Unions’ Assault on Reason Continues

Last month, San Jose’s Democrat mayor Chuck Reed filed paperwork for a statewide ballot measure that would bring some sense and fairness to California’s crazy public employee pension disaster-in-the-making. His idea, co-endorsed by a half dozen other mayors of large California cities (five of them Democrats), is a simple one: Treat public employee unions like private employee unions.

Cities on the brinkSpecifically, his measure, if approved, would lock in benefits already received but would open the door to negotiate changes moving forward. What we’re stuck with may be enough to sink us – about a half trillion dollars of unfunded liability by some accounts – but Reed’s measure could keep us from heaping more and more debt onto our state’s perilous financial condition.

In a bit of diplomacy, Reed asked the unions to meet to discuss the measure. Maybe he thought they would spare California voters the trouble of petition signing and the pain of listening to millions of dollars worth of distorted union commercials opposing the measure. If he thought for a moment public employee unions were ready to start acting responsibly, he couldn’t have been more wrong. In response to his offer, a letter signed by representatives of 17 public employee unions said:

Meaningful dialog can only occur in an environment of trust and sincerity. Your choice, to first introduce this draconian and flawed measure and then invite dialogue, shows a lack of both.

In other words, “Drop dead, Reed!”

What is so flawed about the measure? Well, let’s see what the unions have to say:

As you are well aware, there is a retirement crisis in California.

Yes, we knew that. Over-generous public pensions and benefits are indeed a crisis. A big,  hairy, no-end-in-sight crisis. But that’s not the crisis the unions see.

A study released just this week noted that 42 percent of Americans say that saving money for retirement and paying their bills is not possible; 37 percent say they will never be able to retire, continuing to work until they are sick and die.

Rest assured that not one of those respondents had a CalPERS or CalSTERS pension coming his or her way. No, our public servants masters will be able to retire at 55 or 60 (younger if they’re cops or fire fighters) with a pension that averages over $60,000 a year. The rest of us may work until we get sick and die, but not public employees. Nearly all of them will work until the day they’re fully vested and not a day more.

The unions’ response to reasonable and much-needed curtailment of their gold-plated gravy train is to say they’d like to see all society as loony as they are. They have no plan for attaining this goal, and they are not likely to present a plan anytime soon. they figure all they need, given their history of being able to dupe California’s millions of low-information voters, is a mere flimsy puff of smokescreen just thick enough to divert attention from their greed.

Hopefully even low-information voters are getting smart enough to understand destructive self-interest when they see it. If you know any who aren’t, please send them a copy of Crazifornia.

 

The GASB Shoe Falls on California Pension Plans

Pension Crisis StatesFor years, pension hawks like Orange County supervisor John Moorlach have been warning that California’s already toxic public employee pension plan deficits will get much worse once Government Accounting Standards Board (GASB) rules take effect. Among other things, the rules will require the big pension plans like CalPERS and the teachers’ plan CalSTERS to use more realistic projections for the returns they will earn on their investments. Now we know how much more toxic:

New government accounting rules will more than double the pension debt reported by CalSTRS, boosting an “unfunded liability” that is now about $71 billion to a newly calculated “Net Pension Liability” of $166.9 billion.

The CalSTRS board was told last week that it’s unclear whether the new liability figure will be reported by the state or spread among school districts, where more than doubling current debt might lower credit ratings and drive up borrowing costs.

If the “Net Pension Liability” is distributed among employers, the reported total debt of a typical small-enrollment school district might jump from $21 million to $49 million and the debt of a typical large district from $280 million to $728 million.

Neither the state nor the school districts have been including CalSTRS debt in their financial statements. The new accounting rules call for pension debt to be added to employer balance sheets. [CalPensions]

GASB exists to end of the sort of accounting shenanigans described here, including projecting investment returns well above those earned by Warren Buffett and this: “Neither the state  nor the school districts have been including CalSTRS debt in their financial statements.” This practice is, to use an accounting term, insane. The state and the school districts know they will be hit with hugely higher pension costs unless the current pension debt isn’t zeroed out by either (1) most retirees dying tomorrow or (2) the market routinely returning more than 8 percent on all investments, all the time.

