I have not been following the details of California’s budget problems all that closely, but I was struck by the following passages in a Steven Greenhut op-ed from the WSJ:
Approximately 85% of the state’s 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, “This year alone, $3 billion was diverted to pension costs from other programs.” There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.
Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year’s pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state’s pensions funds have been fully funded (which they haven’t been).
As I said, I have not been following the broader issue all that closely, so I do not know what (if any) relevant details about public employee pensions Greenhut is omitting, but the facts above would suggest that pensions are a major obstacle to resolving California’s budget problems.
Greenhut also quotes San Francisco’s former mayor, Willie Brown, on the broader issue.
Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact.”
Tamerlane says:
Wow! 2,000% over the last decade averages about 35% a year. Somebody’s going to be in for a nasty surprise when they discover that what the legislature giveth the legislature may take away. And even collective bargaining contracts will go down the drain when California goes bankrupt. The only hope of these $100,000-a-year retirees is that a Democrat administration in Washington will rescue them at the expense of everyone else; the way Obama, Pelosi, Reid et al., rescued Gettelfinger’s crew.
January 25, 2010, 8:02 amcboldt says:
Seems to me that the mayor satisfies the “getting honest” expectation. He honestly noted that the politicians used the resources at their command to provide expanded pay and benefits, kept job protections, and layered on generous retirement packages.
January 25, 2010, 8:43 amdew says:
My state (and presumably others) are struggling with this problem. There are lots of little loopholes that have caused problems, but the biggest in this state revolve around basing the $$$ only on the last years of employment, and people, union and non-union, gaming the system to maximize their pension (although my state uses a slightly more sensible average of the final 3 years, rather than just the last 1 year).
If permitted, some employees, especially police and fire, can bulk up their pension with overtime (seniority controls overtime opportunities in typical union contracts) and temporary assignments at higher pay. Various bonuses and benefits (such as cars available for personal use) can sometimes be counted as income for tax purposes, so (unless specifically forbidden) the employee often tries to get it counted towards the pension.
January 25, 2010, 8:47 amPersonFromPorlock says:
It seems pretty straightforward to me: what can’t go on will stop. The only question is how messy the stopping will be.
January 25, 2010, 8:51 amAllan Walstad says:
Just one more example of the fact that politics makes little children out of politicians (assuming they weren’t already that way when they entered the game). No self-control, no ability to envision how short-term gratification can lead to long-term pain. Buy votes today, worry about how to pay for them tomorrow.
Well, pain for others, anyway. Are the pols who set this train wreck in motion safely retired (on huge pensions)?
And then again, who voted for those guys & gals? Perhaps the voters need to grow up too.
January 25, 2010, 8:58 amLaborEmpAtty says:
Earlier this month, Kenneth Anderson posted regarding an article in the Financial Times that addressed the looming $2 trillion under and unfunded pension liabilities facing the public sector. http://volokh.com/2010/01/05/underfunded-public-pensions-as-stranded-costs-two-trillion-dollars/
January 25, 2010, 9:21 amKenneth Anderson says:
As a former Californian for whom it will always be “home,” glad to see this issue getting attention. I have set up a California tag, and a few months ago put up a couple of posts with Bill Voegelin, a fellow at the Claremont Institute in my home town – particularly an interesting piece comparing tax and services models in California and Texas, appeared in City Journal. Here’s my first link on the subject; check out the California tag for Bill Voegeli responding in a later post to VC reader comments.
http://volokh.com/2009/11/02/the-california-versus-texas-model-and-public-choice/
January 25, 2010, 9:27 amAnderson says:
Typical Californian SNAFU: majority vote to give sweet pensions, 2/3 vote needed to pay for ‘em. No state could function under such a rule — California’s dysfunction is just more dramatic because it’s so big. If South Dakota went bankrupt, who’d notice?
January 25, 2010, 9:50 amruuffles says:
Rather curious that the people who pushed the ballot that required 2/3 vote didn’t follow up with a ballot that required 2/3 for increasing spending. Or did they, and it got voted down?
January 25, 2010, 10:12 amwm13 says:
It’s interesting that liberals are always accusing the private sector of excessive short-term thinking, as opposed to the far-seeing solons that liberals elect to public office. Yet here we see that the Democratic elected officials of California have given away the state’s future for short-term political gain, and the individual employees have been more than intelligent enough to accept that gain.
Won’t the contracts clause prevent California or any other state from getting out of these pension obligations?
January 25, 2010, 10:12 amMartinned says:
Well, you’d think the same goes for Greece. And yet little ol’Greece has been quite capable of keeping everybody busy for the last few months.
January 25, 2010, 10:14 amgeokstr says:
And if they had the 50% plus 1 rule to increase taxes, that would really solve the problem of out-of-control vote buying, right?
Pretty soon it would be a state of, by and for the public employees and their unions as all the actual producers of wealth moved elsewhere. As if that’s not happening already.
January 25, 2010, 10:16 amJohn Burgess says:
Just FYI, the Feds use the last 5 years’ income, excluding any overtime, differentials, or danger/combat pay, i.e., base pay only.
January 25, 2010, 10:19 amMartinned says:
There’s a question: Under UK law, civil servants do not have a contract with the crown, and contract law does not apply to their “employment”. Instead, they have their own legal regime, one that started with the idea that they serve at the pleasure of the majesty, and evolved from there, largely on an administrative law basis. Is that the same in the US?
January 25, 2010, 10:23 amArthurKirkland says:
The sensible approach would be to renegotiate arrangements with an unsustainable trajectory before a meltdown arrives, but finding anyone willing or able to address the problem sensibly seems unlikely.
January 25, 2010, 10:32 amOren says:
You mean they can’t even default?
January 25, 2010, 10:34 amFedya says:
Except that South Dakota is only about 800,000 people, while Greece is a good ten million. That, and the sovereignty issue.
January 25, 2010, 10:44 amDjDiverDan says:
Willie Brown:
“[A]t some point, someone is going to have to get honest about the fact.”
Wait – a Democrat, calling for honesty in the fact that Democrats in California have, for decades, purchased the votes of government employees with unsustainable promises funded by taxpayers? Heaven help us! Surely this is one of the signs of the Apocalypse! If Pelosi demonstrates equal candor, I’ll have to seriously think about moving to a survivalist camp in Montana.
January 25, 2010, 10:48 amBlue says:
It’s the inflation adjustment that is the real killer in the CA pensions. That’s pure insanity (here in Texas retirees only get increases if the Lege passes it).
Two points:
January 25, 2010, 10:48 am1) The REAL budget hole isn’t pensions. It is retiree health care.
2) We need a constitutional amendment to prohibit unionization of public sector employees.
Martinned says:
I didn’t mean it quite that seriously… Anyway, I suppose I could have mentioned Orange County, too. (I wanted to stand up for poor old South Dakota somehow. The Dakotas always seem to get the worst of it when someone’s looking for an example. Nobody ever seems to mention Vermont, even though it has fewer inhabitants than either Dakota.)
January 25, 2010, 10:56 amTamerlane says:
DjDiverDan:
I doubt many could exceed me in my contempt for this country’s “liberal” Democrat politicians. But to be fair, in California both parties have pandered to the public employee unions. The Republicans may have even been more effusive than the Democrats in providing largesse to the soi disant public safety workers’ unions (police, fire, corrections).
