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Having emerged from the largest municipal bankruptcy in American history, Detroit is now on surer financial footing and experiencing an economic resurgence. Due much in part to an unprecedented collaboration among philanthropy, business, and government, Detroit is benefiting from private and public sector investments downtown and across its neighborhoods. Today, there are revived neighborhoods, new businesses, a downtown innovation district, the M-1 RAIL transit corridor, and a spirit of creativity and entrepreneurialism.

On Tuesday, April 26, the Metropolitan Policy Program at the Brookings Institution hosted an event about Detroit’s rebound. Brookings Vice President of Metropolitan Policy Amy Liu opened the program and introduced Kresge Foundation President Rip Rapson, who presented findings from The Detroit Reinvestment Index, forthcoming research on what national business leaders think about the city. Rapson then moderated a panel of experts who discussed accomplishments to date and the work yet to come in furthering Detroit’s revitalization.

Join the conversation on Twitter at #DetroitResurgence

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Amy Liu opens the program

Rip Rapson gives remarks

Sandy Baruah, President and Chief Executive Officer, Detroit Regional Chamber; Stephen Henderson, Editorial Page Editor, The Detroit Free Press; Quintin E. Primo III, Co-Founder, Chairman and Chief Executive Officer, Capri Investment Group, LLC ; Jennifer Vey, Fellow & Co-Director, Robert and Anne Bass Initiative on Innovation and Placemaking, The Brookings Institution

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• Welcome and Presentation
• Panel

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• How philanthropy, business, and government sparked Detroit’s resurgence

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• Table of contents
• Chapter One

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Introduction

During 2006, the United States saw a considerable upswing in the number of new mortgage defaults and foreclosure filings. By 2007, that upswing had become a tidal wave. Today, national homeownership rates are falling, while more than a million American families have already lost their homes to foreclosure. Across the country, boarded houses are appearing on once stable blocks. Some of the hardest hit communities are in older industrial cities, particularly Midwestern cities such as Cleveland, Detroit, and Indianapolis.

Although most media attention has focused on the role of the federal government in stemming this crisis, states have the legal powers, financial resources, and political will to mitigate its impact. Some state governments have taken action, negotiating compacts with mortgage lenders, enacting state laws regulating mortgage lending, and creating so-called “rescue funds.” Governors such as Schwarzenegger in California, Strickland in Ohio, and Patrick in Massachusetts have taken the lead on this issue. State action so far, however, has just begun to address a still unfolding, multidimensional crisis. If the issue is to be addressed successfully and at least some of its damage mitigated, better designed, comprehensive strategies are needed.

This paper describes how state government can tackle both the immediate problems caused by the wave of mortgage foreclosures and prevent the same thing from happening again. After a short overview of the crisis and its effect on America’s towns and cities, the paper outlines options available to state government, and offers ten specific action steps, representing the most appropriate and potentially effective strategies available for coping with the varying dimensions of the problem.

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On May 26, 2014, after the Bharatiya Janata Party won a convincing majority in India’s national elections, Narendra Modi took office as prime minister. The first Indian premier to be born after independence, he formed the first majority government in India in more than 25 years. Over the past 12 months, policymakers, corporate leaders, analysts, and the media in India and abroad have been watching closely to see whether Modi can deliver on the promises of growth, good governance, greater role and respect on the world stage, and getting things done.

On May 20, the India Project at Brookings hosted an event to assess the Modi government’s first year in office. The panel considered developments over the last year in the economic, social, energy, and foreign policy realms, as well as in domestic politics. Panelists discussed their perspectives of the government’s performance, where they see continuity vs. change, what has surprised them, what we might expect to see in the future, and key developments to look for over the next year.

Join the conversation on Twitter using #ModiYearOne

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• The Modi government in India turns one: An assessment

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• The Modi government in India turns one: An assessment

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China’s economy has achieved astonishing growth over the past three decades, but it may be undergoing its most serious test of the reform era. In his newly published book, “China’s Guaranteed Bubble,” Ning Zhu argues that implicit Chinese government guarantees, which have helped drive economic investment and expansion, are also largely responsible for the challenges the country now faces. As growth slows, corporate earnings decline, and lending tightens for small and medium-sized businesses, the leverage ratios of China’s government and its corporations and households all have increased in recent years. How desperate is China’s debt situation, and what can be done to avert a major crisis?

On July 11, the John L. Thornton China Center at Brookings hosted Ning Zhu, deputy dean and professor of finance at the Shanghai Advanced Institute of Finance, Shanghai Jiaotong University. Zhu presented key findings from his research into Chinese sovereign, corporate, and household debt, and also introduced potential remedies to return China to the path of long-term sustainable growth. Following the presentation, Senior Fellow David Dollar moderated a discussion with Zhu before taking questions from the audience.

 Follow @BrookingsChina to join the conversation.

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• China’s economic bubble: Government guarantees and growing risks

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Premier Li Keqiang's government work report was a pragmatic and concrete one, pointing out challenges as well as strengths and opportunities, according to a US-based China scholar.

The report, delivered by Premier Li at the opening of the fourth session of the 12th National People's Congress (NPC) on Saturday, is now being deliberated by some 3,000 deputies.

Cheng Li, director of the John L. Thornton China Center of the Brookings Institution, said the report tells people that the Chinese economy is facing difficulties as a result of structural reforms, the need for better environmental protection and the impact of a sluggish global economy.

"It tells the public that such economic challenges will last for a period of time, so the report does not give the public an unachievable expectation," Cheng Li said.

Meanwhile, the report has also elaborated on China's strength, such as the potential to be unleashed in urbanization, the development of the service sector, the employment policy and the innovation policy, according to Cheng Li.

"So this is a report that neither gives the public too high an expectation nor disappointment," said Cheng Li, whose research has focused on the transformation of Chinese leaders and technological development in China.

Cheng Li believes that this is especially important during the coming two years, or the beginning years of the 13th Five-Year Plan (2016-2020), when there won't be excessive high economic growth rate, something he said China also does not need.

In the work report, China's gross domestic product (GDP) growth in 2016 has been set between 6.5 percent and 7 percent. It is the first time since 1995 for the target to be in a range rather than one single number.

