Pension Oblivion

NBFD FerrariMy friend Shawn Dewayne, a financial planner who often includes tax-free municipal bonds in his customers’ portfolios, is concerned about the impact of out-of-control city/state pension costs is having on munis. When he saw this car recently near his Newport Beach office, it pretty much summed up the whole pension mess for him, as it does for me.

The plate translates as “Ex Newport Beach Fire Department” and it’s affixed to a 2013 Ferrari California 30, a car that retails for $208,000 before all the VERY costly extras and options Ferrari offers.  Shawn tells me that a week earlier he saw another very expensive car – a Shelby Cobra 427 – with the license plate “I (heart) STERS,” as in CalSTERS, the California teachers’ retirement fund. And keeping up the car/pension theme, he told me of a retired water district general manager who recently spent $200,000 on a professional rebuild of his 60′s supercar, an Olds 442. (Oh, how I lusted after that car in my youth!)

Sure, these three well off ex-public servants could have had lucrative side businesses, but more likely they’ve just got great retirement benefits. A retired fire chief, for example, can relax and buy a Ferrari on the $200,000+ annual pension benefit that’s common for that job, along with Cadillac (or Ferrari) medical coverage.

The Death of CalPERS?

There’s one thing – and only one thing – I like about California’s out-of-control retirement pension and benefit programs:  I get to throw back on the Left the word they love to over-use so much: Unsustainable!

The programs are so unsustainable that CalPERS just announced its going to hike the amounts municipalities who are enrolled with them must pay by … get this … 50 percent. Sure, they’re going to phase it in, but a 50 percent hike is still a 50 percent hike – and when you multiply it by 1.6 million, the number of California government workers covered by it, you’re looking at some very serious bucks.

Canyon LakeTo see how this hits home, look at the small town of Canyon Lake, a party town of a place in Riverside County. CalPERS already has increased the town’s contribution rate from 12.8 percent of an employee’s salary to 17.9 percent over the last three years, and the City Council was looking it going to 26.8 percent this summer – before the 50 percent rate hike starts to kick in. So they did what any logical person would do.

They decided to quit CalPERS. According to news reports, it’s going to cost Canyon Lake $660,000 to say farewell. That’s the amount of unfunded liability CalPERS is carrying on Canyon Lake’s small employee base, and the city figures the cost of financing the payment will be less than the cost of putting up with CalPERS jacking up rates instead of paring down benefits. Cities with more employees, especially those who have been shorting CalPERS because of their own financial unsustainabilities, will be looking at much bigger divorce settlements.

But they’re looking, nonetheless. I know of one special district that is trying to figure out how to raise the money needed to divorce itself from the system and I’m sure the upcoming rate hike will swell the numbers. If American business ingenuity kicks in as I suspect it will, you’ll see new financing tools to fund CalPERS split-ups. When that happens, the move toward sustainable pensions could become a stampede, leaving the nation’s biggest and baddest pension plan crushed in the dust.

That’s just the sort of “rebuilding California one catastrophe at a time” I predicted in Crazifornia, so don’t be surprised if it happens.

 

 

Public Servants? What Public Servants?

Pension Buffet

The originator of the term “public servant” is gone and long-forgotten, but kudos to whoever came up with that very impressive bit of spin. It certainly has a better connotation than “lazy, under-ambitious paper-shuffler.”

It’s not surprising many government workers identify with the term. If they have forsaken other, higher paying jobs so they can work diligently and tirelessly for the public’s benefit, then they have earned some right to use the word. But they lose that right if they’re clinging stubbornly to benefit plans that cheat the public.

It’s hard to think “public servant” when considering the members of various public employee unions who allow their union bosses to stubbornly and dogmatically protect unsustainable public employee pensions and retirement benefits, even while driving municipalities into insolvency and forcing governments to cut services to the public. If government workers see themselves as public servants, then the majority of them need to face reality, stand up at their next union meeting and shout:

I didn’t sign up for this! I don’t want my retirement plan to harm the citizens I have pledged to serve. It’s time to admit that human decency and professional responsibility top legal precedents. It’s time to be motivated by fairness, not greed! Hey, union boss! Rewrite our contracts!

Have you heard a single public employee union member – a single public servant – say that modest trimming around the edges of their benefit programs isn’t enough? That their fixed benefit retirement plans must be converted NOW to fixed contribution plans? That they shouldn’t expect municipalities that are going broke to continue to pay more into their employees’ retirement plans than the employees themselves pay? That the life-time free medical care in their contracts isn’t free – it costs the public?