January 25, 2010, 10:58 amAllan Walstad says:
Don’t know, but one might have thought that a balanced budget requirement combined with a 2/3 vote for increased taxation would limit spending. And I guess it does–in the present, but not with respect to future obligations. One simply cannot expect the pols to exercise responsibility. Their ability to incur future obligations at the expense of the taxpayers has to be limited, too.
January 25, 2010, 11:08 amKanchou says:
From the article:
CalPERS COLA Fact Sheet
Some one is not telling the truth. Capping the COLA to the LOWER of the actual inflation or actual national inflation is not increase each year with inflation.
Over the course of one’s retirement, the purchase power of the pension payment can get really eroded, especially in a high inflation environment.
And I am sure Prof. Volokh can share how the UCRS works more on VC.
January 25, 2010, 11:16 amRecovering Pol says:
One side effect: If I could retire at 50 with a 90% pension, why would I continue to work? So employees retire just as they reach their peak. And they then take another government job with another CalPers pension.
January 25, 2010, 11:20 amB.D. says:
California is too big to fail.
January 25, 2010, 11:26 amBleh says:
As I understand it California pensions only include base pay as well.
Most (I think) public employees receive 2% at 60. That means that they receive a 2% multiplier on the number of years they’ve worked and that is multiplied by their base pay. So if you’ve worked for 30 years, you receive 2% x 30 = 60% of your base pay. And I believe it’s actually the average of your pay for your final 3 years that you recieve.
Some employees receive a 2.5% multiplier. But the real problem tends to be law enforcement employees who usually receive at least a 3% multiplier. Thus after the same 30 years, law enforcement employees get 90% of their salaries. Law enforcement employees also have a habit of being injured right around the time they’re ready to retire, meaning that a lot of them retire on disability – meaning they receive even more money.
Also, this isn’t completely a question of making deals and then assuming that you’ll have the money to pay for it later. Most agencies have to pay a fee to CalPers (the California retirement plan) for each employee they have. The fee increases if you want to offer your employee’s a higher multiplier (2.5 or 3 instead of 2). This money is taken and invested (which is why CalPers is one of the largest investors in the US) and then used to offset the costs of future retirees. Part of the problem right now, as far as I know, is that the money was invested in the market… and the market is way down… but people are still retiring.
Nonetheless, there’s obviously a real problem here.
January 25, 2010, 11:26 amSmooth, like a Rhapsody says:
Pol
January 25, 2010, 11:28 amI think one reason people do not retire at 50–even at 90% pay–is that health insurance benefits do not always continue at the same level. I do not know if this is the case in Cali, though.
Bleh says:
I’m not sure, but I don’t think you’re allowed to do that. You can however work for a non-CalPer’s entity. But, once again, not sure.
January 25, 2010, 11:39 amKanchou says:
Just because one can theoretically get 90% at 50, doesn’t mean people can actually qualify for it. The safety people’s formula is actually 3%@50. And to get 30 years of service credit, that’s assuming one start working at age of 20, which is very unlikely in more PD or FD those days. The average starting age is more like mid-to-late twenties. Barring purchases for extra services credits(prior military service, Air time, etc.) I don’t think anybody actually get 90% on dot at age 50.
I am not on Safety plan, but their rational is that 50 is “over the peak” for their job. That those departments don’t want patrolmen/patrolwomen in their 60s, or firefighters in late-50s/60s. (Edited to add, I think many of them retired on disability because it’s treatment differently, income tax-wise.)
I understand the army have structure in place to transition most people 10-12 years into their career from combat arms into other specialties. And that’s what I think similar programs are need to be adopted if people want civilian safety people to worker longer after they are no-longer in “peak” condition for front-line duties. But that’s whole another can of worm.
CalPERS actually have limited on how much annuitants can work for CalPERS covered positions, slightly less than half-time.
January 25, 2010, 11:45 amAnonsters says:
Sed contra, California is too fail to be [so] big.
January 25, 2010, 11:47 amBleh says:
I should clarify. When I say 2% at 60, that means that they’re not eligible to recieve their pensions until they turn 60.
Most law enforcement employees have 3% at 50, so they’re eligible earlier and with a higher multiplier but it’s still not straight base pay, it’s a percentage based on number of years worked.
January 25, 2010, 11:53 amorca says:
Blame the morons on Wall Street:
“CalPERS is the largest pension fund in the US and the fourth largest in the world. At its height in October 2007 it had $260 billion in assets, comparable to the GDP of Poland, Indonesia or Denmark. At the end of 2008 CalPERS was worth $186 billion, one of its worst annual declines since the fund’s inception in 1932. It is one of the latest casualties of the financial collapse on Wall Street.”
http://www.wsws.org/articles/2009/jan2009/calp-j30.shtml
January 25, 2010, 11:54 amjohn w says:
2) We need a constitutional amendment to prohibit unionization of public sector employees.
I would go further than that: We need a Constitutional Amendment saying that anybody who receives more than 50% of their income from any government entity loses their Voting Privilege. (I’d make an exception for enlisted military personnel.)
January 25, 2010, 12:00 pmPubliusFL says:
The other thing the military combat arms have going for them is large numbers of young non-career recruits coming in. Having a significant percentage of your non-managerial workforce drop out after 4, 6, or 8 years (some of whom go on to take those civilian law enforcement jobs) makes finding places to stick your career combat arms guys easier. My sense is that entry-level civilian safety people are more likely to be planning on a career than military recruits.
January 25, 2010, 12:02 pmorca says:
Military spending is the fastest rising part of the federal government.
January 25, 2010, 12:07 pmAnonsters says:
So? We’re barely outspending the rest of the world put together as it is. That curve needs to be bent upward. Onward, and upward, Christian soldiers!*
(* America is a Christian nation, they tell me.)
January 25, 2010, 12:18 pmgab says:
It’s nobody’s fault but our own (I’m speaking as a Californian.) The vast majority of general fund spending in California and its municipalities is on public safety (police and fire.) Everyone here who has criticized unionization and over-generous public employee pensions is also very much pro-public safety. And you know it.
Who among you is willing to tell the cops and firefighters you’re cutting their pensions? And you’re not going to allow them to unionize? Go ahead – step up to the plate and volunteer to do so. It’s easy. Go to the next city council meeting in the city you live in, pull a blue ticket for public comment and tell the cops and firefighters you’re starting a campaign to cut their pensions. Tell the city coucilmen that you’re going to vote against any of them that get the police and firefighters to endorse them at the next election. Talk is cheap – step up to the plate and do what I suggest. You can report back here the next time the topic comes up.
January 25, 2010, 12:22 pmBikeguy says:
Does anyone else find it ironic that Willie Brown said this?
January 25, 2010, 12:29 pmAllan Walstad says:
Of course, it should never have come to that. The proper way to deal with pensions–from the start–is to give employees options as to what private pension plan, or combination thereof, they would like to have some percentage of their salaries paid into. The state is making the same mistake that, for example, the auto makers did. Let employees pay into private pension plans, private health plans, with, yes, some reasonable level of matching by the employer. If 50 is over the hill for law enforcement, and if the private pension plan doesn’t pay enough, then embark on a second career.