China's economy grew by 6.9 percent in 2015, the lowest in a quarter of a century, but it was still among the highest in the world.

According to the report, an average annual growth of at least 6.5 percent should be maintained in the coming five years in order to achieve the goals of doubling GDP and household income by 2020 from the 2010 levels.

It also says that by 2020, the contribution from scientific and technological advances should account for 60 percent of GDP growth.

Cheng Li said structural reforms will bring a lot of challenges, all of which would require dealing with by the Chinese government.

He described the goals in the work report as very specific. "There isn't much empty content and slogan type of things," he said.

"It is what the Chinese public wants to see... and it's a relatively balanced and good report, one quite pertinent to China's situation today," Cheng Li said.

He hoped that the report had emphasized more that many of the challenges are also opportunities. "It is just the beginning and the potential is huge," he said, citing how areas such as environmental protection could help job creation and business opportunities.

To Cheng Li, the potential opportunities will help small- and medium-sized companies, large companies, Chinese companies overseas and foreign-funded companies in China break new ground.

Cheng Li said the growth targets set in the 13th Five-Year Plan are quite reasonable. "More than 90 percent of what's in the 12th Five-Year Plan (2011-2015) had been achieved, and there is a better reason to achieve what's in the 13th Five-Year Plan," he said.

This piece was originally published by China Daily.

Editor's Note: As part of the 2014 Midterm Elections Series, Brookings scholars and outside experts will weigh in on issues that are central to this year's campaigns, how the candidates are engaging those topics, and what will shape policy for the next two years.

Since the Citizens United decision, political spending by outside groups has been shaping voters’ opinions before Election Day and public policy afterwards.  Spending patterns that began after the 2010 decision will continue during the upcoming midterms: nonparty, outside spending will flow through two distinct pipelines—super PACs and politically active nonprofits. This time around there seems to be a partisan split to the spending, with Democrats leaning towards super PACs and Republicans relying more on dark money nonprofits. But whichever tool is used to funnel money into competitive races, imperfect or non-existent disclosure rules leave voters unable to determine whether access and influence is being sold to highest bidder.

Shining a brighter light on super PAC and nonprofit campaign spending would not cleanse the system of all of its corrupting influences, but it would help to restore citizens’ trust in government by eliminating the secrecy that makes voters believe their elected officials have something to hide. More disclosure would also result in the equally important outcome of demonstrating that government trusts us, its citizens, with information about how the influence industry works.   

When Thomas Jefferson wrote, “Whenever the people are well-informed, they can be trusted with their own government...whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights,” he certainly could not have conceived of secret money’s impact on elections and policy-making. But every year that goes by with Congress failing to address secret campaign spending challenges the founding father’s time-tested wisdom.

When the Supreme Court decided Citizens United, it was either willfully blind or sorely naïve about the state of political finance disclosure. Justice Kennedy swept aside concerns about the corrupting influence of unlimited political spending by claiming that, “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions. . . This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”

Unfortunately, no such prompt disclosure existed at the time, nor has Congress been able to pass any improvements to the transparency regime since then. In the case of super PACs, while information about donors must eventually be disclosed to the Federal Election Commission (FEC), disclosures can be delayed by up to three months.  This is not an inconsequential delay, especially when contributions come are in the multi-million dollar range.

There is even less disclosure by politically active nonprofits.  Their overall expenditures are only disclosed after the election in annual reports filed with the Internal Revenue Service (IRS). The donors to dark money groups may never be known, as the law does not require the names of donors to such groups to be disclosed. Yet more than 55 percent of advertising has been paid for by dark money groups, and 80 percent advertising benefitting Republican candidates has been paid for with undisclosed funds according to the New York Times. 

Congress and the executive branch have no shortage of methods to make money in politics more transparent, but have so far failed to demonstrate they respect voters enough to entrust us with that information.  The Real Time Transparency Act (S. 2207, H.R. 4442) would ensure that contributions of $1000 or more to candidates, parties and PACs, including super PACs, are disclosed within 48 hours. It would also require electronic filing of campaign finance reports.  The DISCLOSE Act, S. 2516, would disclose contributors to political nonprofits entrusting voters with information that currently is only known to the candidates who may benefit from dark money contributions. 

Affirmative congressional action would be the strongest signal that government trusts its citizens, but executive branch agencies can also take important steps to make political finance information more transparent. The IRS is in the process of reforming rules to better clarify when a nonprofit is a political organization and thus must disclose its donors.  The Securities and Exchange Commission can likewise modify its rules to require publicly traded companies to disclose their political activities.

Many large donors have gone to great lengths to take their political activities underground, claiming they fear attacks in the form of criticism or boycotts of their companies.  But just as participating in the political process through contributing to election efforts is an expression of free speech, so is criticizing such efforts.  Yet until campaign finance information is fully and quickly made public, the first amendment rights of voters and their ability to participate fully in our democracy are drastically shortchanged.

Summary

Global education plays an important role in contributing to U.S. foreign policy objectives. In a recent speech, Secretary of State Hillary Clinton highlighted education, along with health, agriculture, security, and local governance as the core areas for U.S. international development investment. She emphasized the importance of education, particularly of girls and youth, in improving global stability, speeding economic growth, and helping global health, all of which advance U.S. interests in the world.

But how effective has the U.S. government been in supporting global education? Unfortunately, its many good education activities and programs are not leveraged for maximum impact on the ground, especially in situations of armed conflict and state fragility. Challenges of U.S. foreign assistance—for example, fragmentation across multiple agencies, lack of policy coherence, diminished multilateral engagement—generally affects its work in education. Luckily some of the core strengths of U.S. assistance have an impact as well, specifically the large amount of resources (in total terms, if not relative terms) devoted to education and the vast breadth and depth of American academic, philanthropic and NGO partners engaged in pioneering work on education in the developing world.

This report analyzes the effectiveness of U.S. government education work specifically in relation to conflict-affected and fragile states. Findings across five domains—global reach, resources, technical expertise, policy and multilateral partnerships—show that U.S. education aid falls critically short of what it is capable of achieving. The U.S. government has substantial strengths in this area, especially in global reach, resources, and technical expertise, demonstrating a real comparative advantage in the field of education in situations of conflict and fragility. However, its fragmented policy across agencies and its limited multilateral engagement prevent it from maximizing its strengths, leaving it punching below its weight on this important issue. In this sense, the U.S. government is a classic underachiever, failing to efficiently deploy its many capabilities and potential for maximum impact.

