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UPDATE: Missouri House passes legislation affecting tax breaks, pensions

Tuesday, June 29, 2010 | 6:50 p.m. CDT; updated 6:40 a.m. CDT, Wednesday, June 30, 2010

JEFFERSON CITY — A special legislative session offering incentives to Missouri's automobile industry was transformed Tuesday into a tax-break boon for elderly homeowners, airplane makers and more.

The Missouri House passed legislation extending tax breaks to senior citizens, computerized data centers and manufacturers in a broadly defined transportation sector encompassing everything from bicycles to rockets and food-vendor carts to floating offshore oil platforms.

"I think it's a really good idea," Stephen Webber, D-Columbia. "I've been supportive of the economic development bill, particularly in light of the fact that it's got incentives for data centers which are important for central Missouri. I've always been skeptical about the pension bill — I've been hesitant to ask state employees to pay for financial incentives for a successful corporation."

Lawmakers acknowledged the legislation goes beyond the agenda set by Gov. Jay Nixon for the special session, possibly violating the Missouri Constitution. House Speaker Ron Richard said he has asked Nixon to expand his special session call to include the additional tax incentives — something Nixon has indicated he is unlikely to do.

The House passed the tax-break legislation 125-19.

It also voted 92-54 to pass the second item included on Nixon's special session agenda — an overhaul of Missouri's main retirement systems that would force most new employees to make payments toward their pensions.

Both bills now go to the Senate, where there has been less support for expanding tax breaks in tough budget times and greater support for a pension overhaul.

As originally envisioned, the projected pension savings were intended to offset the costs of the automaker incentives. But the House separated the financial link, instead carving the automaker incentives out of the money allotted for an existing business tax credit program.

"The retirement bill should not have been part of the call" for the special session, Richard said, and the business tax incentives "should not be held hostage."

The primary purpose of the special session is to entice Ford Motor Co. to make a new vehicle model at its Claycomo assembly plant near Kansas City, which local union leaders say is due to stop making the Ford Escape by the end of next year.

Officials at Ford have declined to discuss their plans for the plant or future products, but Missouri officials say Ford will be making those decisions soon and already is getting offers from other states.

Sponsoring Rep. Jerry Nolte, R-Gladstone, said the Claycomo factory is among the highest taxed plants in the Ford system. Ford could get as much as $100 million of tax incentives over 10 years from the Missouri legislation. Additional money could go to its suppliers and other transportation manufacturers.

"This is not about a giveaway, this is not about a corporate handout," Nolte said. "This is about giving our companies and giving our workers the tools to compete in an atmosphere that is more competitive than it ever has been."

Few lawmakers objected when the bill was expanded Tuesday to extend the life of existing tax credit for senior and disabled homeowners. Representatives overwhelmingly defeated an attempt to strip new tax breaks for data storage centers and to reverse an earlier committee decision expanding the automotive incentives to the entire transportation sector.

Nixon's special session proclamation was narrowly tailored to cover incentives only for automobile manufacturers and their suppliers.

Rep. Ray Salva, D-Sugar Creek, argued that colleagues were violating their oaths to abide by the state constitution by tacking on other tax breaks.

If "we don't uphold what we raised our hand and sweared to God for, what good are we?" Salva asked rhetorically. "We have rules, we ought to follow them."

The retirement changes would force most new state employees — and newly elected lawmakers — to start contributing 4 percent of their pay toward their pension plans while increasing the minimum age at which they can retire from 62 years old to 65. But House members rejected an effort to require employees to spend a decade working for the state to qualify for pensions, instead of the current five years.

Supporters say the changes are needed to save the state money because pensions are funded through general state tax dollars and the retirement systems' investment earnings. But critics fear that souring the pension benefits of workers making relatively low salaries could hurt the ability to recruit quality workers.

Missourian reporter Ettie Berneking contributed to this report.


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Comments

wayne mcdaniel June 30, 2010 | 12:00 p.m.

Were you aware the retirement bill has added a section which would allow a worker to retire between september 1 and December 1 and get up to 20,000?

I have not seen it reported anywhere.

(Report Comment)
Gene DeVaux July 12, 2010 | 9:37 a.m.