The big public employee pension plans are required to switch to GASB rules in this year’s financial reporting, and employers whose employees are covered by the plans – your city, your county, your school district – must make the switch in their 2014 reports.

Look for two things: First, the unions will blame it all on “just a change in accounting rules,” even if those rules exist to create more accurate reports, and second, government at all levels will be coming at you with tax  hike proposals.

Homeland Insecurity

Cyber HomelandHomeland Security Secretary Janet Napolitano has joined the line of senior Obama Administration officials to scurry off that particular ship of state. She’s elected to join another troubled ship, becoming president of the University of California system.

Fortunately for her, the legislature just bumped UC’s appropriation by 5% (equal to $142 million), with two 4% bumps to follow in the next two fiscal years. That may keep her from having to oversee a tuition increase for a few years – but it won’t put a dent in what’s sure to be one of her biggest headaches – the $20 billion UC doesn’t have, but needs to meet its retirement pension obligations.

Thinking about that is no fun, so let’s think of some other things Napolitano may bring to UC:

  • Will there be full body scans at the classroom door? If so, UC might be able to offset some of its pension funding gap by selling the images to Internet filth-peddlers.
  • Will UC campus police be trained to pat down old lady profs and  young prodigies?
  • Could UC’s research labs be directed to work on perfecting the “behavior scanners” Napolitano recommended be installed at malls and sporting events? After all, the UC system hosts some big sporting events.
  • Will any fences ever be built on any UC campuses?
  • Will radical pro-Shariah Muslim extremist students be treated with fawning respect while Conservative students are flagged for extra scrutiny by campus police?
  • Hmmm …. could Napolitano resolve UC’s chronic budget problems and pension funding voids by simply running guns to Mexico?

Welcome to Crazifornia, Madame Secretary. I think you’ll find yourself comfortably surrounded by like-thinking peers … unfortunately.

California’s Mullet Budget

It’s all hoopla in Sacramento today as Jerry Brown and the Legislative leaders sign the 2013-2014 California state budget into law. Jerry calls the balanced budget a sign that things are rosy in California again.

I say rose is just another shade of red.

The budget keeps the state employee pension gravy train intact, along with its $500 billion dollar hit on future generations. It doesn’t do nearly enough to address our debt, which is now pegged at $100,000 per California household. And it keeps the multi-billion-dollar boondoggle known as California High Speed Rail on track.

But wait, it gets even worse than that.

mulletThe guy with the best line about this dangerously expensive sham of a budget is Republican Assemblyman Jeff Gorell of Camarillo who called it “the mullet budget” – Conservative in front, very liberal in back.

He pointed to how the budget defers the restart of several expensive social welfare programs that were cut during the recession until the 11th month of the fiscal year. If those very expensive, very ongoing programs were implemented at the start of the budget year, or even  half way through the budget year, the budget would not be balanced. So … conservative up front, liberal in the back. Brilliant!

Of course, the next California budget will have to start with the assumption those programs will be in effect for all 12 months, so a new trick will be needed to balance the books. Maybe a new tax on millionaires ….

For more on what’s wrong with the budget Brown and the Democrat super-majority are pretending to be so happy about, read this post by Katy Grimes at CalWatchdog.

 

Jerry Brown’s Zombie Budget

Gov. Brown presentation of the annual May revise of the state budget this morning wasn’t the duck-and-shuffle we’ve grown used to, in which our gov du jour confesses that revenues weren’t nearly as good as “projected” (read: in our wildest dreams) when the budget was first released in January, then launches into a long list of proposed cuts.

PlagueZombiesNope, the Prop 30 tax increase and an improved California economy have the state economy up and walking again … if a bit zombie-like. Brown led the zombies with a dreary but true warning that the economy is still under threat, with lots of stuff at the federal level (sequestration key among them) trickling down to hurt the state.

