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Without Changes Pension Plan Could Bankrupt State

Vernon Burnes

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By Vernon Burns and Bill Britt
Alabama Political Reporter

A budget crisis overshadows Alabama as the legislature takes up the people’s business in Montgomery this week. However, a great financial beast stands just over the horizon that could bankrupt the entire state.

The Alabama state employee pension fund, known as RSA (Retirement Systems of Alabama), last year cost the taxpayers almost one billion dollars because of the investment shortfalls of the fund, this year the public coffers will have to forfeit at least another billion more to meet the fund’s legislated obligation.

Depending on whose math is used, the fund has an unfunded liability of between 12 billion and 40 billion dollar all of which goes to pay government employees’ retirement. According to a study by Novy-Marx & Rauh using standard accounting rules, the states has an unfunded liability of over 40 billion dollars or approximately 10 thousand dollars for every man, woman, and child in Alabama.

States generally use accounting measures that comply with the GASB (Governmental Accounting Standards Board). This method varies from general accounting metrics used for corporations. Some have compared GASB with the usual fuzzy math that allows governments to hide the actual cost from taxpayers.

How ever the number are calculated, no one with any real knowledge of the state’s pension plan disagrees that Alabama has a big problem.

Over the past decade, we have seen pensions bankrupt: GM, Chrysler and even the makers of Twinkie’s.

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The nation’s top state budget watchdog, State Budget Solutions, in a recent report stated, “States have been fooling the public and the federal government for years,” said Bryan Leonard, author of the study. According to the watchdog group, phony accounting methods have led to a crisis by allowing the real cost of state employee pension plans to be hidden from lawmakers and taxpayers.

In the past few months, Dr. Bronner the who has lead the RSA for almost 39 years has come under fire for the funds continual lost. He has defended himself in public by stating that the fund has lost money in the past few years because of his investment in Alabama. The RSA according to Bronner has a $25 billion fund, with 12 percent of that fund having been invested within the State of Alabama. This has raised questions as to how just 12 percent of the total investment fund could have pulled the entire value down so far. What is beyond question is that the fund, as it is currently managed, is an unsustainable liability for the state. One policy maker who did not want to go on the record at this time said, “The good doctor has taken the taxpayers’ money down the rabbit hole and I fear we will wake up to a nightmare once it resurfaces.”

Alabama Public Education System Employee Retirement Plan is the largest beneficiary of the total fund, therefore a look at this one portion will reveal a clearer picture of the fund’s liabilities. The following is based on information taken from “Teachers,” Retirement System of Alabama’s Report of the Actuary on the Annual Valuation Prepared as of September  30, 2010. This report was sent to Bronner and others in the system on July 22, 2010 by Cavanaugh MacDonal Consulting, LLC.

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Alabama Public Education System Employee Retirement Plan includes all supervisory administrative personnel, all teachers, coaches, and instructors. Plus all support staff such as bus drivers, janitorial, maintenance, and food service workers. This plan is referred to by the state, in most public presentations, as The Teachers Retirement System. The union representing these public employees also uses the the term “teachers.” In both cases using the title of teacher as a cover for the Public Employee Retirement Plan or a labor union is misleading since teachers are a minority in both cases.

The Alabama Public Education System had, as of Sept. 30, 2010 (latest data available), 136,290 active employees and 77,428 retired. The listed compensation of the average active employee was $42,827.00 per year. This information is taken from the Teachers’ Retirement System of Alabama’s report of the actuary on the annual valuation prepared as of Sept. 30, 2010.

In the report, schedule G, page 24, is a chart describing classes of members based on age and years of employment with the average pay and total number of employees for each class. The average per class ranges from $22,483.00 per year to $116,995.00 per year.

In this report the bus drivers and support staff, degreed teachers, and top administrators are all lumped together, a more complete and detailed breakdown of these taxpayer-funded expenses is a requirement.

First a review of the requirements, contribution rates, are needed to build an example case of a person working for and retiring from the Alabama Public Education System.

The basic requirement in the education system to be eligible for full retirement is to have been a full-time employee of the system for a minimum of 25 years. The employees contribution rate to the retirement fund, as a percentage of yearly pay was set at 5 percent until October 1, 2011, then it was increased to 7.25 percent for one year and from October 1, 2012, the rate will be 7.5 percent per year going forward. For a perspective, at the old contribution rate of 5 percent per year the employee will have, in a 25 year career, contributed 15 months (1 year and 3 months) of their pay to their personal lifetime pension. At the new top rate of 7.5 percent per year (starting October 1, 2012) the new employee will contribute 22.5 months (one year and 10-1/2 months) which is an increase of 7-1/2 months of their pay in 25 years for a taxpayer subsidized and insured lifetime of income.