There has never been a better time for looking at the aid-effectiveness of U.S. government education work. The Obama administration is bringing increased focus on the Paris Principles for Aid Effectiveness to its development initiatives. The U.S. Congress is actively engaged with pending legislative action to modernize foreign assistance and improve U.S. support for universal education. Two major reviews of foreign assistance are underway: the Quadrennial Diplomacy and Development Review led by the Department of State and USAID, and the Presidential Study Directive on U.S. Global Development Policy led by the White House.

Questions about foreign assistance reform asked in these two reviews can be applied to the education sector. For example, how can the U.S. government improve its education assistance by using a “whole-of-government” approach, by focusing on comparative advantages and strengths, and by improving coordination and by increasing multilateral engagement?

Careful analysis and answers to these questions can help propel the U.S. from its current position as an underachiever to being a leader in global education, specifically in contexts of conflict and state fragility.

This report makes nine specific recommendations, many of which could be achieved without any substantial increase in funding, that would enable the U.S. government to greatly increase the effectiveness of its education aid to populations living in contexts of conflict and state fragility.

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As I anticipated in my post on Tuesday, the Hong Kong government on Wednesday announced the details for the 2017 election of the Chief Executive (CE). Based on press commentary from China, it is clear that the PRC government, which has sovereignty over Hong Kong, approves the package. But to understand the implications for democracy in Hong Kong, it is important to look at the details of the proposal.

Since Hong Kong became a special administrative region of China in 1997, the CE has been chosen by an election committee of between 800 and 1,200 individuals. Beijing had promised that starting in 2017 the CE would be elected by the voters of Hong Kong through universal suffrage. Yesterday’s proposal is the latest step in a transition process toward that system. (For all of the recommendations, see the speech of Chief Secretary Carrie Lam to the Legislative Council.) As I outlined in Tuesday’s post, the principal point of controversy for more than a year has been Beijing’s insistence that a nominating committee choose who gets to stand for election. Hong Kong’s democratic camp believes that the nominating committee will give China an opportunity to “screen out” individuals it does not like.

The most prominent element of the Hong Kong government’s proposal yesterday is a recommendation on the procedural mechanism by which the Nominating Committee (NC) would review candidates. This was important for two reasons. One, under the plan the NC will have the authority to pick two or three final candidates to actually run in the election. Two, Mrs. Lam made clear that that the NC’s membership would be similar to the 1,200-person election committee that has picked the CE up until now and is weighted in favor of people who are biased toward Beijing.

Thus, who the NC considers before making its final nominations becomes critical. That will determine whether the election will provide a choice between the majority who have long favored a quick transition to democracy, and those who have preferred to move slower; and also between those who believe that the current economic system benefits only the rich and should be reformed, and those who are happy with current policies.

The proposed procedural mechanism mandates that any individual who can get recommendations from one-tenth to one-twentieth of the NC will be a “potential candidate” and have the opportunity to articulate his/her policy views to the NC and the public in a transparent way. In effect, this means that the NC will likely consider between five to ten individuals for final nomination. And because pan-democrats will have be at least a minority of the NC membership, as they do in the election committee, they will be able to recommend at least one democrat as a potential candidate. That in turn creates the possibility that a democrat could become a final nominee and compete to become CE. In that case, voters who have supported democracy and believe current economic policies are flawed would have a candidate who shares their general outlook. This mechanism would seem to be consistent with what the spokesman of the U.S. Consulate-General said earlier today: “The legitimacy of the chief executive will be greatly enhanced if the chief executive is selected through universal suffrage and Hong Kong’s residents have a meaningful choice of candidates.”

Let me be clear: the pan-democrats do not like this proposal. They do not like a mechanism that amounts to screening by China, and this one certainly opens a backdoor for Beijing to veto candidates it doesn’t like. In addition, the pan-democrats would like to have a promise from Beijing that this is not the end of the reform process when it comes to electing the CE, but Mrs. Lam gave no hope on that score, even though she said future circumstances might require more change.

The pan-democrats were likely unhappy about the government’s refusal to propose changes on two specific issues. Both concern the sub-sectors that will make up the NC, which will be copied from the current election committee. These subsectors represent different parts of the Hong Kong community, but the balance of voting power favors subsectors that 1) represent various business interests, 2) support Beijing on most issues, and 3) are afraid of populist movements. Back in December, the government floated the idea of shifting the balance of power among the existing subsectors so that under-represented groups got more votes, but on one condition, that the existing subsectors agreed. In the end, no change was made here, perhaps due to the stated reasons that there was no social consensus to make this change and that doing so would only create more political controversy. The more likely reason is that the subsectors that stood to lose their relative power were not willing to have their oxen gored.

The second issue had to do with “corporate voting” within subsectors. In some subsectors the constituent members decide their choices based on the preference of the leader of the member organizations. For example, in a subsector made up of commercial firms, the CEO of each member firm decides how to cast the firm’s vote. The alternative would be to have a larger number of people associated with the firm contribute to the decision, up to all the employees. As a matter of principle, the pan-democratic camp has long called for an end to corporate voting, and while there was an opportunity to do so on this occasion, the government didn’t take it.

So, the pan-democratic bloc in the Legislative Council walked out during Mrs. Lam’s presentation to the Legislative Council and has vowed to vote against this proposal. And if all of them did vote against, that would kill the proposal, because it must pass the Legislative Council by a two-thirds margin and the establishment caucus does not have enough votes on its own. On the other hand, Beijing and the Hong Kong government do not need to win over the whole of the disparate democratic camp. They just have to peel off four opposition legislators to secure the necessary majority. Presumably these would be more moderate politicians who might conclude that the reform package is “good enough” compared to the alternative. That is, Beijing and the Hong Kong government say that if the package is vetoed, election of the CE would revert to the 1,200-member election committee, delaying a one-person, one-vote election for some time. The danger for these moderates in voting for the proposal is that they will be excoriated by their colleagues for defecting and betraying principles, to the point of facing a challenge from within their camp in the next legislative election.