There’s also plenty wrong in California, as it trudges along dead-eyed and scary with a burden of up to $1.1 trillion of combined state and local government debt, and an over-sized, over-paid, over-coddled and under-performing quarter million state employees. We’re also waiting to see if the recent tax hikes and California’s ongoing regulatory zealotry will increase the exodus of business owners and the wealthy from the state, taking their tax payments with them.

Dem Response: Polite Hostility

The Democrat super-majority knows it has to say it’s dedicated to not squandering the current cash flow, but look at their reactions and you see some between-the-lines and not so between-the-lines clues that they are cued up and ready to spend, baby, spend. All quotes are from the SacBee.

I agree we must aggressively pay down our state’s debt and set aside money for a reserve, but there’s a disappointing aspect to this proposal. It’s important that we also begin making up for some of the damage done to tens of thousands of Californians. – Sen. Pres. Pro Tem  Darryl Steinberg

Our economy is showing signs of recovery but our budget is sending us mixed signals. The modest surplus we now possess took a lot of sacrifice to obtain and we cannot squander it. With many Californians still out of work, this budget is not just about paying down debt and saving money for a rainy day. It is also about growing our economy and broadening opportunities for Californians to succeed through education and a better environment for small business. – Assembly Budget Committee chair Bob Blumenfield

The May Revise continues to shortchange the most vulnerable in our state–such as those who need health care, child care, access to justice, or essential support services to escape poverty. – Dem Assemblyman Robert Dickinson

Mr. Dickinson, have you not heard that California spends three times more per capita on social welfare programs than it should, based on national per capita averages? We need to shortchange many welfare recipients more, not pay them more.

California’s fundamentals are still wrong. We are too dependent on taxing the wealthy, we are a long way from getting control over burgeoning pension and benefit costs, far too much education funding is wasted on fulfilling unnecessary reporting mandates from Sacramento and paying under-performing teachers, and, as mentioned above, our social welfare programs need to be brought in line with other states’.

But at least the budget’s in the black for a change.

 

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.

The State of the State of Despair

casosGovernor Brown had something to say to Crazifornia this morning as he kicked off his State of the State speech:

Against those who take pleasure, singing of our demise, California did the impossible.

That would be me – about 300 pages worth of singing of our demise, or at least the increasing probability of our demise.

The impossible, as Brown defined it, is that “We have wrought in just two years a solid and enduring budget.” I agree it’s two years since he took office. I’m not at all ready to call the budget solid and enduring, as it is based on a lot of assumptions that still could go sideways.

Brown was quick to give credit to those who had a part in “doing the impossible.”

You, the California legislature, did it. You cast difficult votes to cut billions from the state budget. You curbed prison spending through an historic realignment and you reformed and reduced the state’s long term pension liabilities.

That’s a pretty impossible characterization of what the state did. Pushing prison expenses off to counties instead of addressing the root causes isn’t fixing anything, and it’s certainly not heroic. It just transfer to pain to counties that can’t fight back.

The touted reform and reduction of the state’s long term pension liabilities, while welcomed, was akin to the rate of speed of a great Roman galley when only one oarsman is rowing. Trimming around the edges is not a haircut. Reducing benefits for new hires still saddles us with 30 years of unaffordable liability from the previously hired. (More on this in a minute.)

Then, the citizens of California, using their inherent political power under the Constitution, finished the task. They embraced the new taxes of Proposition 30 by a healthy margin of 55% to 44%.

Yes they did, and now we get to watch the Legislature burn through that money instead of approaching it, to use a favorite word of the Sacramento majority, with sustainability as a goal. And watch tax revenues drop off in the latter years of Prop 30′s seven year life as business owners peel out to other states, taking their taxability with them.

Members of the legislature, I salute you for your courage, for wholeheartedly throwing yourself into the cause.

What else is he going to say to his Democrat super-majorities? Now came the most telling 22 words of the speech:

I salute the unions–their members and their leaders. You showed what ordinary people can do when they are united and organized.