No, of course you haven’t.

Until this becomes a chorus that drives union leaders to relent and allow full-blown rewriting of existing contracts, government workers are not public servants. Rather, they are public masters, lording over the public, not serving them.

I suggest you start calling them that, and when they ask what you mean, give them an earful.

 

Public Servants or Buccaneers?

Pillage and PlunderThere’s a new retirement community for California’s public employees called Treasure Island. It’s a lovely place where they can “Harrr! Harrr! Harrr!” their way through their golden  years as they live off their treasure chests piled high with the plunder they stole from the people during their working years.

Treasure Island appears to be located in Fresno County. Surprised? You shouldn’t be:

Fresno County’s pension costs are expected to grow in the coming year — again — continuing to tie up more than one of every four dollars at the county’s disposal.

County leaders have taken steps to address the increasing burden, but their actions are yet to turn around a retirement system in which promises far exceed cash flow.

The increase in costs, detailed in a retirement report released last week, has put county administrators on damage control — trying to absorb the hit in next year’s budget while sparing already-underfunded county programs, from unmaintained parks to short-staffed libraries to a scaled-back Sheriff’s Office.

“It’s going to be very difficult for the county over the next few years,” Supervisor Debbie Poochigian said. “As pension costs go up, it just takes more of the pie and leaves less for everything else.”

The new retirement report projects that the county will have to contribute about $7 million more during the 2013-14 fiscal year over the current year to stay on top of its pension obligations — a total of $176 million.

That’s up 50% over five years.

Including retirement debt, about $212 million of the county’s roughly $1.8 billion budget next fiscal year will go toward pensions. (Fresno Bee)

When it becomes this bad – inflated, over-promised pensions taking up one quarter of a county’s budget, with the amount growing every year! – why aren’t “public” servants rising up and saying, “Enough! This is unconscionable! We can’t steal from the public like a bunch of buccaneers sailing about plundering and raping! Re-write our contracts NOW!”

But of course, they aren’t saying that, or anything like it.

Many ask why Muslims don’t speak out against terrorist jihad. It’s even worse with public employees, because they don’t just not speak out against unsustainable pensions. No, they (or the union reps they hide behind) shout down any voice of reason that calls these pirates’ pensions what they truly are – the legalized theft of public funds.

It’s Time for Moneyball in Sacramento

Jerry Brown is no Billy Beane.

Coaching a bottom-dwelling state – at the bottom of the education, business-friendliness and government efficiency rankings, at the top of taxation, regulation and fleeing residents rankings – Brown is continuing to dole out big money for policies that are past their prime and failing to perform.

Beane, whose Oakland A’s are once again in the Major League playoffs, realized in 2002 he didn’t have enough money to put a team together the old fashioned way, so, as recounted in Michael Lewis’ best-seller, Moneyball, he signed undervalued players other teams overlooked. Each was smartly chosen for on-base percentage, scoring runs, or less measurable qualities like stepping up when the chips are down. Other managers thought Beane was either desperate or insane, or both, but the rag-tag team of forgotten players he assembled became winners.

Beane’s had the ability to see in baseball’s raft of statistics what other managers didn’t. Brown is surrounded by statistics on how California’s various players – agriculture, business, local government, state bureaucracies, pension funds – are performing compared to other states, but he can’t seem to read them. Instead of pursuing government policies that are the parallel of Beane’s brilliant recruiting, he’s doing the governmental counterpart of the Yankees shelling out $18.7 million (prorated down from a contracted $28 million) to get pitcher Roger Clemens back from the Houston Astros in 2007. Clemens made $1 million a start that year, and came to define “worst trade ever” to many baseball buffs by turning in a lackluster 6-6 season.

Proposition 30 is Brown’s Clemens, a high-cost, past-its-prime approach to government that he hopes will lift California out of the cellar. Like Clemens, it costs a lot, with sales and income tax increases of as much as $50 billion over the next seven years. Like Clemens, it too has a strong arm, in this case strong-arming Californians with its threat that if they don’t pay up, the teacher dies. And just like Clemens showed the Yankees, there’s no guarantee it will work as promised.

Moneyball for California

Should Prop 30 fail in November, Brown will have a chance to start playing Moneyball. Here are some ideas for the manager of the major league Sacramento Spenders.