Hong Kong public opinion and legislators in particular have to face a couple of critical questions. The first is whether a system that produces a contest between at least one establishment candidate and one democratic candidate is indeed “good enough.” The recommended system could be improved upon in several ways, of that there is no doubt. On the other hand, if this system works as optimists think it could, then Hong Kong voters will have a real choice in picking their leader, for the first time in history.

Second, would this mechanism indeed produce an election contest between at least one establishment candidate and one democratic candidate? Is there a way in which members of the establishment could nominally consider a democratic potential candidate and then deny him or her the nomination? In fact there is. The government’s proposal specifies that after all the potential candidates have been heard from, the NC members then select two or three nominees. Each NC members get two votes, and nomination requires 50 percent. So establishment members of the NC, after going through the motions of considering a pan-democrat, could simply not give that person the majority needed for nomination. The procedure and their numerical majority give them the power to do so.

But is such a bait-and-switch tactic wise politically? If this mechanism is sold both to the public and moderate democrats as a “good enough” way to produce a competitive election but the result is a contest between two individuals associated with the establishment and the status quo, how much legitimacy will the process itself and the person ultimately selected have? Will the polarization, obstructionism, and protests that have come to mark Hong Kong politics subside or grow? Will Beijing face more stability in Hong Kong or less?

In short, does this mechanism not put the establishment in a position that it almost has to nominate a moderate democrat if it is to enjoy broad community respect? And if the establishment is being challenged to do the right thing, so are the democrats. As imperfect as they see the current package, if it creates a good enough chance of electing one of their own, would the democrats not lose community respect if they reject it and deny voters a choice (they already know that Beijing and others will blame them for reverting to the old system)?

This dual challenge creates the possibility of a compromise. The missing ingredient, of course, is the mistrust that each camp has about the intentions of the other, mistrust born of the decades-long struggle over whether Hong Kong should have a genuinely democratic system. Providing that ingredient will be a challenge itself. 

William Galston and E.J. Dionne, Jr. make the case for universal voting – a new electoral system in which voting would be regarded as a required, civic duty. Why not treat showing up at the polls in the same way we treat a jury summons, which compels us to present ourselves at the court? Galston and Dionne argue that universal voting would enhance the legitimacy of our governing institutions, greatly increasing turnout and the diversity of the American voter base, and ease the intense partisan polarization that weakens our governing capacity.

Citing the implementation of universal voting in Australia in 1924, the authors conclude that universal voting increases citizen participation in the political process. In the United States, they write, universal voting would promote participation among citizens who are not likely to vote—those with lower levels of income and education, young adults, and recent immigrants. By evening out disparities in the electorate, universal voting would put the state on the side of promoting broad civic participation.

In addition to expanding voter participation, universal voting would improve electoral competition and curb hyperpolarization. Galston and Dionne assert that the addition of less partisan voters in the electorate, would force candidates to shift their focus from mobilizing partisan bases to persuading moderates and less committed voters. Reducing partisan rhetoric would help ease polarization and increase prospects for compromise.. Rather than focusing on symbolic, political gestures, Washington might have an incentive to tackle serious issues and solve problems.

Galston and Dionne believe that American democracy cannot be strong if citizenship is weak. And right now, they contend citizenship is strong on rights but weak on responsibilities. Making voting universal would begin to right this balance and send an important message: we all have the duty to help shape the country that has given us so much.

Galston and Dionne recognize that the majority of Americans are far from ready to endorse universal voting. By advancing a proposal that stands outside the perimeter of what the majority of Americans are likely to support, Galston and Dionne aim to enrich public debate—in the short term, by advancing the cause of more modest reforms that would increase participation; in the long term, by expanding public understanding of institutional remedies to political dysfunction. 

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Introduction

During 2006, the United States saw a considerable upswing in the number of new mortgage defaults and foreclosure filings. By 2007, that upswing had become a tidal wave. Today, national homeownership rates are falling, while more than a million American families have already lost their homes to foreclosure. Across the country, boarded houses are appearing on once stable blocks. Some of the hardest hit communities are in older industrial cities, particularly Midwestern cities such as Cleveland, Detroit, and Indianapolis.

Although most media attention has focused on the role of the federal government in stemming this crisis, states have the legal powers, financial resources, and political will to mitigate its impact. Some state governments have taken action, negotiating compacts with mortgage lenders, enacting state laws regulating mortgage lending, and creating so-called “rescue funds.” Governors such as Schwarzenegger in California, Strickland in Ohio, and Patrick in Massachusetts have taken the lead on this issue. State action so far, however, has just begun to address a still unfolding, multidimensional crisis. If the issue is to be addressed successfully and at least some of its damage mitigated, better designed, comprehensive strategies are needed.

This paper describes how state government can tackle both the immediate problems caused by the wave of mortgage foreclosures and prevent the same thing from happening again. After a short overview of the crisis and its effect on America’s towns and cities, the paper outlines options available to state government, and offers ten specific action steps, representing the most appropriate and potentially effective strategies available for coping with the varying dimensions of the problem.

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Since it was created in 1935, Social Security has grown from covering about half of the work force to covering nearly all workers.  The largest remaining exempted group is a subset of state and local government workers (SLGWs).  As of 2008, Social Security did not cover about 27 percent of the 23.8 million SLGWs (Congressional Research Service 2011).  Non-coverage of SLGWs is concentrated in certain states scattered around the country and includes workers in a diverse set of jobs, ranging from administrators to custodial staff.  Some police and fire department employees are not covered.  About 40 percent of public school teachers are not covered by Social Security (Kan and Alderman 2014).    

Under current law, state and local governments that do not offer their own retirement plan must enroll their employees in Social Security.  But if it does offer a retirement plan, the state or local government can choose whether to enroll its workers in Social Security.  

This paper reviews and extends discussion on whether state and local government workers should face mandatory coverage in Social Security.^[1]  Relative to earlier work, we focus on links between this issue and recent developments in state and local pensions.  Although some of the issues apply equally to both existing and newly hired SLGWs, it is most natural to focus on whether newly hired employees should be brought into Social Security.^[2]  

The first thing to note about this topic is that it is purely a transitional issue.  If all SLGWs were already currently enrolled in Social Security, there would not be a serious discussion about whether they should be removed.  For example, there is no discussion of whether the existing three quarters of all SLGWs that are enrolled in Social Security should be removed from coverage.