January 25, 2010, 12:37 pmPersonFromPorlock says:
What about stimulus funding?
January 25, 2010, 12:44 pmgab says:
I couldn’t agree with you more Allan. The solution is for Californians to take it up with their local elected bodies.
January 25, 2010, 12:46 pmorca says:
When was the last time Congress approved any new stimulus funding?
January 25, 2010, 1:03 pmKanchou says:
\
Which is also why 90% retirement doesn’t really happen in real-life. Between informal old boys network(Some army units have “pipeline” into some departments.) and official veterans preference for federal/state/local government hiring, it’s almost impossible for people to enter those civilian safety jobs without prior military services and/or some college. I personally haven’t heard about any real-life retiree that retirees who get 90% at age 50 based solely on earned service credit.
I do think public safety unions can do themselves a favor by negotiating some concession into 3%@55 formula, with prorated 2.5%@50, 2.6%@51, etc., for people who want to retire early. Almost all of them would get same amount of money anyway, and they can claim that they shared some sacrifice with the rest.
January 25, 2010, 1:09 pmlgm says:
The problem with California is 90% Republican. The people of California want to spend X. Democrats want to set taxes at X. The minority Republican party keeps taxes at .7*X (roughly). It’s not that they object to spending.
January 25, 2010, 1:11 pmKirk Parker says:
Kanchou,
If by “can of worms” you mean, even more catastrophically unaffordable, then yeah. Ghu help us if our public safety organizations have to run with the same tooth-to-tail ratio that the military does!
January 25, 2010, 1:11 pmLaura Victoria says:
Blue, the banning of unionization by public employees is my pet cause–I just don’t see how the US can sustain long-term economic growth with the current system. Yet I’ve also wondered how both legally and politically this can happen. Why do you think a constitutional amendment is the only answer? I don’t mean that rhetorically; I am just hoping for something quicker and faster, and I am not up on the law on this issue.
January 25, 2010, 1:12 pmA. Zarkov says:
I have an (autographed) copy of Greenhut’s book Plunder. In Chapter 2 he gives firemen’s salaries for Orange County CA: $175,000. He also writes that it’s common for CA firemen to get to $200,000 with overtime, and one man hit $300,000. BTW firemen can and do retire at 50 on 90% pay. I knew a CA fire chief and he was getting ready to retire at age 50 with 30 years of service.
Chapter 3, “The Pension Tsunami” is even more interesting– and depressing. He writes the the California Assembly “pushed forward legislation” that would require approval from a state commission before a CA city could use bankruptcy to escape pension fund obligations.
Greenhut discusses problems, but offers no solutions. I asked him personally what can CA possibly do to fix the current pension overruns? He told me that he has no idea. Indeed I think there is no solution for California– it needs to “blow up” like an over leveraged hedge fund. The CA legislature is absolutely delusional. On Jan 21 (after the election of Brown in Mass) California Democrats introduced a single-payer universal health care bill (SB-810) that would bar private insurance. Estimated cost: $200 billion– over twice the current CA total budget! Funding the new program is to be worked out later. CA Senator Democrat Mark Leno (who introduced the bill) seems to think his plan will be self financing. Read his own words on Facebook here.
As far as I can see, the only solution for California is a federal bailout. The fed prints money for the Treasury which in turn hands it to California. With the worst credit rating of any state in the country CA cannot continue to borrow its way out because it simply can’t service the debt. Raising taxes would only cause more out migration of business and people further reducing its already lame tax base. Besides tax-fatigue has rendered this option virtually politically impossible.
Indeed money printing and the consequent inflation is the only solution for the American debt crisis. At some point in the future Americans will get “new dollars” to replace their “old dollars” effectively defaulting on pension and other debts. It’s the only way out that I can see.
January 25, 2010, 1:23 pmA. Zarkov says:
Your equation only pertains to current cash flow and does not include future obligations. CA cannot tax its way out of the pension problem– its too big. Even if the CA legislature were 100% Democrat, they can’t get blood out of a stone. The legislature has raised taxes and the deficit keeps returning. Evidently you think many people won’t simplycontinue move away as they have been doing.
January 25, 2010, 1:31 pmJames N. Gibson says:
Well the Titanic wasn’t very messy since the ship sank beneath the waves not to be seen for decades. Thus, I would prefer a head on train wreck: real messy but at least you can see what has to be cleaned up. Arnold even used the train metaphor recently when he said we were about to be run-over by a locomotive (I still think that would make a great ringtone).
January 25, 2010, 1:39 pmwws says:
I actually think the solution to this problem could be pretty easy. Just change the law so that the pensions are to be paid off with California IOU’s rather than dollars.
Maybe these will be worth 10 cents on the dollar, maybe more if California get’s it’s act together. Them’s the breaks. And problem solved.
January 25, 2010, 1:46 pmbyomtov says:
Allan Walstad,
The proper way to deal with pensions–from the start–is to give employees options as to what private pension plan, or combination thereof, they would like to have some percentage of their salaries paid into.
I almost agree with this. Certainly the proper way to deal with pensions is to fund them as they are earned, not with promises. That gives you at least three benefits: it reduces the risk of underfunding, it makes very clear the cost of the promised benefits, and it makes you set aside the money in a fund that can be protected should the company go bankrupt.
Unfortunately, neither governments nor private corporations like to do this. (Corporate pensions are also seriously underfunded.) They have different reasons, but both sets are fundamentally dishonest. And I’ll add that unions are too often happy to go along, since insisting on funding probably means smaller pensions.
January 25, 2010, 1:53 pmAk Mike says:
I recall a few years ago going to Arizona to depose a retired cop. He was 50 (and had retired a couple of years earlier), he was raising a family with young kids, he had spent 20 years as a police officer, and he was now done working. He was making fairly close to 100% of his generous last salary, plus full lifetime health benefits. I thought I must be crazy to do what I was doing, with decades to go before I could retire.
January 25, 2010, 1:58 pmDave N. says:
As a moderately conservative state employee (and thus covered by my state’s PERS program, which is not CalPERS), I agree that some kind of reform is necessary for CalPERS to remain solvent (according to the actuaries for my state’s program, it is solvent).
First, as dew noted, my state like his (which may be his as well, since neither of us identified the PERS plan we are in) averages the top 3 years’ base pay. A covered employee receives a multiplier (2.5%) for each year of service, maxing at 75%.
Police, fire, and corrections have a different multipler (I believe 3%), so they can retire after 25 years with a full pension.
As a reform, I would have no problem stretching that average to the top 5 years of service, using only base base (which my state already does), and possibly increasing the retirement age somewhat (in my state a covered employee can retire at any age after 30 years of service, at age 60 with 25 years service, or at age 65 if they are vested in the program).
And while I fully understand the anger at people making horrifically huge salaries and then retiring, the flip side — at least in my own case, is that I make LESS than I likely would in the private sector. Hell, I have been an attorney for 18 years, graduated from a top regional law school, argued numerous cases in front of the Court of Appeals, authored or co-authored U.S. Supreme Court briefs, and after spending my career in the public sector still make considerably less than the Bureau of Labor Statistic’s 2008 reported median income for attorneys: $110,590.