Schools – Schools are the state’s single biggest expense, receiving 43 percent of the General Fund. Half of this largess goes to administrative overhead, because it takes a lot of administrators and $400 million a year to fulfill all the mandates, reports and busy work imposed on school districts by Sacramento. In contrast, just 20 percent of Connecticut’s education budget goes to administrative overhead. California ranks #46 in the most recent “best-educated state” rankings, while Connecticut comes in second.

Then there’s the problem that our teachers are the highest paid in the nation, despite California’s tragically poor education outcomes. The California Teachers Association, which gave almost $50,000 to Brown’s 2010 gubernatorial campaign and has paid out $6.3 million to support Prop 30, does all it can to keep salaries high and performance-based pay a nonstarter.

Moneyball in education would see the elimination of most of state-imposed mandates on public schools, so we could stop paying for thousands of high-priced school administrators. Then, Brown could support a ballot initiative requiring performance-based pay for teachers, and rail against the devious CTA advertising that would attack it. Brown would never do this, of course, but a Governor Billy Beane would.

Pensions – The real reason Brown needs Proposition 30 is to shovel money into the $250 billion to $500 billion hole of unfunded state employee pension liabilities. Brown needs to start managing this problem Moneyball-style. He will get nowhere as long as he dodges dealing with the contracts of existing employees, like he has to date. That’s where the real liability is, so he has to force the rewriting of those contracts, especially when retroactive increases were given, or unions won increases that were completely out of the norm of private sector increases. Costly add-ons, like life-time health insurance for agency directors, need to be prohibited retroactively.

This won’t be easy, but in Crazifornia, I make the case that many public employee contracts can be voided because management negotiators were city administrative employees who would benefit from rank-and-file salary and benefit increases when their own contracts were renewed. Brown should seek to have thousands of these sorts of contracts across the state declared null and void by claiming they are the fruit of criminal racketeering under the federal Racketeer Influenced and Corruption Act (RICO). Brown would never do this, of course, but a Governor Billy Beane would.

Taxes – William Voegeli of Claremont University found that California’s per-capita outlays increased 21.7 percent from the early 1990s to the mid-2000s, compared to an 18.2 percent average increase for the other 49 states. Just cutting back to average, which can hardly be categorized as heartless conservatism, would save California $10.6 billion a year, or enough to close most of the current budget gap – without new taxes. If California’s spending over those years had increased only with inflation and population growth, Voegeli writes in Failed State, “the resulting levels of per-capita government outlays … would have equaled neither Somalia’s nor Mississippi’s, but … Oregon’s, which is rarely considered a hellish paradigm of Social Darwinism.”

Brown would never attack spending in this way, nor would he do many other smart Moneyball approaches to fixing our lumbering disaster of a state, which is why his governorship will ultimately fail.

 

“Liars Can Figure, But Figures Can’t Lie”

John Moorlach, the Orange County supervisor and crusader against unsustainable public employee pensions, provided this chart to his email following today.  “OCERS” is the Orange County Employees’s Retirement System and “UAAL” is short for Unfunded Actuarial Accrued Liability.  In other words, if all the county’s employees live as long as the actuarial tables say they will, this is how much in the hole we’ll be as of today.

You’ll notice that until 2001, the liability hovered around half a billion dollars or less. It started climbing in 2002 and now has grown about eight fold and is approaching $5 billion – or about $1,650 dollars of debt hanging like a rotting albatross around the necks of every man, woman and child in Orange County.  What happened?

That’s an easy one. In 2001, the Orange County Board of Supervisors granted retroactive pension increases to public safety employees – a move that made their post-9/11 hearts go putter-pat, but was about as stupid and consequential as not dodging icebergs with the Titanic. Payments into the county pension fund for these employees were being made at an amount determined by the actuarial projections for how long they’d live and how much they’d take out of the system before they died. When the Supes upped the payout without jumping into the Way-Back Machine and upping the contributions throughout the many years of the employees’ careers to pay for it, they locked in the increasing UAAL you all see here.

Mororlach forced the OC Supervisors to sue the OC Sheriffs to get the retroactive increases killed.  I tell the inside story in Crazifornia, complete with what Moorlach said during closed sessions. It’s great stuff.  Too bad a couple judges – state employees waiting for their own retirement pensions – threw out the lawsuit in a most arbitrary and self-serving manner.

Moorlach closes his constituent email by saying, “As the old expression goes, liars can figure, but figures can’t lie.  The County’s pension offerings are in dire need of an overhaul.  And this overhaul needs to be addressed by some paradigm-shifting actions on the part of current employees.”