Case study:

J. Doe was employed by the Alabama Public Education System for 25 years, Jan. 1, 1985-Dec. 31, 2010. J. Doe was 25 years old at the time of employment and retires at age 50. J’s pension will be based on an average of the high three years of the last ten years of employment, multiplied by J’s 25 years employment,  multiplied by 2.0125 percent. The assumption for J. is that the average of the high three years to be used for calculation is $50,757.00 per year. This assumption is made based on an average of the compensation rates shown on the systems’ current website for J’s age and years of employment group.

J’s pension is calculated as follows:

$50,757.00 x 25 x 0.020125 = $25,537.00 pension per year

Retiring at 50, J can expect to live an additional 30 years to age 80.

At age 80 J’s total pension payout will have been $25,537.00 x 30 = $766,110.00 not including any cost-of-living increases.

To calculate what J has paid into the system we used the 5 percent contribution rate in effect before October 1, 2011 multiplied by 25 years of employment multiplied by J’s average compensation while employed. We will base our estimate on J’s average compensation on his high 3-year average being $50,757.00 per year and the total system as of Sept 30, 2010 average being $42,827.00 per year.  For J’s average over 25 years we will assume $38,500.00 per year. We know this is probably high, but J was a great employee.

For J’s total contribution, used 0.05 x 25 x $38,500.00 = $48,125.00.

Total pay out over 30 years = $766,110.00 with no cost of living increases

Total pay out over 30 years = $1,000,000,00 plus with minor cost of living increases

This one million dollar payout is for one average employee.

The Alabama Public Education System as of Sept. 30, 2010 had 136,290 active employees and 77,428 retired employees.

This is the reason as of Sept. 30, 2010, the Public Education Employee Retirement Plan had an unfunded accrued liability of $8,166,744,391.00, (eight billion, one hundred sixty six million, seven hundred forty-four thousand, three hundred ninety-one dollars).

This unfunded liability has been steadily increasing every year back to 2005, the first year shown in the 2010 report. This review is only for the Alabama Public Education System Employee Retirement Plan, which is the largest of the plans.

This brings home what must be faced, head on with our eyes wide open, by everyone effected, from the citizens and taxpayers of Alabama in general, to the administrators, teachers, and support staff in the public education retirement plan. In fact, everything administrated by The RSA will, in time, have an effect on every citizen of our state.

Without major changes, this problem, which is actually already here, will put severe limits on state as well as local governments, and on the lives of every individual citizen. This unfunded accrued pension liability is a fiscal bomb that has already exploded it just seems no one has been listening. The promise made of a lifetime pension without limits on the cost and an evergrowing number of people promised that pension is unsustainable. Unfunded pension liabilities are now a leading cause of major private corporation bankruptcies in the United States.

In Summary:

Alabama Public Education Employee Retirement Plan unfunded liability = $8,166,744,391.00

Alabama State Employee Retirement Plan unfunded liability = $4,544,788,280.00

Alabama Judicial Retirement Fund unfunded liability = $112,262,182.00

Alabama Pensions Total unfunded liability = $12, 823,794,853.00

Using private sector accounting rules, the fund has a projected unfunded liability of $40,400,000,000.

It still remains to be seen what, if anything, will be done with regard to the state employes’ pension plan. What is clear is that the taxpayers are looking at a deeper debt if nothing is done.

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Health

Alabama’s COVID-19 hospitalizations, cases continue rise

Average daily hospitalizations continue an ongoing increase as cases nationwide surge.

Eddie Burkhalter

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(STOCK PHOTO)

The number of COVID-19 patients hospitalized in Alabama hit 863 on Wednesday, the highest daily count since Sept 4, as average daily hospitalizations continue a steady increase and cases nationwide surge.

UAB Hospital in Birmingham on Wednesday was caring for 72 COVID-19 inpatients — the highest number the hospital has cared for since Aug. 21. 

In the last two weeks, Alabama has reported an increase of 15,089 new COVID-19 cases, according to the Alabama Department of Public Health and APR‘s calculations.