Bringing state and local government workers into the system would allow Social Security to reach the goal of providing retirement security for all workers.  The effects on Social Security finances are mixed.  Bringing SLGWs into the system would also help shore up Social Security finances over the next few decades and, under common scoring methods, push the date of trust fund insolvency back by one year, but after that, the cost of increased benefit payments would offset those improvements. 

Mandatory coverage would also be fairer.  Other workers pay, via payroll taxes, the “legacy” costs associated with the creation of Social Security as a pay-as-you-go system.   Early generations of Social Security beneficiaries received far more in payouts than they contributed to the system and those net costs are now being paid by current and future generations.  There appears to be no convincing reason why certain state and local workers should be exempt from this societal obligation.  As a result of this fact and the short-term benefit to the program’s finances, most major proposals and commissions to reform Social Security and all commissions to shore up the long-term federal budget have included the idea of mandatory coverage of newly hired SLGWs.

While these issues are long-standing, recent developments concerning state and local pensions have raised the issue of mandatory coverage in a new light. Linking the funding status of state and local pension plans and the potential risk faced by those employees with the mandatory coverage question is a principal goal of this paper.  One factor is that many state and local government pension plans are facing significant underfunding of promised pension benefits.  In a few municipal bankruptcy cases, the reduction of promised benefits for both current employees and those who have already retired has been discussed.  The potential vulnerability of these benefits emphasizes the importance of Social Security coverage, and naturally invites a rethinking of whether newly hired SLGWs should be required to join the program.  On the other hand, the same pension funding problems imply that any policy that adds newly-hired workers to Social Security, and thus requires the state to pay its share of those contributions, would create added overall costs for state and local governments at a time when pension promises are already hard to meet.  The change might also divert a portion of existing employee or employer contributions to Social Security and away from the state pension program. 

We provide two key results linking state government pension funding status and SLGW coverage. First, we show that states with governmental pension plans that have greater levels of underfunding tend also to have a smaller proportion of SLGW workers that are covered by Social Security.  This tends to raise the retirement security risks faced by those workers and provides further fuel for mandatory coverage.  While one can debate whether future public pension commitments or future Social Security promises are more risky, a solution resulting in less of both is the worst possible outcome for the workers in question.  Second, we show that state pension benefit levels for career workers are somewhat compensatory, in that states with lower rates of Social Security coverage for SLGWs tend to have somewhat higher pension benefit levels.  The extent to which promised but underfunded benefits actually compensate for the higher risk to individual workers of non-Social Security coverage is an open question, though.  

Mandatory coverage of newly hired SLGWs could improve the security of their retirement benefits (by diversifying the sources of their retirement income), raise average benefit levels in many cases (even assuming significant changes in state and local government pensions in response to mandatory coverage), and would improve the quality of benefits received, including provisions for full inflation indexation, and dependent, survivor and disability benefits in Social Security that are superior to those in most state pension plans.  The ability to accrue and receive Social Security benefits would be particularly valuable for the many SLGWs who leave public service either without ever having been vested in a government pension or having been vested but not reaching the steep part of the benefit accrual path.  

Just as there is strong support for mandatory coverage in the Social Security community and literature, there is strong opposition to such a change in elements of the state and local government pension world.  The two groups that are most consistently and strongly opposed to mandatory coverage of newly hired SLGWs are the two parties most directly affected – state and local governments that do not already provide such coverage and their uncovered employees.  Opponents cite the higher cost to both employees and the state and local government for providing that coverage and the potential for losing currently promised pension benefits. They note that public pensions – unlike Social Security – can invest in risky assets and thus can provide better benefits at lower cost.  This, of course, is a best-case alternative as losses among those risky assets could also increase pressure on pension finances.

There is nothing inconsistent about the two sides of these arguments; one set tends to focus on benefits, the other on costs.  They can be, and probably are, all true simultaneously.  There is also a constitutional issue that used to hang over the whole debate – whether the federal government has the right to tax the states and local government units in their roles as employers – but that seems resolved at this point.

Section II of this paper discusses the history and current status of Social Security coverage for SLGWs.   Section III discusses mandatory coverage in the context of Social Security funding and the federal budget.  Section IV discusses the issues in the context of state and local budgets, existing pension plans, and the risks and benefits to employees of those governments.  Section V concludes.

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In many policy-related situations, the states can be useful laboratories to determine the most appropriate federal actions. Variations across states in health care programs, earned income credit rules, minimum wages, and other policies have helped inform debates about federal interventions.

In this paper, we reverse that approach. Many state and local governments currently face difficulties financing future pension obligations for their workers. The federal government, however, faced similar circumstances in the 1980s and successfully implemented a substantial reform. We examine the situation the federal government faced and how it responded to the funding challenge. We present key aspects of the situation facing state governments currently and draw comparisons between them and the federal situation in the 1980s. Our overarching conclusion is that states experiencing distress today about the cost and funding of its pension plans could benefit from following an approach similar to the federal government’s resolution of its pension problems in the 1980s.

The federal government retained the existing Civil Service Retirement System (CSRS) for existing employees and created a new Federal Employees’ Retirement System (FERS) for new employees. FERS combined a less generous defined benefit plan than CSRS, mandatory enrollment in Social Security, and a new defined contribution plan with extensive employer matching. Although we do not wish to imply that a “one size fits all” solution applies to the very diverse situations that different states face, we nonetheless conclude that the elements of durable, effective, and just reforms for state pension plans will likely include the major elements of the federal reform listed above.

Section II discusses the federal experience with pension reform. Section III discusses the status and recent developments regarding state and local pensions. Section IV discusses the similarities in the two situations and how policy changes structured along the lines of the federal reform could help state and local governments and their employees.

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Australia's economic performance has been the standout among advanced economies for several decades. With economic growth at nearly twice the pace of US or Germany over the past decade, a remarkable 25 years without a recession and a large, highly competitive mining sector despite the end of the resources boom, Australia remains a strong economic participant in a region of the world where future global growth is likely to be generated.