I chose the trade-off. I wanted to be a prosecutor. But also I resent the “look at the over-paid public emplyees” line that usually appears in these discussions.
January 25, 2010, 2:05 pmInstapundit » Blog Archive » CALIFORNIA’S public employee pension problem. This won’t be news to regular InstaPundit readers. P… says:
[...] public employee pension problem. This won’t be news to regular InstaPundit readers. Plus, from the comments: “It seems [...]
January 25, 2010, 2:12 pmBlue says:
I don’t have a proper response for this…my sense, and it is only a sense, is that a legislative solution that stripped many existing people of union membership would have a very difficult time in the courts. A constitutional amendment, on the other hand, would have far more weight…and you’ll need all of the weight possible to bust those unions.
My argument against public sector unions is not based on anti-union animus, by the way. I think that unions are important in profit-maximizing enterprises to ensure that labor gets a fair share. Because government has no profit to redistribute, unions in the public sector are nothing more than shakedown rackets for higher taxes with no economic justification for their existence.
January 25, 2010, 2:19 pmJames N. Gibson says:
The voice of reason, considering that I may soon be a California Exile. Its incredible how insane the legislature and the “elites” in this state have become to believe they can tax their way out of this mess. In the mean time Cities, who were the first to believe they didn’t need jobs or people are waking up to the situation. Downey California is fighting against Long Beach for the site of a Eleon Musk green car manufacturing site. For years Long Beach watched Douglas bleed jobs and send work out of State and actively worked to shutdown the harbor and even the airport. Now they are bending over backward to get this company and its jobs. Downey was the same; not even noticing the problems of Rockwell or helping it get any contracts. When the facility there was bought by Boeing and closed they said good riddance and they would build a flamboyant movie studio. Well the studio has been involved in some movies, but its not operating every week (hell not even every month). Like the Long Beach dome which was used for Stargate, its a great talking point, but not a regular source of city income. So now they are working to get Tesla in Downey, for jobs they used to have.
And the only reason Tesla is even considering these cities is Eleon Musk doesn’t want to leave California. He’s willing for the moment to bare the extra cost of working in California. But he’s the exception.
January 25, 2010, 2:19 pmliberty or death says:
Nobody cares if you would make more in some other job. The question is whether the salary is commensurate to the value of the service being provided. I.e. how cheaply could the government obtain these services in an open market if you were fired today and they were actually cost conscious.
But given the particulars of your situation, it does not seem like you are overpaid at all, even considering the relatively light workload that government attorneys typically enjoy.
January 25, 2010, 2:23 pmDavid D. says:
With a bunch of Police in my family, I’ll tell ya the dirty little secret here in California, they have huge pensions because of the HUGE numbers they rack up in their
last year on duty. If the pension numbers were based only on base pay, it would be a different picture, but since the fireman/policeman culture is I’ll cover you if you cover me, the future retiree is blessed with superintendents who give these guys mass quantities of overtime. If there is an emergency, say a wildfire and a road needs to be shutdown, it’s on the phone to the guy that is retiring next year so he can rack up ungodly overtime, which will show up on his pension forever.
Want to stop these massive pensions, not to mention all the overtime costs?
Just make sure the pensions are only based on standard base pay.
January 25, 2010, 2:32 pmPink Pig says:
I know it’s illegal, immoral and all that, but I wouldn’t object to just reneging on pension obligations. Ideally, government pensions should just be rolled into the Social Security System. I’m tired of being victimized.
January 25, 2010, 2:54 pmcthulhu says:
The real problem is that any system where the rules are “you give me a little bit of money for 20 years and I’ll perform some benefit for you” is predisposed toward (1) overstating the benefit, (2) entrenchment of the fiduciaries, and (3) wasting the principal. Every single one.
The California pension fiasco is just an example — Social Security, Medicare, union and private pensions have the same problems, because they follow the same system.
The only real solution is to eliminate defined benefit plans. Whenever this is suggested, people always scream, “but then people who invested their money foolishly would be wiped out!” In contrast, whenever you trust some caretaker to hold your contributions for 20 years, the bad decisions of the custodian wipe out everyone in the fund — whether they would have made good or bad decisions themselves.
January 25, 2010, 3:00 pmGringo says:
The facts do not agree with your blaming Republicans for not raising taxes to pay for spending. One question: if Republicans are the minority, how can they pass legislation about taxes all by themselves? California voters turned down tax increases less than a year ago.
California taxpayers, state employees, and legislators all need to realize that what you spend, you need to pay for. Lunches are not free.
January 25, 2010, 3:03 pmDave N. says:
I keep very dangerous people behind bars by practicing a very technical area of law. May I ask what YOU do to be so dismissive of government attorneys?
January 25, 2010, 3:17 pmd-berg says:
A realistic solution to the pension problem is a phase-out in favor of defined contribution plan. I was there to see one of the major private employers do that: after day X, new hires are not covered by a pension plan, but only have a 401(k). Advantage of this solution is that is “soft landing”, which makes it possible politically. It still will not be easy, but anything more stringent will not fly. This option does not cut promised benefits and does not touch those in service, so it has a chance of passing. Trouble is, this may not be enough to stave off implosion, but it is at least something.
January 25, 2010, 3:19 pmCaptain Ramen says:
Oh they can default. At which point the pensioners’ lawyers will force state and local government to sell assets to maintain the pension funds’ solvency. I hope you are all looking forward to the Chinese running the LA Zoo and Golden Gate bridge.
I agree, this is entirely the fault of the voters. We’re basically lazy, and we chose to offload our sovereign responsibilities to a third party (i.e., the government). We didn’t feel the pain of cost as it was paid for with borrowed money.
Firefighters spend most of their time doing nothing. And what impact do more cops really have on public safety? They only show up after a crime has been committed.
We need to take back responsibility for public safety. Protect your own family! Secure your own neighborhood! Don’t expect someone else to do so then whine when he sends you the bill.
January 25, 2010, 3:21 pmCatoRenasci says:
Nonsense. If a significant majority of the people wanted to pay the taxes at a rate of X, they’d have a referendum to increase taxes. The problem in California is that even with taxes at (for the sake of your argument) .7X, they’re still to high – the productive are leaving the state and the public refuses to vote for higher taxes.
The problem is public employee unions and the unholy alliance between the unions and the Democrats.
And when people say: “don’t go advocating cutting police and fire pensions or salaries because they’ll not help you when you have a problem or they’ll ticket you…” they’re essentially saying the police and fire workers do not take their oaths of office seriously. The first time a police department harasses a citizen who wants to cut their pensions or salaries, or ignores their call for assistance, then the entire department should be cleaned out – fired for cause – and the citizens deputized along the lines of the Committee of Vigilance in San Francisco in the mid-19th century.
January 25, 2010, 3:25 pmsestamibi says:
Isn’t it amazing how refreshingly candid liberals get once they’re safely out of office and retired to their punditry, lobbying jobs, or “elder statesman” role? First Jim Florio, then George McGovern, and now Willie.
January 25, 2010, 3:37 pmSteve White says:
The private sector has moved (mostly) away from defined benefit pension plans to defined contributions plans (IRA, 401K, 403b, etc).