That number is the largest increase over a 14-day period since the two weeks ending Sept. 9. On average, the state has reported 1,078 new cases per day over the last two weeks, the highest 14-day average since Sept. 9.

The state reported 1,390 new confirmed and probable cases Thursday. Over the last week, the state has reported 7,902 cases, the most in a seven-day period since the week ending Sept. 5. That’s an average of 1,129 cases per day over the last seven days.

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Alabama’s positivity rate, based on 14-day case and test increases, was nearly 16 percent Thursday, the highest that rate has been since mid-September.

Public health experts say the positivity rate, which measures the number of positive cases as a percentage of total tests, needs to be at or below 5 percent. Any higher, and experts say there’s not enough testing and cases are likely to be going undetected. 

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“I really won’t feel comfortable until we’re down to about 3 percent,” said Dr. Karen Landers, the state’s assistant health officer, speaking to APR last week

While new daily cases are beginning an upward trajectory, the number of tests administered statewide is not, contributing to the increasing positivity rate. The 14-day average of tests per day on Thursday was 6,856 — a nearly 10 percent decrease from two weeks prior. 

Over the last two weeks, ADPH reported 206 new COVID-19 deaths statewide, amounting to an average of 15 deaths per day over the last 14 days.

So far during the month of October, ADPH has reported 303 confirmed and probable COVID-19 deaths. In September, the total was 373. Since March, at least 2,843 people have died from the coronavirus.

The number of new cases nationwide appear to be headed toward a new high, according to data gathered by the COVID Tracking Project. The United States is now reporting nearly 60,000 cases per day based on a seven-day average. At least 213,672 Americans have died, according to the COVID Tracking Project.

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Courts

U.S. Supreme Court rules Alabama can ban curbside voting

“The District Court’s modest injunction is a reasonable accommodation, given the short time before the election,” the three dissenting justices wrote. 

Eddie Burkhalter

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(STOCK PHOTO)

The Supreme Court, in a 5-3 decision, allowed Alabama Secretary of State John Merrill to ban curbside voting, staying a district court injunction that had allowed some counties to offer curbside voting in the Nov. 3 election amid the COVID-19 pandemic.

The Supreme Court’s majority in its order declined to write an opinion, but Justices Stephen Breyer, Elena Kagan and Sonya Sotomayor’s five-page dissent is included.

The lawsuit — filed by the NAACP Legal Defense and Educational Fund, Southern Poverty Law Center, American Civil Liberties Union, ACLU of Alabama and Alabama Disabilities Advocacy Program — was brought on behalf of several older Alabamians with underlying medical conditions.

“The District Court’s modest injunction is a reasonable accommodation, given the short time before the election,” the three dissenting justices wrote. 

Sotomayor, who wrote the dissent, closed using the words of one of the plaintiffs in the case. 

“Plaintiff Howard Porter Jr., a Black man in his seventies with asthma and Parkinson’s disease, told the District Court, ‘[So] many of my [ancestors] even died to vote. And while I don’t mind dying to vote, I think we’re past that – We’re past that time,’” Sotomayor wrote. 

Alabama Secretary of State John Merrill on Wednesday applauded the Supreme Court’s decision. 

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“I am proud to report the U.S. Supreme Court has now blocked a lower court’s order allowing the fraudulent practice of curbside voting in the State of Alabama,” Merrill said in a statement. “During the COVID-19 pandemic, we have worked diligently with local election officials in all 67 counties to offer safe and secure voting methods – including through the in-person and mail-in processes. I am glad the Supreme Court has recognized our actions to expand absentee voting, while also maintaining the safeguards put into place by the state Legislature.”

“The fact that we have already shattered voter participation records with the election still being 13 days away is proof that our current voting options are easy, efficient, and accessible for all of Alabama’s voters,” Merrill continued. “Tonight’s ruling in favor of election integrity and security is once again a win for the people of Alabama.”

Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defense and Education Fund, expressed frustration after the ruling in a tweet.

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“Another devastating loss for voters and a blow for our team fighting to ensure safe voting for Black and disabled voters in Alabama. With no explanation, the SCOTUS allows Alabama to continue making it as hard as possible for COVID-vulnerable voters,” Ifill wrote.

Curbside voting is not explicitly banned by state law in Alabama, but Merrill has argued that because the practice is not addressed in the law, he believes it to be illegal. 