In other words, Orange County’s public safety employees have to admit that they’re shamelessly sticking it to us by benefiting off the hurt one stupid action by five stupid supervisors has caused all us taxpayers, and voluntarily dial back their pensions to pre-2001 levels.

Think they’ll do it?

No. In Crazifornia, I pose a possible solution: a RICO lawsuit brought under the Racketeer Influenced Corrupt Organizations Act. Most people I’ve talked to, including Moorlach, think this little idea of mine could work by ruling that insanely unsustainable pensions be thrown out even though they’re contracts because the contracting process was “racketeer influenced.”

Crazifornia Leads Off Flash Report

June went out like a dead bear as Crazifornia got the top-of-the-page position in the June 30 edition of the Flash Report.

My latest Crazifornia essay on the state’s ills, “Health Care Decision Could Speed California’s Collapse,” got the prominent display because it looked at the Supreme Court’s Obamacare decision in a way other commentators didn’t:

Assembly Committee on Health chair Bill Monning (D-Santa Monica) told the Center for Health Reporting. “In other states, I’m sure, this will get picked apart and analyzed. This has no bearing in California, since we fully intend to participate and take advantage of the federal subsidy and support.”

Monning and his colleagues apparently are only thinking of that tempting Obamacare money, and haven’t stopped to consider the consequences of another of the court’s determinations: That states can’t be penalized for not joining the Obamacare parade. Chief Justice Robert’s tipping of the court toward that ruling will turn out to be much more significant to California than his decision to tip the court in favor of keeping Obamacare alive by calling a mandate a tax.

That’s because when other states choose to opt out, their medically desperate and other less sympathetic members of their entitlement class won’t just sit still. Instead, they will look around for the opted-in state that offers them the sweetest deal – and they’re sure to focus on California. California spends more on social welfare programs than the next eight states combined, so it’s already a magnet for those who think the government owes them a living.

Love or hate Obamacare, it’s undeniable that it will bring big change to American society. And for California, that change just might be complete fiscal collapse. The state used to attract those fired by entrepreneurial spirit; now those job-generating, tax-paying people flee the state by the thousands, and instead California draws those fired by the thought of abundant food stamps, generous welfare programs and, with Obamacare, heavily subsidized health care.

The people Obamacare draws to California won’t stop with subsidized healthcare; they’ll sign up for as many social welfare programs as they can. And under the state’s ultra-progressive income tax structure, they’ll contribute little to nothing in taxes in return. That’s a social change California just can’t afford, especially since its newly passed $91.3 billion budget is balanced precipitously on the increasingly tenuous assumption that Gov. Jerry Brown’s $8.5 billion tax hike will be approved by voters this November.

The many who think California can only be fixed by having to rebuild itself after a hard, headlong crash into fiscal oblivion may well have Roberts to thank for hurrying along the process.

This is the kind of insight you get when you’ve watched something close-up for over 30 years, as I have watched California.  I became aware of California’s welfare magnetism in the 1980s, when my wife and I used to visit her parents in a very far-north California city where they lived owned properties.  They complained a lot about the poor caliber of renters there compared to those they’d rented to a few years earlier, when they owned property in Orange County.  It turns out the Northern California city was a magnet for welfare recipients from other states because it offered a lower cost of living compared to the rest of California, but still let emigrating losers sign up for the state’s top-of-the-heap welfare benefits.

 

California Leads the Nation … In Failure

When it comes to the gaping abyss that is public employee pension and health care unfunded liabilities, Democrats continue to try to obscure reality at all costs. At a dinner meeting earlier this week, the smokescreen was so thick that I actually had to interrupt Orange County Democrat Party Chairman Frank Barbaro, who was participating in a panel discussion at a meeting of city electeds and city managers.

Barbaro had just said, “We hear about the outrageous public employee pensions, but do you know what the average pension for a retired public employee under the CalPERS system is? It’s just $22,000 a year.”

“What is the average for CalPERS-covered public employees who retired last year?” I asked in a voice that all in the room could hear.

He seemed shocked by the interruption, but feigned ignorance.  “I don’t know, what was it?

“It was $60,000 a year, and it will be going up every year from now on until pensions are controlled. That’s the pension cost the people in this room are concerned about,” I said as some City officials applauded and others nodded their heads in approval.

