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Research Round-Up: Two Different Risks to Taxpayers

Summary:
The California Rule’s Time Has Passed Across the nation, underfunded pension systems are dragging down state fiscal health. This week, Scott Andrew Shepard released a Mercatus working paper that studies an important catalyst for fiscal instability—the “California rule.” This judicial doctrine prohibits the state government from reducing its employment benefits for any currently employed workers, even if those workers have not yet earned the benefits in question. However, as a result of three court rulings and the efforts of Governor Jerry Brown’s administration, that may be about to change. The California Supreme Court now faces a choice. It can adhere to a strict interpretation of the California rule, or it can side with lower courts and the Governor who have argued that the state has a

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Christian McGuire, Chad Reese considers the following as important:

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The California Rule’s Time Has Passed

Across the nation, underfunded pension systems are dragging down state fiscal health. This week, Scott Andrew Shepard released a Mercatus working paper that studies an important catalyst for fiscal instability—the “California rule.” This judicial doctrine prohibits the state government from reducing its employment benefits for any currently employed workers, even if those workers have not yet earned the benefits in question. However, as a result of three court rulings and the efforts of Governor Jerry Brown’s administration, that may be about to change.

The California Supreme Court now faces a choice. It can adhere to a strict interpretation of the California rule, or it can side with lower courts and the Governor who have argued that the state has a right to recalibrate its pension benefits in some circumstances.

Shepard lays out the case for a new, threefold standard for the judicial review of pension reform:

Type 1 Promises to workers should only be changed with an exacting, specific justification, and ought to be carefully reviewed. Shepard puts pension benefits that have already been earned for work already performed in this category.

Type 2 Promises are contractually promised to public workers but have not yet been earned. While the California rule bars states from reforming these benefits, Shepard concludes that cuts should be allowed only in the case of government need.

Type 3 Promises are not legally promised in any way; they are merely expectations that public benefits will not shrink. These ‘promises’ are outside of the California rule’s scope and are entirely under the authority of the legislature.

To read Shepard’s entire study, click here.

Ex-Im Exposure

Veronique de Rugy and Justin Leventhal have released a series of charts that illustrate the taxpayer risk of the Export-Import Bank’s activities. The Bank insures, guarantees, and issues loans to promote the export of American products. That means that taxpayers are on the hook for tens of billions of dollars, most of which are used to support a narrow set of special interests.

Starting in 2009, the amount of risk increased from under $60 billion to north of $110 billion by 2013. Taxpayer exposure only substantially subsided starting in 2015, when the Export-Import Bank lost its ability to make commitments over $10 million. 

To read more and see the charts, click here.

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