A panel of federal appeals court judges on Oct. 13 reversed parts of U.S. District Judge Abdul Kallon’s Sept. 30 order ruling regarding absentee voting in the upcoming Nov. 3 elections, but the judges let the previous ruling allowing curbside voting to stand. 

In his Sept. 30 ruling, Kallon wrote that “the plaintiffs have proved that their fears are justified” and the voting provisions challenged in the lawsuit “unduly burden the fundamental Constitutional rights of Alabama’s most vulnerable voters and violate federal laws designed to protect America’s most marginalized citizens.”

Caren Short, SPLC’s senior staff attorney, in a statement said the Supreme Court’s decision has curtailed the voting rights of vulnerable Alabamians.

“Once again, the Supreme Court’s ‘shadow docket’ – where orders are issued without written explanation – has curtailed the voting rights of vulnerable citizens amidst a once-in-a-century public health crisis. After a two-week trial, a federal judge allowed counties in Alabama to implement curbside voting so that high-risk voters could avoid crowded polling locations,” Short said. “Tonight’s order prevents Alabama counties from even making that decision for themselves. Already common in states across the South and the country before 2020, curbside voting is a practice now encouraged by the Centers for Disease Control and Prevention (CDC). It should be a no-brainer to implement everywhere during a pandemic; the Alabama Secretary of State unfortunately disagrees, as does the Supreme Court of the United States.”

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Education

SPLC files complaints in Pike County over suspension of two Black students

Both complaints, filed in Pike County Juvenile Court, ask the court to reverse suspensions of RaQuan Martin and Dakarai Pelton, both Black and former students at Goshen High School. 

Eddie Burkhalter

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(STOCK PHOTO)

The Southern Poverty Law Center on Wednesday filed two complaints with an Alabama juvenile court alleging the Pike County Board of Education arbitrarily suspended two students in violation of their due process rights under the U.S. Constitution. 

“Students across Alabama continue to be excluded from school without regard for their due process rights, leading to unwarranted and unlawful suspensions and expulsions,” said Michael Tafelski, senior supervising attorney for the SPLC’s children’s rights project, in a statement. 

“This is particularly troubling for Black students who are three times more likely to be excluded from school for minor and subjective infractions than their white peers. Education is an important aspect of a young person’s life and the decision to exclude them from school should not be taken lightly,” Tafelski continued. 

Both complaints, filed in Pike County Juvenile Court, ask the court to reverse suspensions of RaQuan Martin and Dakarai Pelton, both Black and former students at Goshen High School. 

The complaints state that on Nov. 22, 2019, both students were approached by the school’s principal “in connection with alleged rumors that a group of students had ‘smoked’ that same day in the parking lot at school.” The principal alleged he had video security footage of them doing so, but wouldn’t show the students the footage, according to the complaints. 

Both boys told the principal that they had not used marijuana, but had both accompanied another student to their car in the parking lot, and both left when the other student showed them what appeared to be drug paraphernalia.

“The students, both seniors at the time, denied the allegations and even took drug tests that showed they had no drugs in their system that day. But the school refused to consider this evidence,” the SPLC said in a press release. 

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The complaints state that the district failed to provide the students proper notice, including details about their charges, evidence of wrongdoing, a meaningful opportunity to be heard or to present evidence of their own and question witnesses during their hearings. 

“Only you know what did or didn’t happen in that vehicle … you dodged a bullet here because we didn’t have the proof that we need,” said one school board member to one of the students during his hearing, according to the complaint. 

“There was no proper investigation at all,” said Shatarra Pelton, Dakarai’s mother, in a statement. “It was unorganized and overblown. The school was unable to produce any evidence other than hearsay.” 

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After a brief hearing, both seniors were suspended for the rest of the school year, missing out on a chance to finish their high school athletics and potentially missing out on college football scholarships as a result, the complaints state. 

Prior to their suspensions, both students had no disciplinary referrals and were making good grades, according to the complaints. 

“On Jan. 13, the students appealed the Council’s decision to the Pike County Board of Education, and the board agreed to consider allowing the students to return to GHS if they participated in drug treatment classes, passed urine and hair follicle drug tests and maintained perfect attendance at the alternative school. After completing all the requirements, the students returned to school on Feb. 21 – three months after their removal,” the SPLC said in the release. 

“He had a rough senior year, to say the least,” said Tasha Martin, RaQuan’s mother, in a statement. “He missed senior night, he missed everything.” 

