found this defense troubling because economic illiteracy from one policymaker should not be used as a naked excuse for other policymakers to promote the same economic illiteracy.

Sandoval claimed that the State of Nevada must subsidize private business if it is to "compete" on a national playing field where other states are also offering subsidies to lure notable large businesses. What he appeared to miss was that there is no zero-sum game in a free market. To create jobs and wealth in Nevada, he need not steal them from somewhere else.

In fact, Sandoval's focus of recruiting large, out-of-state businesses to Nevada is a flawed approach for realizing his mission of "creating jobs," given that large businesses tend to shed jobs over time, as research shows. In a dynamic, market economy, where entrepreneurs are continually innovating and displacing older producers, it is the growth of new businesses that contributes overwhelmingly to job creation. According to Kauffman Foundation research, job growth in the United States is "driven entirely by start-ups."

Given this recognition, wouldn't a more savvy approach to economic development focus on identifying and removing specific barriers to native entreprenuership? Does the governor really have so little faith in Nevada's entrepreneurial class that he believes they cannot create wealth and jobs on their own?

It's easy to be frustrated by Nevada's persistently high unemployment rate. But, if one loses sight of the fact that Nevada finds itself in this situation precisely because of policy failures from government (albeit, primarily at the federal level), then one becomes suscepitble to the erroneous belief that Nevada's economic malaise is due to the failure of its entrepreneurial class. Yet, this has not been the case and the governor should remain cognizant of that fact.

Nevada's housing and economic crises can be laid primarily at the feet of an over-reaching Federal Reserve, the impact of the Community Reinvestment Act, relaxed banking reserve requirements for mortgage-backed assets relative to other financial instruments, etc. To be fair, however, Silver State policymakers have done the state's citizens no favors in their response to these crises, as they've maintained one of the highest minimum wage rates in the nation, high RPS standards that render electricity artificially expensive, they've raised taxes, and they've passed legislation that only further handcuffs the housing market, such as AB 284.

Finally, a question that the governor should have addressed, but didn't, was whether he truly believes that his economic development plan follows the spirit, if not the letter, of the state's constitution. At the center of his plan is a Catalyst Fund through which he plans to distribute $10 million in direct state support to select private businessmen. This appears to be in direct conflict with Article 8, Section 9 of the Nevada Constitution, which says: "The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes."

Indeed, it doesn't matter what Governors Christie or Perry do in New Jersey or Texas, if such action would be unconstitutional in Nevada.

Nevada Attorney General Catherine Cortez Masto has offered Sandoval cover by proclaiming that state authorities can get around the constitutional restriction if they just set up "local governments" to act as shell corporations through which the state can pass money onto private businessmen. It's a pretty weak argument-and one with which the Nevada Supreme Court would likely disagree. If the governor truly wants to make the case for his economic development plan, this is a very serious point that he should address directly.

 

Husband and wife teachers making over $192K 'care more about' $6K than 'improving' teaching skills

Don't shoot the messenger; teacher Vicki Steffenhagen is the one who wrote that.

Vicki Steffenhagen is an English teacher who earned $88,432.90 in 2011. Her husband, a high school counselor, earned $104,895.88 in 2011. That's total compensation of over $193,000 in 2011. If you just look at base pay, Vicki and her husband received over $135,000 last year.

With that in mind, here's part of Vicki's recent letter to the editor to the Review-Journal.

To clarify, a column was added to our published pay scale several years ago for teachers who paid for and completed certain certificate programs. The cost was $3,000. My husband and I did not have $6,000 to pay, so we had the district take out money from every paycheck for an entire school year. We took quite a hit all of last year. We knew it was an investment in our futures, so we worked our butts off taking classes and writing papers and reading and creating projects and lessons and working full-time at a large high school in town.

We did all of this while making much less money. Now the district doesn't want to honor that, and it's wrong. We would never have spent $6,000 to take enrichment classes. Do I care more about the $6,000 than improving my teaching right now? Yes.

Good teachers don't get into education for the money (it's the summers off, of course). You know what you are going to make, for the most part. But what the Clark County School District is doing in some aspects of this negotiation is completely out of line.
 
Vicki Steffenhagen
Las Vegas (Emphasis added)
Read that again, remembering that this is a couple earning over $193,000 a year and has "the summers off":
Do I care more about the $6,000 than improving my teaching right now? Yes.
This shows two things. First, many, many teachers are doing very well. How many of their students have parents making almost $200,000K a year as a couple with three months of vacation every year?

