How Georgia Fares in the Proposed Stimulus Package

It has been an interesting and historic month. From the turmoil in the financial system to the inauguration of the first African-American President, January 2009 has been one for the ages.

On Capitol Hill, Congress seems bound and determined to push through a stimulus plan that most Americans hate for one reason or another. The Democrats want more money to be spent on public assistance programs while the Republicans want more tax cuts. Oh if only there could just be the bipartisan compromises that we all have said we want. In the end, whatever Congress sends to President Obama will be the package we have.

Here in Georgia, the Atlanta Journal Constitution (AJC) is reporting that Georgia could be the recipient of $2 billion in funds geared towards education:

Georgia stands to receive more than $2 billion for education and infrastructure, and more than $5.6 billion in all, through President Barack Obama’s federal economic stimulus plan, according to estimates of the bill now before the U.S. House.

The American Recovery and Reinvestment Bill would provide more than $800 billion in federal spending and tax breaks if signed into law. Obama has made the stimulus package a key component of his early agenda and the Democratic-controlled Congress is expected to approve a plan by mid-February.

Under the draft proposal in the House, Georgia could qualify for more than $1.31 billion in transportation and infrastructure money and $1.17 billion in K-12 education money over two years, according to estimates produced by staff of the key committees.

Of the remaining money for the state, more than $2 billion would be part of the State Fiscal Stabilization Fund, a majority of which would be directed to support elementary, secondary and postsecondary education, according to an analysis by the National Conference of State Legislatures. The remaining stabilization fund money could be used for public safety and assistance to schools, colleges and universities.

Specifically in Gwinnett County, the county has been earmarked for the following:

Title 1 2009	Construction 09	IDEA 09	Total 2009
$8,876,600	$21,516,200	$12,668,900	$43,061,700

Title 1 2010	IDEA 2010	Total 2010	Total 2009-10
$8,876,600	$15,359,800	$24,236,400	$67,298,100

If a bill somewhat resembling this one passes Congress, Georgia public education looks like it could be a winner. No matter which way you slice it that is a positive for the students, educators, and state.

Source: The Atlanta Journal Constitution

Tax Cuts for Teachers

Ok, I admit it. I am a history buff and political junkie. I grew up reading everything I could about history, and then I would spend summers with my grandfathers having political debates. I was taught debating and politics from those men, and those lessons still resonate within me.

Right about now you are wondering what this has to do with The Educator's Retirement. In a word, everything.

History has taught us many things, and sometimes we learn, and sometimes we forget. What it has shown though is a short-sighted plan is usually ill-equipped to handle a long term problem. I can say this about several past Presidents including President Bush, who will be replaced today, and I hope that President Obama is not pulled into this group of Presidents by a short-sighted Congress.

The current Democratic Congress it would seem is out to make everyone happy. Let's throw money here and there (this happened in the Republican Congress too so neither is without fault), and we will be the heroes and continue to reign supreme. The problem is what are the long term benefits of the plans? Reelection? Debt? You get the point.

In the January 11th New York Times, Mr. Thomas L. Friedman wrote an Op-Ed Column that had staying power to solve a long term problem. Simply put, have educators pay zero income taxes.

The idea has been proposed before, but his arguments are well thought out and explained. They are not just being thrown against a wall to see if it sticks.

Suddenly, being an educator would be a sought after position. We would no longer lose the best and brightest due to wages, educators could live close to their schools, etc., etc.

I could go on and on, but I will let you read and decide for yourself. Hopefully, Congress has listened.

Tax Cuts for Teachers
By Thomas L. Friedman
January 11, 2009

Over the next couple of years, two very big countries, America and China, will give birth to something very important. They’re each going to give birth to close to $1 trillion worth of economic stimulus — in the form of tax cuts, infrastructure, highways, mass transit and new energy systems. But a lot is riding on these two babies. If China and America each give birth to a pig — a big, energy-devouring, climate-spoiling stimulus hog — our kids are done for. It will be the burden of their lifetimes. If they each give birth to a gazelle — a lean, energy-efficient and innovation-friendly stimulus — it will be the opportunity of their lifetimes.