That alone would put a cap on the problem. All new public employee hires go into the defined contribution plan. All public employee hires with less than xx years seniority transition to the defined contribution plan — they can keep what they earned prior to the transition, but subsequent years are in the DC plan.
The benefits are obvious: the corporation or government entity has predictability in managing pension costs, the employee has a variety of options for managing their retirement, it’s more difficult to game the system, and (if the market is down close to retirement) one can stretch out employment.
This doesn’t fix the current defined benefits mess but puts a cap on it, which over time makes the current mess somewhat more manageable.
January 25, 2010, 3:38 pmPeter says:
I sympathize with people who work in the court systems; they are worth the money. They should be paid more.
Keep in mind that courts may very well prevent california from adjusting her pension scheme if she a clause in her const anything like one NY and IL has–it prevents the state from reducing pensions of its public employees.
It is not beyond fed judges to use the dp clause of the 14th am, or who knows what else (contract clause?) to keep the sts from modifying their pensions.
A fed constitutional amendment should ban collective bargaining for public emps at all levels, void all collective bargaining contracts currently in existence, ban public emp pensions except for defined contribution plans (no pmnts by state after person retires) and authorize all sts to revise their pension systems, including reducing pensions for those who have or will retire in future–and provide that no clause of any fed or st const, or any judicial doctrine, or any fed or st law or regulation or any agreement can be interpd to keep sts from modifying their pension plans. and not that it matters, as presidents have nothing to do with the process of amending the const, but we have a guy in the white house who, and i am not kidding about this, views exhorbitant spending on public employees as a form of social justice. it is a form of income redistribution -’fairness’ that has gone completely under the radar. just look at the first stimulus plan–it was as if the thing was designed to prevent the sts from cutting their workforces. and the press wonders why the public is growing to dislike obama. they can be shortsighted and gullible, but they’re not dumb. not all of them anyway.
January 25, 2010, 3:39 pmDandapani says:
I worked in private industry for 24 years and my pension is only around 33% of my last year’s salary. It is fixed with no COLA. I have no health benefits other than access to the company plan, but I must pay full freight for myself and my wife. Must be nice in the public sector…
January 25, 2010, 3:40 pmAlast says:
California is going to be declared “too big to fail…” and bailed out by the Obama administration … but without the limits on compensation, clawbacks, or punitive taxes. And without being broken up or any meaningful changes intended to prevent the same thing from happening in 7 more years.
January 25, 2010, 3:46 pmTracy Johnson says:
Reminds me of episode 3 of “Yes Minister” on PBS from 1980.
http://en.wikipedia.org/wiki/The_Economy_Drive
Perhaps California can finally get rid of their “Tea Ladies”?
January 25, 2010, 3:57 pmCa. leavin says:
The pension problem of the state is mirrored by the same problems of nearly all of the County and City governments. Cities and counties can declare bankruptcy some have and many are far along in planning to file. The state can not by law. Last Thursday mandatory health care legislation passed out of committee in the state legislature. It requires single-payer, no medicare, no private insurance provisions it does not include a funding mechanism for the $250 billion annual cost Ca’s annual state revenue is roughly $100b and currently has a $20b deficit. Last year IOU’s were given by the state to taxpayers for refunds and to various vendors.
January 25, 2010, 4:03 pmlittletim says:
There are so many ommitted facts in the WSJ piece. I’ll mention two. First, most California State employees don’t get a pension equal to 100% of their pay unless they work for 40 years AND work until at least 63 years of age. Second, most State employees pay for their pensions at a rate of 5% or 6% of their salary, depending on the job. If the State had contributed an equal amount, there would be NO pension fund deficit. Instead, the State contributed nothing when the stock market was riding high, and the State is now complaining that it will have to pay something now that the stock market has declined. This last point is significant. Most employers contribute something to their employees’ retirement. California contibuted nothing for many years, instead hoping that the employees’ contributions combined with a rising stock market would pay for the promised pension. Employees have paid for their part of the bargain all along. California needs to own up to its part of the bargain, too.
January 25, 2010, 4:07 pmjeanneb says:
It’s not just California. This tsunami is headed for several large states (Illinois, New Jersey, N Y, Pennsylvania…just to name few). It’s also a federal problem.
Best resource on this subject is a daily blog: http://www.pensiontsunami.com.
He does yoeman’s work.
January 25, 2010, 4:07 pmAJ Lynch says:
The fix should be short and sweet. Something like this : no govt employee gets a guaranteed benefit pension unless they are law enforcement or fire personnel. And even their pension metrics can not be more generous than the military gets.
There- I just provided the path to fiscal sanity from a taxpayer’s perspective.
January 25, 2010, 4:09 pmDr. Dean says:
As state and federal employee numbers continue to grow (yes, they are still hiring…) what happens when public employee unions control enough votes to effectively negate the vote of private sector employees?
Couple that with growing dependency on government entitlements (health care, et al) and it is not too difficult to see a time soon when the nation is essentially governed by public employee unions.
Question: Are we inevitably headed toward government control by public employee unions? If you don’t believe that to be the case, please explain your rationale.
January 25, 2010, 4:16 pmtyree says:
Some of the commenters seem to think that the taxpayers in California voted for these pensions. I have lived in California my whole life and cannot recall ever seeing State Employee pensions on the ballot. These deals are brokered between corrupt politicians the union representatives in non-transparent back room deals. The taxpayers just pay the bills.
January 25, 2010, 4:20 pmMark Field says:
This conveniently overlooks the fact that the guy put his life on the line for 30 years and you didn’t.
It also overlooks the points Dave N. made.
The basic problem is that CA foolishly gambled on stock market returns instead of making pension contributions along the way. This was a great deal for those Republicans who wanted to show how tough they were when it came to cutting public spending, but it was penny wise, pound foolish. Just like Bush’s plan to privatize Social Security.
January 25, 2010, 4:34 pmPeter says:
Littletim,
Employees may need to work for forty years to get 100%, but what how do they need to work to get 80%? Or 70%? Of course it really doesnt matter. Too much has been spent, and too much promised. The state doesnt contribute anything? The state pays the bloated salaries of the employees, from which the employees contribute to their pensions. In truth the state pays the whole thing. Your argument is, well, not good. Unfortunately for california civil servants, the period during which there was any chance the fed govt would pick up the tab for their looting ended late in the evening of Tuesday, last week.
January 25, 2010, 4:36 pmSukieTawdry says:
Several years ago in California, we held a special election (the reason for the failure IMO) to vote on referenda dealing with some of these problems. The biggest reform would have been switching state employees from a defined benefit pension plan to a 401K-type plan modeled on the federal thrift savings plan. Public employees, their unions and other sympathetic groups lined up against the initiatives none of which passed. I’m willing to bet they’d all pass today.
The LAUSD budgets approximately $19,000 per student per year. Now, with expenditures of that magnitude, you might expect a highly performing district, but you would be wrong. Academic performance in the district is very low and the dropout rate is over 25%. There are many contributing factors, of course (not the least of which is that over 70% of the enrollment is Hispanic and a large percentage of those students don’t speak English), but the biggest problem, I think, is this: One out of three budgeted dollars is spent on retired teachers. When you consider how much of the remaining two dollars must go to administrative costs (the district has over 38,000 non-teaching positions) and the relative pittance that actually makes it into the classroom, low student achievement isn’t such a mystery anymore.