And there you have Jerry Brown. A union guy through and through. A guy who knows who’s buttering his bread. A guy who knows that big, fat public employee unions equal big, fat Democrat election margins.

Things are looking better in California since I wrote the last word of Crazifornia. Unemployment is down. That’s good; we’re all for less human suffering. And tax revenues are up. That’s certainly one way to close a deficit – not my favorite way, but certainly a way.

Still, sorry Jerry! I’m still singing of our demise. I’ll change my tune when taxes go down and California starts treating businesses like assets instead of asses; when the union grip on Sacramento is loosened and we seriously address the $250-$500 billion shortfall in public employee benefit funding by rewriting contracts and reducing benefits for existing employees; and when we have a governor who kills High Speed Rail and stops trying to single-handedly save the world from climate change.

It’s not too much to ask. But in California it is, to use Brown’s words from earlier today, doing the impossible.

The Twelve Days of Crazifornia

“On the twelfth day of Crazifornia,
Gov. Moonbeam gave to me twelve months of craziness,
Eleven propositions
Ten UC tuition hikes,
Nine “high-speed rail links,”
Eight states’ worth of takers,
Seven-ty percent underfunded pensions,
Six billion in debt
Five fleeing comp’nies,
Four bankrupt cities,
Three falling bridges,
Two super-majorities
And a tax hike on millionaires.”

California was even crazier than this in 2012.

It looks like Guv Moonbeam re-gifted us this year. After all, we got twelve months of craziness last year, and the year before that, and the year before that, and the year ….

I am one day late posting the twelfth of the twelve days because my wife and I are in Arizona visiting our oldest daughter, who fled California because of one of its major crazy features: unaffordable housing. In California, the cost of over-regulation adds 30 percent or more to the cost of housing, which explains why all ten of the nation’s top ten cities for regulations’ burden on housing costs are in California.

Legislators are well aware of the impact their regulations are having on the housing industry, and they know how important new home sales are to the state’s economy.  As recently as 2007, new home sales – not resale homes, just new ones – generated more dollars in sales than any other industry in the state, even more sales than all the retail sales combined.

If they would dial back the regulations, it would help they state. The Democrats in Sacramento know this. So what did they do in this crazy year? They increased the energy efficiency standards for new homes, which will add at least $1,500 to the cost of even the most modest home  – and even more in the most hard-hit parts of the state.

Crazily, California already has the nation’s most demanding home energy efficiency standards. We’re doing a great job. We can rest on our laurels and still be the best in the nation. But no, recession or not, the Legislature ratcheted up what the state demands of homebuilders.

Why? To save the world from global warming of course. Will a small incremental gain in the energy efficiency of homes in a state where new homes already are extremely energy-efficient cause global temperatures to drop? No, of course not. It will do nothing but make the state less attractive.

Here’s some more California craziness from 2012:

One-third of the nanny-state laws passed in the nation were passed by California legislators, including most famously one that would make it illegal to try to turn around gender confusion issues in children.

California became the #! Judicial Hellhole in the nation, the #1 state for outrageous pay to state workers, topped by a state psychiatrists’ “earnings” of $822,000, and the #1 state for the number of people in poverty.

During the year, school districts all over the state started obligating themselves to expensive bonds to meet their outrageous pension obligations. Schools in Poway (San Diego County), for example, took on bond debt that will cost $1 billion in order to meet pension obligations of $100 million. A school district having pension obligations of $100 million? That’s almost as crazy!

Speaking of San Diego County, San Diego sued itself over a bridge that cost twice its estimated cost.

The year also saw the state’s first carbon credits auction under its first-in-the-nation state carbon cap-and-trade program. (Less crazy states aren’t considering such a program, or have delayed them because of the recession.)  Moonbeam wanted $1 billion  from the auction but only got $289 million. Do you sense the whole campaign against carbon is more about raising state revenue than saving planets?

On and on it goes. Obviously, the craziest thing that happened all year occurred in November, when voters sized up the Democrats who are so responsible for much of the state’s crazinesses and decided to award them with a legislative super-majority.

Expect things to be even crazier in 2013.