So here’s hoping that our new administration and Congress will be guided in shaping the stimulus by reading John Maynard Keynes in one hand — to get as much money injected as quickly as possible — and by reading “Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future” with the other.

“Gathering Storm” was the outstanding 2005 report produced by our National Academies on how to keep America competitive by vastly improving math and science education, investing in long-term research, recruiting top students from abroad and making U.S. laws the most conducive in the world for innovation.

You see, even before the current financial crisis, we were already in a deep competitive hole — a long period in which too many people were making money from money, or money from flipping houses or hamburgers, and too few people were making money by making new stuff, with hard-earned science, math, biology and engineering skills.

The financial crisis just made the hole deeper, which is why our stimulus needs to be both big and smart, both financially and educationally stimulating. It needs to be able to produce not only more shovel-ready jobs and shovel-ready workers, but more Google-ready jobs and Windows-ready and knowledge-ready workers.

If we spend $1 trillion on a stimulus and just get better highways and bridges — and not a new Google, Apple, Intel or Microsoft — your kids will thank you for making it so much easier for them to commute to the unemployment office or mediocre jobs.

Barack Obama gets it, but I’m not sure Congress does. “Yes,” Mr. Obama said on Thursday, “we’ll put people to work repairing crumbling roads, bridges and schools by eliminating the backlog of well-planned, worthy and needed infrastructure projects. But we’ll also do more to retrofit America for a global economy.” Sure that means more smart grids and broadband highways, he added, but it also “means investing in the science, research and technology that will lead to new medical breakthroughs, new discoveries and entire new industries.”

But clean-tech projects like intelligent grids and broadband take a long time to implement. Can we stimulate both our economy and our people in time? Maybe rather than just giving everyone a quick $1,500 to hit the mall to buy flat-screen TVs imported from China, or creating those all-important green-collar jobs for low-skilled workers — to put people to work installing solar panels and insulating homes — we should also give everyone who is academically eligible and willing a quick $5,000 to go back to school. Universities today are the biggest employers in many Congressional districts, and they’re all having to downsize.

My wife teaches public school in Montgomery County, Md., where more and more teachers can’t afford to buy homes near the schools where they teach, and now have long, dirty commutes from distant suburbs. One of the smartest stimulus moves we could make would be to eliminate federal income taxes on all public schoolteachers so more talented people would choose these careers. I’d also double the salaries of all highly qualified math and science teachers, staple green cards to the diplomas of foreign students who graduate from any U.S. university in math or science — instead of subsidizing their educations and then sending them home — and offer full scholarships to needy students who want to go to a public university or community college for the next four years.

J.F.K. took us to the moon. Let B.H.O. take America back to school.

But that will take time. There’s simply no shortcut for a stimulus that stimulates minds not just salaries. “You can bail out a bank; you can’t bail out a generation,” says the great American inventor, Dean Kamen, who has designed everything from the Segway to artificial limbs. “You can print money, but you can’t print knowledge. It takes 12 years.”

Sure, we’ll waste some money doing that. That will happen with bridges, too. But a bridge is just a bridge. Once it’s up, it stops stimulating. A student who normally would not be interested in science but gets stimulated by a better teacher or more exposure to a lab, or a scientist who gets the funding for new research, is potentially the next Steve Jobs or Bill Gates. They create good jobs for years. Perhaps more bridges can bail us out of a depression, but only more Bills and Steves can bail us into prosperity.

Source: New York Times

2009 Investment Options for Your 403(b)

We are only two weeks into the new year, but I have already received quite a few e-mails regarding investments for 2009.

I have said before, and I remain, somewhat against putting much of a 403(b) account in fixed income. This is usually because your Georgia TRS account is essentially your fixed income investment, so putting more into fixed income assets is somewhat redundant... but this year could be the exception.

After the credit markets were essentially beaten down in 2008, bonds of very high quality companies (usually called investment grade bonds) were sold down quite heavily and are still selling at a discount. If we are to believe that the U.S. economy will recover, and it will, then these bonds could enjoy some price recovery back to par along with the yield.