So many of our public institutions are so broken that I don’t think they’re fixable and ultimately we’ll be forced to tear them down and begin again. And it won’t be pretty.
January 25, 2010, 4:42 pmpete says:
For camparison to California, in the Texas Municipal Retirement System pensions are funded by 6% of employee salary with the employer contirubiting an additional 12% into the fund. It also has a ten year return of over 8%. It pays out about $650 mil annually and has about $15 billion in the fund.
January 25, 2010, 4:59 pmThe less deceived says:
Taxpayers expect to get some graft themselves. But soon enough, there’ll be nothing left. “The taxpayers will also have to deal with worsening public services, since there will be less money to pay for things that might actually benefit the public.” So who benefits then? Government employees alone, and the politicians that they will support. Everyone else, Democrat and Republican, is paying more and getting less for their buck. Is there no solution there? Government employees and their paymasters, versus the rest of us?
January 25, 2010, 5:00 pmAnil Petra says:
Yes, thank you Mr. Brown for acknowledging Democrats’ longstanding dishonesty on this issue — the wholesale bankruptcy of California on the politicians hands, at the behest its good friends in Big Labor.
Honesty is not enough. Responsibility would be better. Acknowledge it was a mistake, talk about how and why it happened, the rough political calculus that put the citizens’ interests second.
Admit that Democrats are responsible for these structural deficits, not taxes that are too low, not Bush, not the rest of the typical talking points.
And how about some genuine talk about whether all these services need to be delivered by the public sector in the first place?
We’d benefit from an honest discussion of school vouchers — giving parents of every income level the opportunity to send their children to private schools, where the market can set the terms and conditions of teachers employment, including pensions.
And let’s ask can be done to role back the role of unions in those other sectors where the State must stay more highly involved than in education.
January 25, 2010, 5:07 pmEvilDave says:
Once Greece joined the EU they lost their sovereignty.
January 25, 2010, 5:09 pmptt says:
Ah, Willie Brown.
Personally, I’d appreciate some reciprocal candor from a leading Republican, preferably one of the many who, 30 years ago, promised we’d get better government if we raised government salaries closer to those in the private sector. Maybe they could also shed some light on how well privatization of government services is working out…
January 25, 2010, 5:21 pmAk Mike says:
Mr. Field, I was commenting on me rather than that police officer. I agree he did do a tough job for 20 years. On the other hand, there are plenty of tougher jobs in the private sector (not mine) that pay less and have little or no retirement benefits. I disagree with Dave N., but think the real issue is that people are living too long for the current pension system. Life expectancy at age 50 is probably thirty five years or more – obviously the system cannot survive providing a pension for a much longer period than the working career.
I would be OK with Dave N. and his cohorts receiving a very generous pension that kicks in at age 70 or maybe even 75, even if they stop working for the state decades earlier. Dave sounds like a highly competent attorney – if he puts in his 30 years and wants to quit prosecuting, society shouldn’t waste his talents – he should get another job or open his own practice, and support himself until he reaches a reasonable retirement age. As far as that police officer is concerned, I don’t begrudge him his pension – I just think he shouldn’t get it until much later in life.
January 25, 2010, 5:23 pmiowahawk says:
I’m simply misty to read about all the selfless, altruistic, civic-minded government employees who are forgoing the huge salaries they would otherwise be making in the private sector.
Seriously folks, no need to go all Mother Teresa on our account. Please, go chase that fabulous paycheck that awaits in the non-taxpayer-supported Shangri La. We’ll manage, somehow.
January 25, 2010, 5:26 pmDavidN says:
You’d think this occurred to someone at the time, but no, it didn’t. Back in the ’70s, when Prop 13 was passed, the issue was taxes, not spending. Everyone assumed that if the legislature was prohibited from indiscriminately increasing taxes, common sense would prevent them from doing something like this. Apparently, not so much…
Interesting to see Willie Brown sounding statesmanlike in retirement, and acting as the voice of reason. While he was Assembly Speaker much of the excesses occurred, and Willie was one of the more in control Assembly Speakers in California’s history. He definitely caused some of this.
And there’s an issue that the article, at least (I didn’t read every comment) ignores or avoids. While the politicians are on the hook for a large portion of this, and the unions are responsible for some of it, there are other villains here. About 7-8 years ago, California state law, regulations, whatever, that governed the size of pensions said that only the base pay of an employee’s last year counted towards his pension. If you made $50,000 a year, your pension (90% of that) was $45,000. Didn’t matter if you worked a billion hours of overtime, the pension wouldn’t change. The union sued, and a judge agreed that this wasn’t fair, and rewrote the law. He made his decision retroactive for several years, but there was a cutoff date. I’ve always imagined the guy who retired the day *before* the cutoff, and who had a bunch of overtime, leading a bitter retirement somewhere, swearing at the walls.
My larger point is this: the state legislature can’t take away pensions. Not without the state’s unions suing in front of friendly judges (remember, the judges are likely to be state employees, themselves). The only way around this would be bankruptcy, and even with that (if I understand the law correctly; I’m not a lawyer) you have to get the judge to agree that a creditor (in this case the unions trying to get their employees’ pensions) should be prevented from collecting money from the entity going bankrupt. Again, remember, the judge is looking forward to his pension too.
I live here, and this whole thing terrifies me. Meg Whitman is running for governor, and saying all the right things, but unless the state legislature changes its thinking, or is changed drastically, soon, we’re screwed. Even if everything were changed tomorrow, those pensions are *guaranteed* by the state. Guarantees like that one are the ones judges tend to *insist* on, to the point of jailing people if they don’t comply. The *only* thing the state could conceivably do would be to change the pension system for those who are currently working for the state (but they’d have to fight the unions, something they are loathe to do) or change the system for those hired tomorrow. This latter would only of course affect the state’s pension costs down the road some 20-30 years. That seems very unlikely to fix things. And unfortunately, no one has the political will to do even that, anyway.
January 25, 2010, 5:31 pmRPT says:
Thank you for this comment. It brings some real world perspective to the discussion.
January 25, 2010, 5:31 pmA. Zarkov says:
Law enforcement doesn’t even appear on the list of the ten most dangerous occupations in America. Tree cutters and fishermen top the list. Collecting garbage is more dangerous than police work. Unfortunately the link button seems to be broken so I can’t link to the information sources.
Some data. The Oakland Police Department has had a total of 50 policemen who died on the job since 1867 and that includes ordinary accidents and heart attacks. The Los Angeles Police Department has had 200 deaths since 1907; again from all sources. Job danger has little to do with compensation or pension benefits. It’s all about unions.
January 25, 2010, 5:32 pmroad2serfdom says:
Two legal questions from a non-lawyer:
1. Could a legislature pass a law reducing current pension payouts? I know it seems employees have a ‘contract’ but it also seems to me it is unconstitutional for a legislature to bind future legislators with a perpetuating contract. Therefore all pension contracts are entirely at the discretion of future legislators. If you don’t like that don’t take a government job.