Missouri workers are among the lowest paid state employees in this country. Now, the legislature wants them to contribute 4% to their retirement fund, which would further lower their take home pay. Why should they be expected to sacrifice so that others can have tax benefits and reductions? State employees must pay toward their health care benefits. I have a friend who has not had a real pay raise for many years. When the state does give him a small raise, it takes it back to pay for his health care benefits. How can Missouri hope to attract good workers who will be paid very low wages, who have to pay into their health care plan, and, now, will be expected to pay into their retirement plan? Why should they be expected to work until age 65 when legislators can serve for five years and qualify for a pension? Why not just take pension plans away for state legislators, most of whom have high paying private sector jobs? After all, legislators are not full time employees; they are paid more money than most state workers, they work part of the year, they get public health care, and they get pensions after five years. There is something really unfair about that. Why should taxpayers pay for their health care and provide them with a pension?

(Report Comment)
Allan Sharrock July 12, 2010 | 1:55 p.m.

There are a lot of other people who pay for their health benefits and retirement. Why should state employees be any different? I agree that state elected officials shouldn't get full benefits unless they serve for so many years.

(Report Comment)
Daniel Jordan July 12, 2010 | 2:30 p.m.

"Why should state employees be any different?"
Because they don't get paid market rates, that's why.
The trade-off was the pension: the State saves taxpayer dollars by paying its employee less now for more later.
Now the pension is on its way out.
So are we willing to pay state employees market rates?

(Report Comment)
Mark Foecking July 12, 2010 | 2:53 p.m.

Does Missouri have trouble finding good employees now? Often people are attracted to public sector work because of job security, working conditions, or other factors, rather than pay.

Would these employess rather some of them were laid off? Money is tight right now everywhere, and I don't see where asking employees to pay into their pension funds (which they'll get back when they retire anyway) is an undue hardship. At least they still have jobs.

DK

(Report Comment)
Allan Sharrock July 12, 2010 | 3:30 p.m.

If we paid them market rates we would be saving even more. Fed wages are higher than private sector and it is certainly more difficult to lose your fed job than in the private industry.

http://www.cato-at-liberty.org/2009/08/2...

(Report Comment)
Daniel Jordan July 12, 2010 | 3:57 p.m.

---“Often people are attracted to public sector work because of job security . . . rather than pay. Would these employess rather some of them were laid off? At least they still have jobs.”
Except those State employees who have been laid off. I've lost track of how many in this administration. Job security with the State is a thing of the past.

---“Does Missouri have trouble finding good employees now?” . . . I don't see where asking employees to pay into their pension funds (which they'll get back when they retire anyway) is an undue hardship.”
The real problem will be retaining anyone with experience because, with a portable pension, why stay at below-market pay? High turnover is a drain on any enterprise because it steals away the investment in training.

---“If we paid them market rates we would be saving even more. Fed wages are higher than private sector and it is certainly more difficult to lose your fed job than in the private industry.”
I’m sure any Missouri employee would be happy with the pay of their federal counterpart!

(Report Comment)
Allan Sharrock July 12, 2010 | 4:44 p.m.

I am sure that any private worker would be happy with a Missouri government pay stub and benefits. The problem is that most government jobs only cost tax dollars and do not generate revenue.

(Report Comment)
Daniel Jordan July 12, 2010 | 4:58 p.m.

I doubt most private sector workers would take the pay cut.

It is true that the person who inspects a nursing home is not making a widget that can be sold to put money in someone's pocket. That does not negate the value of inspecting nursing homes. And if you think they do an inadequate job now, just wait.

I do not advocate market rates for state employees. On the contrary, offering the pension in lieu of market rates has saved Missouri taxpayer dollars for generations, which is great. But when that is gone, the state will have to either pay market rates or have less qualified employees, both of which are expensive propositions.

(Report Comment)
Gregg Bush July 12, 2010 | 4:59 p.m.

CATO graph is incomplete at best and bogus at worst. The graph maker says as much. "People argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data." He's just lazy.
Bottom line - private sector data includes those that make minimum wage such as retail fast-food. Does our federal workforce include these workers? I think not.

(Report Comment)
John Schultz July 12, 2010 | 9:37 p.m.

Perhaps you can find someone ideologically opposite of Cato (not CATO, which seems to be a common mistake of people who don't read their work) and post what their findings are?

(Report Comment)
Jimmy Bearfield July 12, 2010 | 9:59 p.m.

Daniel, "offering the pension in lieu of market rates has saved Missouri taxpayer dollars for generations," but it's not great because that short-sightedness has resulted in an enormous unfunded liability that will come due around 2021, if not sooner: http://kelloggfinance.wordpress.com/2010....