And that means??? Essentially, if in your 403(b) options there is an investment grade bond fund (for example - AIG/VALIC has the Vanguard Investment Grade Bond Fund), you should look to allocate some part (probably no more than 10-15%) of your account to this investment.

On the other hand, do not look at last year's return to just make your choices. Last year was a great year for government bonds, but this year could end up being a bad one for government bonds because they already are so highly priced which is only compounded by a very low yield. If you just feel like you have to buy them, do very little or just hold cash instead.

Additionally, while we do not see any inflation right now, all of the money that is being poured into the economy by the government will eventually lead to inflation. It could also be a good time to dabble in inflation protected bonds. I would not go heavy into any allocation here though either (5-10% max). In the world of finance, these types of bonds are usually called "TIPS" (Treasury Inflation Protected Securities).

As for the rest of the account, you really need to continue to research the funds that you have available. A good diversification model that would now include the investment grade and inflation protected bond funds would be excellent. Remember that if you only look at last year, you will be missing the point. Look at good and bad years, look at changes in the managers, etc.

Someone e-mailed me the other day and asked why invest until the market gets better. Simply put, you cannot time the market. The best scenario is to diversify your investments.

In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.

I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate.

As always, if you have any questions, feel free to e-mail me.

Your 2009 Financial Questions/Resolutions; Thoughts

Today I would like to ask my readers and visitors to the blog's site for their financial questions and resolutions for 2009. Whether it is controlling/paying down debt, contributing more to your retirement account(s), or just learning about your financial well-being. Whatever you want, just e-mail me at rschultz@rollinsfinancial.com. I ask my clients too, and it is always interesting to hear some of the responses.

"Chance Favors Only the Prepared Mind"

I have been doing this little blog for educators for about the last 7 months, and I can honestly say that I never expected to get the number of visitors to the blog or some of the questions and responses that I have received. It is somewhat gratifying, but at the same time, it is somewhat troubling.

On one hand, it is gratifying because I am happy to know that I have helped some individuals. Whether it has been to answer a question or just reassure them that the world is not ending, I have found some joy in being able to help.

On the other hand, I am troubled because I believe that there are a number of educators that have not really understood the place where we are right now. They sometimes rush to make decisions rather than looking to history and seeing anything beyond right now.

I have seen many queries from people that have come to this site, and they have asked "How do I cash out my 403(b)?" or something similar. When I have been able to talk with these individuals, I have tried to preach the long term outlook along with the fact that keeping your retirement in a retirement account will save you untold tax problems. Sometimes this opened eyes and other times, it fell on deaf ears.

I am not trying to say by any stretch of the imagination that there is any one person that is the "know all be all person" of financial matters (the Madoff scandal opened a ton of eyes to that realization), but I do hope that everyone does find some person or group to help them with financial questions.

I will give one quick example, and then I will let everyone get back to their daily lives...

Some months ago I had an individual send me an e-mail wondering about taking a lump sum distribution or taking their pension (a spouse of an educator). The lump sum distribution being offered was roughly $100,000 versus the pension of roughly $8,000 a year. The person wanted to take the lump sum distribution to pay off their entire debt (a $5,000 auto loan was all) and then invest the rest.

I explained that the best answer would be to take the guaranteed pension, and then use the payments to pay down the debt. They could not understand the difference between the two, so I tried to explain it the best way I could.

If you take the lump sum, you have this amount of money forever, and there will not be any additional money. If you take the pension, you are guaranteed $8,000 a year for the rest of your life - which is approximately 30 years - so you would get $240,000 guaranteed. After they looked at everything, they finally agreed the pension was the best way to go.

The only thought they had was dealing with the car debt. They wanted to make one decision to pay off a high interest loan (a very good idea), and couple it with a very bad decision to take a lump sum distribution thereby causing an issue 5, 10, 15, or 20 years down the road.

Personally, I have been known to try to think things through too much, but I would rather be slow and deliberate with financial decisions. I know a hasty decision can sometimes cause you great angst later if not thought through initially.

My wish to all of you this year is to be patient and make thoughtful decisions - financially and otherwise. They will not all be right, but if you have done your research, you are much more prepared to succeed.

As the great scientist Louis Pasteur once said, "Chance favors only the prepared mind."