“They didn’t get to play not one game,” Martin said. “They had some coaches visit them while they were in alternative school but when the coaches found out that they couldn’t go back to school, they stopped coming. Our families were devastated; sometimes me and Ms. Pelton would be on the phone and just cry to each other. It has been really tough.”  

“I want schools to understand that it’s not just a moment you’re ruining, you’re ruining a lifetime,” Pelton said. “With no factual basis, only an unproven accusation, you have just completely deterred a student’s life. Most schools say that they are there for their students, but you are showing them the total opposite.”

Pike County Schools during the 2019-2020 school year referred 49 students to a disciplinary hearing, according to the SPLC. Of those, 48 students were either suspended or expelled, and although Black students made up less than 50 percent of the student population, Black students made up 80 percent of the referrals.  On average, Black students make up 77 percent of all students referred for disciplinary hearings in the district, according to the SPLC.

Both complaints can be read here and here.

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News

Biden urges Democrats to support Doug Jones

In the email, Biden asked voters to split a contribution between the Biden campaign and Jones’s campaign.

Brandon Moseley

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Former Vice President Joe Biden appears at a campaign rally in Birmingham with then-candidate Doug Jones in 2017. (CHIP BROWNLEE/APR)

Democratic presidential candidate Joe Biden on Wednesday asked Democratic donors to support the re-election of U.S. Sen. Doug Jones, D-Alabama.

“I wanted to reach out to you about an old friend of mine: Doug Jones,” Biden said. “You might not believe this, but I met Doug more than 40 years ago, when I was a newly-minted junior senator, and he was in his early 20s, just beginning what would become one of the most impressive and dedicated careers of public service I’ve had the privilege of watching.”

“Doug has devoted his entire career to fighting for justice,” Biden said. “He’s the man who would not rest until the Klansmen who killed four young Black girls in the 1963 Birmingham church bombing were finally brought to justice. Doug has shown us, even in our darkest moments, that hope for the American promise is never lost — and what we can do when we stand united.”

In the email, Biden asked voters to split a contribution between the Biden campaign and Jones’s campaign.

“I need Doug’s help in the Senate,” Biden said. “He’s running neck-and-neck in his race in Alabama right now, and he needs our help to win.”

Biden said this election is “a battle for the soul of our country” and “few places are those stakes as clear as in Alabama.”

“I remember in 2017 when everyone counted Doug out,” Biden said. “When they thought that a message of unity would lose in a state where a long history of division still runs deep. But when I visited Alabama to help Doug, I saw what he saw – Alabama was ready to come together.”

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Biden was an early endorser of Jones in the 2017 special election, when Jones defeated former Chief Justice Roy Moore in that election. Jones returned the favor in the 2020 Democratic primary, endorsing Biden when the former vice president was having difficulty raising money and was polling well behind Sen. Bernie Sanders, I-Vermont.

Jones campaigned hard with Biden in Selma and other campaign stops across Alabama prior to Super Tuesday on March 3.

“His win gave me hope,” Biden said. “I was both honored and proud to have escorted him onto the floor of the Senate and stood behind him when he was sworn in as a United States Senator. And his record has been extraordinary – passing 22 bipartisan bills helping farmers, military families, and those devastated by natural disasters. And in perhaps the most crucial fight of all – our health care – Doug has been there again and again standing up for all of us, especially those with pre-existing conditions. Every time we needed him to stand up for us, Doug Jones was there. I’m going to need Doug’s voice in the Senate. Alabama and America will need Doug’s voice in the Senate.”

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“Doug and I share a vision for a united country – one that puts faith over fear, fairness over privilege, and love over hate. And Doug, his campaign, and his career remind us that it’s a vision we can only realize if we come together,” Biden said.

In an Auburn University Montgomery poll, Biden trails Trump in Alabama by 17 points. Jones trailed former Auburn University head football coach Tommy Tuberville by 12 points. The Jones campaign claims that there has been a tightening of the race since then and it is a statistical tie. The Tuberville campaign disputes that claim.

Republican insider Perry Hooper Jr. said, “Whether it is the AUM poll, the Al.com poll, or internal polls by the (Tuberville) campaign, the margin is between 12 and 18 points in favor of Tuberville.”

The Jones campaign has been inundating the state airwaves with TV and radio ads due to the vast advantage that Jones has had fundraising. More than 82 percent of Jones’ money raised in the third quarter reporting cycle came from outside the state of Alabama.

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