(Report Comment)
Daniel Jordan July 13, 2010 | 8:18 a.m.

Jimmy, the table you link assumes an 8% return, while the Missouri system needs only a 5% return to cover its obligations.

In any event, Missouri is doing away with that system, which means that we taxpayers will either shell out for market-rate salaries or have less-qualified people make the decisions that affect so many people.

So that's the state of the future and the future of the State.

(Report Comment)
Jimmy Bearfield July 13, 2010 | 9:08 a.m.

Daniel, where are you getting that Missouri needs only a 5% return? A lot of pension funds -- such as the Missouri Public School and Education Employee Retirement System -- lost more than 26% in 2008. It takes a lot more than 5% to recoup those kinds of losses, which are on top of underfunding: www.pewcenteronthestates.org/uploadedFil...

No wonder states such as Colorado are cutting benefits for retirees.

(Report Comment)
Daniel Jordan July 13, 2010 | 8:52 p.m.

Jimmy,

That comes from the MOSERS site, which does say that its 5% is after inflation, so maybe it's the same thing. In any event, I'm not advocating keeping the current system--after all, the legislature has decided it's doomed. My point is that eliminating the no-contribution system will require either raising State employee salaries (so they can make that contribution) or saying good-bye to experienced employees and the taxpayer's investment in them.

Less qualified employees are more likely to make bad decisions, like assessing too much tax against you and too little on your neighbor, putting good physicians out of business while ignoring dangerous practitioners, etc. None of that has to do with ideology, those are just the issues that State employees deal with.

The question was, why shouldn't State workers have a contributory pension system. The answer was that they don't get market pay. Deferring their reward kept experienced employees with the State for a long time.

Now they'll want their money up front and they'll take it with them a.s.a.p., so the new system will cost more and yield less.

(Report Comment)
Jimmy Bearfield July 14, 2010 | 7:07 a.m.

Daniel, if you lose 26%+ in one year, do you realize how much you'd have to earn each year just to recoup that loss and stay ahead of inflation?

I'm not convinced that our current system is getting us the best and the brightest. After all, the current system got us the folks who miscalculated food stamp usage for years and reported the wrong numbers to the feds. Now there's an investigation and the possibility of multi-million dollar penalties.

(Report Comment)
Daniel Jordan July 14, 2010 | 8:07 a.m.

Jimmy,

I haven't the slightest idea how much, but someone with a fair idea obviously thinks it's too much.

The Department of Social Services is the step-child of State government, down there with the Public Defender, the neglected part of something people don't want to think about.

You make the case for why capable State employees are crucial: a bad widget won't hurt people who don't buy it, but a bad government decision hurts everyone.

(Report Comment)
Andrew Hansen July 14, 2010 | 9:00 a.m.

"Now, the legislature wants them to contribute 4% to their retirement fund..."

Could be worse. Here in Texas they shave of and automatic 6% and put it in an underperforming fund that does things like invest $500 million in bankrupt General Growth (the owner of Columbia Mall).

(Report Comment)
Jimmy Bearfield July 14, 2010 | 9:11 a.m.

Daniel, re: "You make the case for why capable State employees are crucial," I just gave you an example of how the current system of generous benefits has not always resulted in capable state employees. Are we really going to be that much worse off following the changes?

(Report Comment)
Daniel Jordan July 14, 2010 | 1:31 p.m.

Jimmy,

Yes, that is my point. Making state employment less attractive will lead to less qualified state employees. Your food stamp example will become the rule rather than the exception.

(Report Comment)
Jimmy Bearfield July 14, 2010 | 3:35 p.m.

Well, all I can say is:

1) I want fewer government services, not more. So cutting departments (e.g., why are we funding the arts?) is one way to free up money for competitive salaries without raising taxes.

2) If a state employee thinks he or she has the skills to get a better deal in the private sector, why wait to bolt? I don't think that even with these cuts there will be a mass defection or difficulty attracting qualified people.

(Report Comment)
Daniel Jordan July 14, 2010 | 4:10 p.m.

Jimmy,

In reverse order:

2) My point exactly: the State's 2011 hires (which is the group affected by this legislation) should (and will) bolt if the State does not offer something close to the private sector. The trade-off for low pay used to be the non-contributory (but non-portable) pension. Not any more.

1) The number of State government employees has indeed been shrinking since the Blunt administration. Will the amounts saved by cuts, attrition, and lay-offs go toward market pay for 2011 hires? Doubt it.

(Report Comment)

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