You have to call these people out.  You have to say you’re not putting up with their papering over of the problem, even if, as in this case, their response is to go back to the lame Dem message points, pretending the real facts simply don’t exist. Against that context, here’s the intro to my most recent Daily Caller column, covering a bit of reality Democrats wish they could ignore, that California now leads the nation in public employee pension fund losses, but in terms of total losses and percentage of fund losses:

California, once a state that could easily justify the adjective “golden,” nowadays seems to always find itself at the bottom of lists Californians would rather be at the top of — like quality of education — and at the top of lists they’d like to be at the bottom of — like the most recent: largest public employee pension fund losses.

The data is from a pretty reliable source — the U.S. Census Bureau — and it shows California lost $136 billion in 2009, or 21.2 percent of the total national losses in public employee pension fund assets. The state has 12 percent of the nation’s population and 18 percent of all state pension fund assets — which in itself is a sign of how comfortably the state’s public servants will spend their retirement years.

The one-year loss equals $3,677 for every man, woman and child in the state — and since we’re on the hook for any shortfalls, that’s a bill that could come due. Heaven forbid that public employees would ever be asked to accept pension cuts like the poor folks who must work to produce something other than taxes, fines and regulations.

Please make Peter, the opinion editor at the Daily Caller, happy by clicking through to read the rest.

Crazifornia a Neal Boortz Reading Assignment

Crazifornia got a great plug this morning as Neal Boortz included my Daily Caller column from yesterday among this “Reading Assignments” for the day:

Here’s the latest example of how Governor Moonbeam in California Brown is not going to deal responsibly with the state’s unfunded government employee pension liabilities. In other words: he isn’t going to stand up to the unions.

The piece, also linked in the post below, shows how the new contract for California’s prison guards shows Brown’s true colors, as the union suffered no losses in the latest contract, despite the state hemorrhaging money because of ridiculously lucrative public employee union wages and pensions. Thanks, Neal!

A Clue to Brown’s Pension Strategy

Shuffled in with Arnold Schwarzenegger’s last-minute appointments was one – a very good one – that almost slipped by largely unnoticed, until The Buzz blog at the Sacramento Bee outed it today:

Among other actions on his way out the door, then-Gov. Arnold Schwarzenegger appointed Cameron Percy to the California State Teachers’ Retirement System board in December.

Percy, 26, has a graduate degree from Stanford. While he was a student, he helped write “Going For Broke: Reforming California’s Public Employee Pension Systems.”

That’s the report that Schwarzenegger and Co. used as a source for the oft-cited and highly disputed calculation that California’s Big Three pension systems faced a collective $500 billion in unfunded liabilities.

If there’s one thing California’s public employee unions hate, it’s the Stanford report – so they are decidedly unhappy with Percy’s appointment.  When Percy et. al. released their study (which you can download here), CalPERS immediately fired off a page chock full of stats that lacked one critical piece of information:  Its own calculation of the unfunded liability.  I’ve spent over 30 years in the communications business where we have a word for that sort of thing:  stupid.

The unions’ pension unfunded liability calculation, it turns out, is about one-tenth that of Stanford’s: a measly, insignificant $55 billion.  Why worry? That’s only $1,500 out of the pockets of every man, woman and child in the state and, heck, it’s not going to get any bigger, right?

The difference between the two numbers is that Stanford used a 4.14 percent “risk-free” discount rate, the rate private companies must use when calculating their pension liabilities.  California’s public employee pensions use between 7.5 percent and 8 percent – a performance they’re not achieving, and most experts agree they have no hope of achieving on a sustained basis, and certainly not now.

With public support for Brown’s special election tax increase proposal barely breaking 50 percent in the early polling, he knows passing the tax increases may force him to bite the union hand that fed his election campaign, and submit a companion pension reform proposal with real teeth.  So far, Brown, who left Oakland with its own $310 million in unfunded pension liabilities, has only talked about minor tweaks – just enough to not tick off the unions, but hardly enough to show voters he’s really serious about fixing California. Look for support of the tax increase measures to drop dramatically if Brown doesn’t take the unfunded pension liability more seriously.

Percy’s nomination will give us a clear insight into Brown’s thoughts as he grapples with this dilemma.  The appointment must be confirmed by the Dem-dominated Senate, but Percy may not even get that far, since Brown has the power to boot him and name his own appointee. How Brown,and the Senate act on the appointment will tell California voters and public employee union bosses what they can expect from Brown. It’s routine for incoming governors to replace the nominees of out-going governors, but there’s nothing at all routine about this case.