But with drivers of growth over the past 25 years unlikely to be the engines of growth in coming decades, now is not a time for complacency. And if there's one lesson from Britain's decision to leave the EU, it's that that disruptive forces are sweeping through the global economy. Australia, with its cohesive politics and economic success, has been able to avoid the worst of these problems, but the dangers are present if the economic challenges are not met.

To start with, the impacts of the reforms of the 1980s and 1990s are fading. The investment boom in mining is over, and the prices for mining and agricultural exports will probably remain subdued with slower growth in China. While Australia's incomes were boosted by the improved terms of trade, this has partially reversed. The housing boom will inevitably eventually slow.

As evidenced by the results of the Brexit referendum, there is a distrust of the political and economic elites that have led the world's biggest economies. Disruptive, rapid changes in technology have not led to broad-based productivity growth. Workers in many countries have been left with stagnant incomes and governments with rising public debt.

Industry policy has a bad name among American economists who see it as a manifestation of "capture" where special interests are able to obtain subsidies from taxpayers or special protections that are not in the national interest. The modern theory of industry policy, however, recognises that a well-designed policy can actually help markets work better, therefore helping an economy like Australia's make the transition to a new growth path when faced with changing economic conditions. Productivity is the key to high growth and rising incomes – and well-designed industry policy can help.

Structure of trade competitiveness

Take, for example, Australia's manufacturing sector. Mostly because of comparative advantage, it is the smallest among all advanced economies relative to the size of its economy. In 2010, Germany had 21.2 per cent of its workforce in manufacturing while Australia's was 8.9 per cent. While it's not surprising that Australia's structure of trade competitiveness differs from Germany's because of its enormous export strength of mining and agriculture, it will benefit by taking advantage of its highly skilled workforce and the potential to develop industries based on this human capital – including advanced manufacturing industries.

One of the traditional strengths of the American economy is the close link that exists between leading universities and businesses – an area Australian policymakers are seeking to improve upon. At MIT and Stanford, professors of engineering, biology, finance or economics finish their lectures and head off to the companies they run or advise. They often enlist graduate or undergraduate students to help them with their commercial projects and these collaborations often result in jobs as well as experience. There is a danger in this model if pure research loses out to business interests, but the interaction between academia and the practical needs of companies can largely improve both research and business profitability. It's worth recalling that even the giants of science in the 18th century were motivated by the need to improve navigation or build new machines or design buildings. Funding for research should support greater industry-university cooperation as highlighted by the Watt Review.

Another important element in Australia's continued economic success is the growth of its service industries. With most jobs in these industries, the performance and productivity of services will be the largest determinant of Australia's living standards. Productivity comparisons between Australia and the United States show that Australian productivity lagged behind the US as recently as the mid-1990s, but there has since been substantial catch-up taking place. Smart regulation that promotes competition and rewards innovation are necessary to bring up the laggards. While there is a continuing debate about the possible end of productivity growth in advanced economies, Australia can still do much to catch up to global best practice.

The winners of this weekend's election will be charged with answering an important question: what is the role of government in a modern economy? How they answer that will determine future prosperity for all Australians.

Martin Baily is a senior fellow at the Brookings Institution in Washington and a former chair of the US President's Council of Economic Advisers. He has been invited by the Australian Ministry of Industry Innovation and Science to report on lessons from the US for policies to enhance economic growth, innovation and competitiveness.

Warwick McKibbin AO, is the director of the Centre for Applied Macroeconomic Analysis in the ANU Crawford School of Public Policy and is a non-resident senior fellow at the Brookings Institution.

Editor's note: this opinion first appeared in Australian Financial Review.

Editor's Note: On Thursday Brookings Visiting Fellow, Amb. Norm Eisen addressed the Italian Parliament to discuss ethics in government, highlighting efforts in the US to improve transparency and accountability. In the speech, Amb. Eisen argues that while ethics reform can be difficult, it is an absolutely essentially part of any democratic system.

As Prepared For Delivery

Signora Presidente Boldrini, Madam President Brasseur, honorevoli Parlamentari, fellow panelists and distinguished guests, buon pomerigo. Thanks for inviting me to address the urgent subject of ethical standards in political life. It is an honor to be here in the Italian Chamber of Deputies, in this beautiful and ancient city, to which we Americans owe so many elements of our system of government. And in my town of Washington, DC we also borrowed a lot of your architecture, so we owe you for that as well.

In exchange for all that, as a small form of repayment, I would like to offer some perspectives from the U.S. as you consider the adoption of a code of ethical conduct for the Italian Parliament.

Since we are in the Chamber of Deputies, the equivalent of our U.S. Congress’ House of Representatives, I will start with best practices in that body, based on years of my professional life—too many—spent addressing alleged violations of its codes of conduct, including as a defense lawyer and later as the co-founder of a government watchdog group.

And I think there are also important lessons to be drawn from the new, innovative code of conduct for White House officials we established while I served as the "Ethics Czar" of President Obama. At his direction I helped write that new code, the Obama "ethics pledge," and although I am biased I think it has been effective so far, knock wood, there have been no major White House scandals. So I will talk about the lessons of that code of conduct a bit as well. My reflections are those of a friend and partner nation with plenty of challenges of our own. So I approach the issue with genuine humility in sharing our successes and failures.

I. Government ethics while standing on one leg

So—what is our U.S. view of best practices for the contents of government codes of ethics? In the U.S. and dare I say internationally, there is a pretty well developed set of best practices. In our House of Representatives, for example, our equivalent of this Chamber of Deputies, Rule XXIII is the Code of Official Conduct. It provides rules in four core areas;

• one, for regulating conflicts of interest, that is, situations where personal interests or financial holdings may conflict with official parliamentary duties;
• two, for gifts, particularly those from lobbyists and other persons interested in parliamentary decisions;
• three, for outside employment of parliamentarians before, during and after government service, particularly with lobbyists, a situation which we call in the US the revolving door; and
• four, for parliamentarians’ proper use of official resources, that is, hiring, staff, budget, travel and such.

There is much more detail in our code of conduct, and a few other rules as well, but those four items—conflicts, gifts, employment and resources—are the key. These same four key areas are also at the center of our codes of conduct for employees of our executive branch, as codified in our statutes and regulations, as well as in the Obama ethics pledge.

