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Assumptions
In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.


But to many observers, even 7 percent is too high in today’s market conditions.


“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”


Public retirement systems from Alaska to Maine are running into the same dilemma as they struggle to lower their assumed rates of return in light of very low interest rates and unpredictable stock prices.


They are facing opposition from public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.(NYT, 5/27/2012)


Here is a bit of pension funding arcana for you. The assumed rate of return on pension funds drives how much money is needed to fund future benefits. The higher the assumed rate of return, the less money in today's dollars are required. A lower rate assumption means more dollars are required today. Given historically low interest rates on fixed income and gyrating, but lower, returns on equities, it makes sense to lower the interest rate assumption. In fact, it is the only prudent thing to do.


As the article points out, however, public sector unions object. They would rather continue the slow bleed of taxpayers, effectively kicking the can down the road. This same dynamic can be seen with Social Security and Medicare. Democrats, Liberals and public sector union bosses do not want to deal with reality. If they get their way, 10 or 15 or 20 years down the road, these programs will blow up and they will cast about for the villains. All they need do is look in the mirror.


Fare Thee Well
Renewable energy is faring well across the country, thanks partly to aggressive state governments and timely — but now imperiled — subsidies. Clean energy sources would do even better if the Republicans would end their hostility to any form of energy other than fossil fuels. Here’s some of the good news:


Twenty-nine states have now adopted renewable energy standards requiring utilities to produce a percentage of their power from non-fossil-fuel sources. (NYT, 5/27/2012)


See, this is why we read the news: to stay informed and correct misperceptions that may have formed. We thought that green energy was a bust. What with the bankruptcy of Solyndra, Ener1 and others. Now we learn that it is actually doing well...with the subsidies.


Meanwhile, watch how this requirement that utilities use "non-fossil-fuel" plays out. One hundred percent RedStateVT guarantee: if you live in one of these states, your utility bill is going higher. No subsidy for you! (Meanwhile in Vermont, a major wind energy project was just canceled....)