Analogy to 1: Say a legislature passes a gun buyback law saying anyone turning in a gun will receive $10,000 per month per gun for the rest of their lives. Thousands turn in their guns and begin receiving payments. Years later a new class of legislators thinks it wasn’t such a great idea and wants to stop the payments. What would happen?
2. Could the state legislature pass a new tax, say 50% on all public employee pension income and 90% on any pension over $3000 per month? They would still have their pensions they would just have to pay a tax on it.
January 25, 2010, 5:41 pmRPT says:
Citizens United.
January 25, 2010, 5:44 pmpersiflage says:
California can make a sizable dent in that unfunded public pension obligation by selling off some of its multitudinous assets – large land holdings, valuable real estate, office buildings, other fixed and movable assets, and banking (i.e., not immediately spending) the proceeds…uh, is that you laughing?
January 25, 2010, 5:55 pmpete says:
You are assuming the retired employees are dumb enough to stay in California when they retire. It is a lot cheaper to retire in another state.
January 25, 2010, 6:00 pmRPT says:
Who benefits if all of the retired public employees are deprived of their pensions?
January 25, 2010, 6:08 pmDrew Kelley says:
Several years back, as this problem was just emerging from the ground-clutter, it was revealed that a municipal clerk from a small city that granted all of it’s employees 3%@30 retired with a pension of 126%. It seems that the city had forgot to put in a cap, and this lady worked 42-years for them.
January 25, 2010, 6:09 pmBTW, there is a retired employee of the City of Vernon CA who draws a pension in excess of $400K.
NickM says:
At the state level, it takes 2/3 to increase spending (that’s the required vote on a budget).
Nick
January 25, 2010, 6:17 pmNickM says:
You are aware, aren’t you, that the people of California voted down (by a substantial margin) last year temporary tax increases? A lot of Democrats (and decline to state voters, which in some areas make up a quarter of the electorate) don’t want to set taxes at X.
Nick
January 25, 2010, 6:25 pmKevin says:
Well, I’ve evacuated my girlfriend from Los Angeles to the safety of Texas. Now we can settle down with a bucket of popcorn and watch the disaster unfold from a safe distance.
January 25, 2010, 6:27 pmKanchou says:
Myth: Pension Costs for the State of California have increased by 2000 percent in the last 10 years.
Depends on which job classification, California public employees contribute 6-8% of their salary.
Of course, the question is whether other pension system had took similar pension holiday during boom time? Otherwise, it’s hard to compare benefit cost over the while career. Of course, it’s easier to contribute during good time rather than make up during bad time.
January 25, 2010, 6:44 pmKanchou says:
I am not on safety plan, nor am I member of an union. So I don’t have economic incentive either way. But I will say this about police union. In many part of the world, police can and do lose their careers if they stop and/or arrest the “wrong” people. As an immigrant from one such country, I do appreciate the grievance procedure afford by American police unions makes a difference.
January 25, 2010, 7:01 pmMark Field says:
I think it’s harder than you think it is to change professions at the age of 50 or 60.
January 25, 2010, 7:50 pmElliot says:
I have a vague recollection that contributions to Calpers were discontinued in the late Nineties because the portfolio was making so much money. Does my memory fail me, or did something like this happen?
January 25, 2010, 8:17 pmAllan Walstad says:
sestamibi:
In McGovern’s case, as I recall, he went into business (hotel owner in Maine, something like that) and learned his lessons the hard way.
Mark Field:
Maybe people should think about that when they choose a profession at age 22. Anyway, if pensions are private and actuary-based on what you’ve paid in, then the writing should be on the wall way long enough in advance for you to make preparations.
As for your earlier comment that Bush’s plan to privatize social security was penny wise and pound foolish, as I recall it was only a proposal to permit folks to invest some of their SS in private funds. Over any substantial time period, stocks outperform SS returns, so what’s your beef? The feds never had any business getting into the retirement plan business in the first place. It’s just been a way for pols to rake in and spend more money and leave the consequences to later generations. Which is not to defend Bush in general; even monkeys typing at typewriters will generate a sensible sentence sometimes.
January 25, 2010, 8:21 pmgasman says:
Says Mark Field:
I don’t see any police or firemen on this report of on the job mortality.
This source puts their on the job mortality at 15.6/100,000 which i well off the bottom of the chart of the truly dangerous jobs.
January 25, 2010, 8:22 pmjt007 says:
It would be sensible, but you are correct that no one will ever do that. In 2005, Gov. Schwarzenegger put his own political capital behind several California voters’ initatives that would have reformed these out of control pensions but they were defeated in a rout. The public employee unions in California reportedly spent $80 million on their advertising campaign to defeat the referendums (they apparently had to borrow almost $30 million of it). I remember one ad that featured the widow of a police officer with her children who said that the Governor wanted to take away her deceased husband’s pension which would take food from the mouths of her children (as I remember it, the reform only applied to future pensions). The unions laid it on thick with firemen, policemen, nurses, etc. Unfortunately, Schwarzenegger completely caved in to the left after this trouncing and he hired Gray Davis’ former chief of staff who immediately guided him to the left turn he has taken.
The issue had to be presented via referendum because there was no way that the Democrat controlled legislature would ever consider public pension reform. Wiilie Brown likes to say “politicians” did this. In fact, it was Democrats who did this. They controlled the legislature for over ten years and Gray Davis was the one who agreed to the ridiculous pension for the prison guard union in 2002 that led to his recall. Republicans are only complicit in that they are weak and afraid of being called names so they refuse to put up a fight. Also, California voters are solidly liberal and they voted down the proposed reforms in 2005. Liberals here deserve the destruction they have wrought. This isn’t just a problem in California, it is a problem in New York, Illinois, etc.
If anyone thinks that the unions will be forced to make concessions on existing pensions, you are smoking crack. For example, in New York, the state Constitution prohibits any alteration to existing pension benefits. After the bankruptcy filing of the bay area city of Vallejo, Calif. (famously profiled by the WSJ last year), California’s Democrat controlled legislature passed a law requiring state house approval prior to any municipality filing for bankruptcy. It won’t matter if a Democrat is in the Oval Office, the media and the unions will pillory anyone who tries to resist a federal bailout of these underfunded pensions. We will see the usual parade of policemen, firemen, teachers and their widows lamenting the proposed cruelty of default on their gold plated pension. The taxpayers in place like Oklahoma will be forced to pay for 35-40 years of retirement by California bureaucrats in bucolic Idaho. I mention, Idaho because it home to literally thousands of “50-60 something” retired LAPD, LA Sheriffs, CHIP, Firemen, etc. because the cost of living is so much lower than in California where the taxes are high to pay for the extravagant public employee benefits. We end up paying their pensions but don’t get the economic benefit of them spending the money in state.