I emphasize these four key items because, having helped draft one code of conduct, and having often delved into many other codes, I sometimes find that I lose the forest for the trees when working with these codes, that the priorities at least for me sometimes get lost in the detail. So I try to keep the core always in mind, though I should add that the content of any such code must of course be particularized for the circumstances of particular government bodies and jurisdictions. Thus our U.S. House code is five pages long, elaborating on those four core items, and the House Ethics Manual of official guidance for the code is 456 pages long. Our Obama ethics pledge we got onto one page, we were proud of that. And we made everyone read and sign that page. To be fair, we could do that because we built on and added to other rules which already existed, and we did have several pages of definitions and references attached to the pledge.

II. Enforcement and transparency

But a good code is only the beginning. In our U.S. experience, just as important as the code, maybe even more important, is its enforcement. And here is where I want to share some lessons drawn from U.S. challenges in recent years, and how we responded. I am going to add two more items to our check list: enforcement and transparency.

Candidly, even with our parliamentary code of conduct in the U.S., our enforcement has sometime lagged. That is in part because under our Constitution, the ultimate enforcers are the parliamentarians themselves, and so they can at times be understandably reluctant to sanction their colleagues and friends. It's human nature.

For example, from about 1998 to 2004, there was a seven-year truce in filing complaints in our House of Representatives. The government watchdog organization I co-founded helped end that in 2004 by writing a complaint together with a brave but lonely member of Congress who was willing to file it with the House Ethics Committee. The resulting investigation resulted in the discipline of the member investigated, and ultimately helped lead to his party losing majority control of the body.

Out of all of that came a new enforcement tool in 2008, in our House of Representatives, that I strongly recommend to you: the creation of a new, independent entity, the Office of Congressional Ethics (OCE). This is a nonpartisan fact-finding body that investigates allegations from any source, including whistleblowers who might otherwise be afraid to step forward. OCE then recommends action to the parliamentarians who constitutionally maintain the ultimate decision-making power. Most importantly, the OCE referrals become public, allowing press, civil society and voter accountability. As a result, I believe, since the creation of the OCE for our House in 2008, there have been a significantly higher number of meritorious investigations there than in our Senate, which does not have a comparable body. The total is about 46 OCE referrals and about 20 House disciplinary actions versus just four letters of admonition by our Senate in that period. To be fair the Senate is a smaller body—but not that much smaller!

That last aspect of OCE enforcement—transparency, and the accountability it brings from media, NGOs and the public—is the sixth and final point I want to emphasize. In our U.S. parliamentary ethics system we have many transparency mechanisms: asset disclosures that our parliamentarians file, disclosures that lobbyists must make about their activities, information in campaign finance filings, and more.

To explain the value of transparency, I would like to close by turning to one of our Obama White House ethics transparency innovations. Starting in 2009, we for the first time put on the Internet virtually all visitor records of those coming to the White House. It used to be that just to get a handful of these records you had to file litigation and wait for years to know who was coming to the White House, who they were meeting with and what the subject of the meeting was. Now millions of Obama White House visitor records are online, each with a dozen or so basic categories of information: the name of the visitor, the person visited, the subject of the meeting and so on.

Why is that important? I began by referencing the Obama White House's record in avoiding major scandal. I think there are a number of reasons for that, including the President's own integrity and the new code of conduct we put into place. But an important part of that success story has also been the fact that records of White House meetings go on the Internet for everyone to see. That transparency brings accountability from the press, civil society and the public. That transparency and accountability has in turn powerfully reinforced the code of conduct: it has discouraged people from having meetings they shouldn't have, and if you don't have the meeting, you can't get in trouble for it.

So the U.S. view in one sentence: regulate conflicts, gifts, employment, and resource use, with strong enforcement and above all transparency. Thanks again for inviting me to share the U.S. perspective. Grazie!

On June 20, I moderated a conversation on the future of the Department of Veterans Affairs with Secretary Robert McDonald. When he took office almost two years ago, Secretary McDonald inherited an organization in crisis: too many veterans faced shockingly long wait-times before they received care, VA officials had allegedly falsified records, and other allegations of mismanagement abounded.

Photo: Paul Morigi

Since he was sworn into office, Secretary McDonald has led the VA through a period of ambitious reform, anchored by the MyVA program. He and his team have embraced three core strategies that are securing meaningful change. They are important insights for all government leaders, and private sector ones as well.

1. Set bold goals

Secretary McDonald’s vision is for the VA to become the number one customer-service agency in the federal government. But he and his team know that words alone won’t make this happen. They developed twelve breakthrough priorities for 2016 that will directly improve service to veterans. These actionable short-term objectives support the VA’s longer term aim to deliver an exceptional experience for our veterans. By aiming high, and also drafting a concrete roadmap, the VA has put itself on a path to success.

2. Hybridize the best of public and private sectors

To accomplish their ambitious goal, VA leadership is applying the best practices of customer-service businesses around the nation. The Secretary and his colleagues are leveraging the goodwill, resources, and expertise of both the private and public sector. To do that, the VA has brought together diverse groups of business leaders, medical professionals, government executives, and veteran advocates under their umbrella MyVA Advisory Committee. Following the examples set by private sector leaders in service provision and innovation, the VA is developing user-friendly mobile apps for veterans, modernizing its website, and seeking to make hiring practices faster, more competitive, and more efficient. And so that no good idea is left unheard, the VA has created a "shark tank” to capture and enact suggestions and recommendations for improvement from the folks who best understand daily VA operations—VA employees themselves.

3. Data, data, data

The benefits of data-driven decision making in government are well known. As led by Secretary McDonald, the VA has continued to embrace the use of data to inform its policies and improve its performance. Already a leader in the collection and publication of data, the VA has recently taken even greater strides in sharing information between its healthcare delivery agencies. In addition to collecting administrative and health-outcomes information, the VA is gathering data from veterans about what they think . Automated kiosks allow veterans to check in for appointments, and to record their level of satisfaction with the services provided.