Second, it shows the stupidity of paying more for advanced degrees and not increases in student performance.

Not only have studies consistently shown that teachers with a M.A. degree are no more effective than those without, read what she says, "We knew it was an investment in our futures..."
 
She and her husband took these classes with the goal of earning more, not improving their teaching abilities. Earlier in her letter, she describe changes she made as a result of those classes, but she and her husband would have received a salary increase whether their teaching abilities improved or not.

In a sane system or what happens every day in the private sector, teachers would take classes with the goal of improving their teaching ability, knowing that their pay would increase if their performance did.

It's time to completely change the teacher pay system, and the first step to doing that is repealing NRS 288, Nevada's collective bargaining statute.

(h/t Steve)

Related:

 

Happy tax day, America! You have the most progressive tax structure in the world.

Thanks to the always-eloquent Veronique de Rugy for pointing me toward this 2008 study produced by the OECD which estimates the progressivity of tax systems in 24 industrialized countries. The study develops two separate indices to measure tax progressivity. One lists the U.S. as having the most progressive tax structure in the world and the other lists the U.S. second, just behind Ireland.

"But wait," you say, "top marginal tax rates for personal income taxes are lower in the U.S. than elsewhere in the OECD!" True, but top marginal tax income tax rates in the U.S. only apply to the very wealthy. Throughout Europe, much of the middle class is subject to the top marginal tax rates. As de Rugy explains, the top U.S. tax rate of 35 percent only applies to those making over $379,000. In France--the presumed "model" welfare state--the top rate of 41 percent applies to anyone making over $91,000.

The U.S. tax code also relies much more heavily on the progressive income tax and taxes on capital accumulation (e.g. capital gains taxes and taxes on dividends). Although European leaders are often stymied by inflexible labor market strictures, they at least recognize the economic destruction that is wrought when governments penalize saving and investment with capital gains taxes and the like.

Instead, most developed nations rely more heavily on consumption taxes, including the value-added tax (VAT).

Also, leaders in other OECD nations have resisted creating tax "loopholes" that decrease the value of work relative to liesure by paying individuals not to work. The U.S., by contrast, has a host of exemptions for low-income households and tax credits like the earned income credit that help render the U.S. tax code more progressive than those of other advanced nations.

So, according to the OECD, the U.S. redistributes wealth at a faster pace than any other advanced nation on Earth.

Happy tax day, America! Premier Khrushchev would be proud!

Or...perhaps I should say, "Премьер Хрущев мог бы гордиться!"

 

Another CCSD employee complaining about pay concessions made over $93K in 2011

Two Sundays ago, Brent Bandhauer, a CCSD counselor, wrote a letter to the editor to the Review-Journal complaining about potential teacher pay concessions.
As you read his letter, keep in mind that he took home $93,682.81 in total compensation in 2011.

What's wrong with teacher concessions? Time and again our community is being told that if teachers would make some simple pay concessions, like the other Clark County School District employee groups did, the budget problems would be resolved. One would logically assume the teachers are being selfish and short-sighted by trying to hold out for more money. ...

In addition, teachers have been making pay concessions since Gov. Kenny Guinn took office in 1998. Even though times were "booming" in Nevada, school districts were already cutting. There have been several instances over the past 14 years where the district's salary schedule didn't include any cost-of-living allowance.

Every time I hear leaders of our school district or our community complaining about teachers being unwilling to forgo our earned pay increases, I wonder if they're aware that such concessions mean so much more than simply living on the same pay as last year.
BRENT BANDHAUER
LAS VEGAS (Emphasis added)
Usually government employees, including teachers, receive several types of pay increases. Generally, teachers receive cost-of-living increases, step increases and increases for additional education or certifications.
First, isn't this amazing? Outside of government employees, who else receives multiple types of raises each year?
Second, consider what Bandhauer is complaining about - "[t]here have been several instances over the past 14 years where the district's salary schedule didn't include any cost-of-living allowance." In other words, in some cases, he only received one or two types of pay increases that year! He's complaining about receiving a pay increase, because he didn't receive as big of an increase as he wanted.

Third, this is why the information on TransparentNevada is so important. When government employees, like Brent Bandhauer, complain about not receiving enough pay increases, it's important to be able to learn that, for instance, Bandhauer received over $93,000 in 2011. Assuming that as a counselor, he works the same amount as a teacher, he earned over $76 an hour in total compensation.

Only $76 an hour? No wonder, he's upset. Who would ever want to earn that?

Related:

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