Topic: Public Finance
News
July 13, 2017

Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon. . . In 2007 the Postal Service and its regulator determined that, at a minimum, 5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.
News
July 12, 2017

When we split obligations into how much California owes to those who have already retired and current employees, a startling fact emerges. The assets California governments have now aren’t even enough to cover what it owes to current retirees. For all employees combined, retirees are owed $134.5 billion as compared to $112.6 billion in total assets. California governments do not have enough money to pay what they owe retirees, and they have nothing at all set aside for current employees. Every year, employees have funds deducted from their paychecks to go into the pension funds. Those funds will go to retirees. By the time it’s their turn, there will be no money left for current employees. Current employees are forced to pay into a retirement system that may be bankrupt when they retire.

News
July 10, 2017

Tesla Inc.’s sales in Hong Kong came to a standstill after authorities slashed a tax break for electric vehicles on April 1, demonstrating how sensitive the company’s performance can be to government incentive programs. Not a single newly purchased Tesla model was registered in Hong Kong in April, according to official data from the city’s Transportation Department analyzed by The Wall Street Journal. In March, shortly after the tax change was announced and ahead of the April 1 deadline, 2,939 Tesla vehicles were registered there—almost twice as many as in the last six months of 2016.

News
July 10, 2017

CalPERS may soon report investment earnings for the fiscal year ending June 30 that are near or even above its long-term target of 7 percent, up from a return of 0.61 percent the previous year. But the nation’s largest public pension system will still be seriously underfunded. . . . Despite a lengthy bull market that followed a stock market crash in 2008, CalPERS recently was only 65 percent funded. Now CalPERS is worried about a downturn that might drop funding below 50 percent, a red line actuaries think makes recovery very difficult.

News
July 10, 2017

Many California cities have issued “pension obligation bonds” to cover rising retiree benefit costs with borrowing rather than tax money, based on the same assumption that arbitrage – betting that the difference between loan interest rates and investment earnings – can be a net winner. However, like Orange County and SANDAG, some learned that trying to predict global markets is dangerous. The largest single debt owed by the city of Stockton when it declared bankruptcy was a pension obligation bond. Hundreds of school districts issued “capital appreciation bonds” that postpone repayments for decades while the accumulated interest magnifies debt. Poway Unified in rural San Diego County became a poster child for financial irresponsibility when it was revealed that its $105 million bond would cost $1 billion to repay.

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