The results that the Secretary and his team have achieved speak for themselves:

• 5 million more appointments completed last fiscal year over the previous fiscal year
• 7 million additional hours of care for veterans in the last two years (based on an increase in the clinical workload of 11 percent over the last two years)
• 97 percent of appointments completed within 30 days of the veteran’s preferred date; 86 percent within 7 days; 22 percent the same day
• Average wait times of 5 days for primary care, 6 days for specialty care, and 2 days for mental health are
• 90 percent of veterans say they are satisfied or completely satisfied with when they got their appointment (less than 3 percent said they were dissatisfied or completely dissatisfied).
• The backlog for disability claims—once over 600,000 claims that were more than 125 days old—is down almost 90 percent.

Thanks to Secretary McDonald’s continued commitment to modernization, the VA has made significant progress. Problems, of course, remain at the VA and the Secretary has more work to do to ensure America honors the debt it owes its veterans, but the past two years of reform have moved the Department in the right direction. His strategies are instructive for managers of change everywhere.

Fred Dews and Andrew Kenealy contributed to this post.

Hypocrisy is not scarce in the world of politics. But the current House and Senate budget resolutions set new lows. Each proposes to cut about $5 trillion from government spending over the next decade in pursuit of a balanced budget. Whatever one may think of putting the goal of reducing spending when the ratio of the debt-to-GDP is projected to be stable above investing in the nation’s future, you would think that deficit-reduction hawks wouldn’t cut spending that has been proven to lower the deficit.

Yes, there are expenditures that actually lower the deficit, typically by many dollars for each dollar spent. In this category are outlays on ‘program integrity’ to find and punish fraud, tax evasion, and plain old bureaucratic mistakes. You might suppose that those outlays would be spared. Guess again. Consider the following:

Medicare. Roughly 10% of Medicare’s $600 billion budget goes for what officials delicately call ‘improper payments, according to the 2014 financial report of the Department of Health and Human Services. Some are improper merely because providers ‘up-code’ legitimate services to boost their incomes. Some payments go for services that serve no valid purpose. And some go for phantom services that were never provided. Whatever the cause, approximately $60 billion of improper payments is not ‘chump change.’

Medicare tries to root out these improper payments, but it lacks sufficient staff to do the job. What it does spend on ‘program integrity’ yields an estimated $14.40? for each dollar spent, about $10 billion a year in total. That number counts only directly measurable savings, such as recoveries and claim denials. A full reckoning of savings would add in the hard-to-measure ‘policeman on the beat’ effect that discourages violations by would-be cheats.

Fat targets remain. A recent report from the Institute of Medicine presented findings that veritably scream ‘fraud.’ Per person spending on durable medical equipment and home health care is ten times higher in Miami-Dade County, Florida than the national average. Such equipment and home health accounts for nearly three-quarters of the geographical variation in per person Medicare spending. Yet, only 4% of current recoveries of improper payments come from audits of these two items and little from the highest spending locations.

Why doesn’t Medicare spend more and go after the remaining overpayments, you may wonder? The simple answer is that Congress gives Medicare too little money for administration. Direct overhead expenses of Medicare amount to only about 1.5% of program outlays—6% if one includes the internal administrative costs of private health plans that serve Medicare enrollees. Medicare doesn’t need to spend as much on administration as the average of 19% spent by private insurers, because for example, Medicare need not pay dividends to private shareholders or advertise.

But spending more on Medicare administration would both pay for itself—$2 for each added dollar spent, according to the conservative estimate in the President’s most recent budget—and improve the quality of care. With more staff, Medicare could stop more improper payments and reduce the use of approved therapies in unapproved ways that do no good and may cause harm.

Taxes. Compare two numbers: $540 billion and $468 billion. The first number is the amount of taxes owed but not paid. The second number is the projected federal budget deficit for 2015, according to the Congressional Budget Office.

Collecting all taxes legally owed but not paid is an impossibility. It just isn’t worth going after every violation. But current enforcement falls far short of practical limits. Expenditures on enforcement directly yields $4 to $6 for each dollar spent on enforcement. Indirect savings are many times larger—the cop-on-the-beat effect again. So, in an era of ostentatious concern about budget deficits, you would expect fiscal fretting in Congress to lead to increased efforts to collect what the law says people owe in taxes.

Wrong again. Between 2010 and 2014, the IRS budget was cut in real terms by 20%. At the same time, the agency had to shoulder new tasks under health reform, as well as process an avalanche of applications for tax exemptions unleashed by the 2010 Supreme Court decision in the Citizens United case. With less money to spend and more to do, enforcement staff dropped by 15% and inflation adjusted collections dropped 13%.

One should acknowledge that enforcement will not do away with most avoidance and evasion. Needlessly complex tax laws are the root cause of most tax underpayment. Tax reform would do even more than improved administration to increase the ratio of taxes paid to taxes due. But until that glorious day when Congress finds the wit and will to make the tax system simpler and fairer, it would behoove a nation trying to make ends meet to spend $2 billion to $3 billion more each year to directly collect $10 billion to 15 billion a year more of legally owed taxes and, almost certainly, raise far more than that by frightening borderline scoff-laws.

Disability Insurance. Thirteen million people with disabling conditions who are judged incapable of engaging in substantial gainful activity received $161 billion in disability insurance in 2013. If the disabling conditions improve enough so that beneficiaries can return to work, benefits are supposed to be stopped. Such improvement is rare. But when administrators believe that there is some chance, the law requires them to check. They may ask beneficiaries to fill out a questionnaire or, in some cases, undergo a new medical exam at government expense. Each dollar spent in these ways generated an estimated $16 in savings in 2013.

Still, the Social Security Administration is so understaffed that SSA has a backlog of 1.3 million disability reviews. Current estimates indicate that spending a little over $1 billion a year more on such reviews over the next decade would save $43 billion. Rather than giving Social Security the staff and spending authority to work down this backlog and realize those savings, Congress has been cutting the agency’s administrative budget and sequestration threatens further cuts.

Claiming that better administration will balance the budget would be wrong. But it would help. And it would stop some people from shirking their legal responsibilities and lighten the burdens of those who shoulder theirs. The failure of Congress to provide enough staff to run programs costing hundreds of billions of dollars a year as efficiently and honestly as possible is about as good a definition of criminal negligence as one can find.