January 25, 2010, 8:22 pmjt007 says:
ALso, if public employees really did agree to lower income in consideration for greater job security (this is no longer true as the average public employee salary is now close to or as high as the private sector), then a high percentage of their last three years of base salary would be okay to me. The biggest problem is that the pension plans allow for retirement at such an early age that they will never be actuarial sound. My physical therapist just told me about her friend who has been a clerk at Santa Monica city hall for 31 years after starting there after high school. She is 50 years old, a clerical worker (i.e. non-physically demanding job), in good health and eligible for retirement. She will receive 75% of her last year’s salary and health insurance for the rest of her life. I don’t know what the life expectancyof a 50 year old female who is currently in good health but I bet it exceeds 80 years (i.e. 30 more years). That means that she will most likely collect a pesnion for as many years as she worked. To borrow a term from liberal vernacular, that is unsustainable.
January 25, 2010, 9:00 pmSouthern Rube says:
What exposure do the citizens have in the event of a public insolvency? I believe they are on the hook for outstanding balances on municipal bonds, and not just their pro rata share. Do they have similar exposure to public pension debt?
January 25, 2010, 9:12 pmvic5 says:
As an Illinois resident – I see this crazy catch 22 situation. (Prof. Adler do you have any insight).
Crain’s Chicago Business reports we are on the verge of bankrupcy. Pension obligations are simply ridiculous. All public employees routinely game the system. I know too many people in my speciality who are going to retire or have just retired at pensions in excess of 200K, after a lifetime spent doing nothing productive.But as reported earlier in the blog the state constitution will not allow pension benefits to be touched. Even if it goes to court, bottom line is that the judges who will decide this are also covered by same pension plan. Any takers re how likely our judiciary (incompetent and corrupt as it is) will rule against unsustainable pensions.
So what do we do short of moving out of the state at some point.
Another constitutional amendment ???
January 25, 2010, 9:35 pmL. E. King says:
As a California state employee I do not earn a six figure income, pay $1000 each month for health insurance, I am not allowed to contribute to IRA or other retirement accts. other than a special 401K (now 200.5K in value)and cannot retire until 62+ yrs. My colleagues and I do contribute a state mandated service to our fellow California citizens. I regularly work through my lunch hour with the public and leave the office 2-3 times a week as late as 8PM to complete research/reports that cannot be done during “normal” office hours. We now have two furlough days a month (no pay) with the same work requirements.
I realize there are state employees who shirk their responsibilities and are truely “feeding at the public trough” but it is not true that state professionals, whether attorneys, medical personnel, educators or others have “light” workloads. My department and others are not hiring or replacing positions due to retirement/resignation as we cover the additional assignments.
Our union “representatives” never asked us what we were willing to contribute to address the state budget problems such as forgoing previously negotiated salary increases or holidays (we could not cancel Cesar Chavez’s Bday as the newest paid state holiday as this would be deemed as “racist” i guess)
We cannot earn overtime to alter our final years of income. I realize it is easy to identify the state employee as the cause for the meltdown of California’s budget, but it is due to years of increases in our social service budgets each year, the underfunding of retirement benefit packages (and short sighted investment into SRI’s) and in some cities/counties paying salaries/wages equal to similar private sector positions…that was not the expected ‘tradeoff’ but part of the ‘entitlement’ thought process that has permeated our society.
well that’s my 2 cents worth :)
January 25, 2010, 9:50 pmAlan Crowther says:
Jonathan,
Read Mish (Mike Shedlock) at globaleconomicanalysis.blogspot.com He has one of the most outstanding economic blogs on the web. It is of the Austrian school of thought (vs. Keynesian, for instance), and he has a pretty strong libertarian bent.
He covers the issues of labor union economics well in many posts, showing the insanity of there ever being any chance these will be covered (they can’t – not even close).
Hence, every state is actually and completely bankrupt when you look at future obligations.
Mish is a pleasure to read. Most companies have largely switched to defined-contribution from defined benefit – because most defined-benefit plans can never be fully funded. They rely on Ponzi math, for the most part …
FYI, once you understand the economics of these plans, you begin to understand the insanity of the current situation and the desperation with which unions fight some battles (such as increasing union membership – critical to maintaining their clout to retain their ridiculous level of compensation).
It is also one of the root issue in concern of growth of government – in becomes increasingly difficult to rein in out-of-control compensation as number of government employed increases. Until you reach a crisis …
January 25, 2010, 10:19 pmKTWO says:
“wm13: Won’t the contracts clause prevent California or any other state from getting out of these pension obligations?”
The answer is “maybe”. The states have different laws. In some states the pensions have been written into the state constitution. NY has and I believe IL is another big state with that provision.
Those provisions will be hard to renounce. But in law matters are seldom simple. Some other parts of the state constitution may apply.
The premise of the article “what must stop will stop” is true. The question is what happens when it does.
The pension funds are normally run independently of the state government. Ideally the administrators receive ample funds from the state, follow the laws, invest the money, and pay the retirees.
If the money runs out – as it certainly will in states – the pension payments must stop. Then the retirees and others will sue the state and ask that more money be put into the fund.
The learned judges will ponder whether the judiciary can force the legislature to do that. Or force other state officers to do it. In some places the judges will decide they do not have the power and the case will be appealed or refiled in the Federal courts. Eventually the Supreme Court will decide.
If the pensioners suits fail they are out of luck. But if they prevail the matter becomes far more difficult because the state may only be able to raise the pension money by taxes so high as to amount to confiscation.
If you live in CA, for example, don’t think you own anything. A judge may someday give it to the state pensioners.
No one knows, the US has never been in do-do this deep before and huge defaults have not yet tested us.
January 25, 2010, 11:27 pmMark Field says:
I agree with you, and going forward this is the right approach. The problem is we didn’t do this in the past, so now we have some people (not all of them, but some) who made a tradeoff of lower salary for the pension benefits and can’t easily change careers.
Maybe, but this doesn’t account for the stress of encountering life-threatening situations. How many of those do you put yourself in? I respect those who do.
January 25, 2010, 11:35 pmKTWO says:
re: a rather obvious correction to my previous comment.
“as it certainly will in states” s/b “as it will in some states”
Also, Alan’s comment just before mine is worth reading again. The current situation is insanity and pretending otherwise will solve nothing.
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January 25, 2010, 11:45 pmTatil says:
Not quite true. Even the budget needs 2/3 approval, which is why the budget gets passed past the deadline almost every year. 10% of the budget goes to prisons, partly due to the three strikes law. People don’t like being taxed, but they don’t want to repeal any spending, either. A good portion of these spending programs are approved through state-wide propositions, so you cannot solely blame out of touch legislators, either.
January 26, 2010, 1:01 amGates1588 says:
After reading so many diatribes all over the Internet, it has been a pleasant surprise to find this little corner of the world having a cogent and respectful dialog about a significant issue. Very little calling, minimal hyperbole. You should all be proud of yourselves.
Now for my two cents worth. First, based on my own elective office service in my home state (local and regional government, and a school board), I believe far and away the largest portion of PERS or CalPERS members would be teachers. The benefits for police and fire are generous, perhaps to a fault, but the financial killer is the numbers in K-12 education. For every police or fire employee there are fifteen to twenty educational staff.
Second, I didn’t see anyone mention what I refer to as the “population diamond”. If you graph out the population for each year of current age, you will quickly notice the “baby-boomers” are a giant bulge. Grossly over-simplifying, there were about 70-80 million “boomers”. They only had 40 million children. That is an economic cancer of its own on several levels.
Almost all retirees go through a pattern of down-sizing their homes, discontinuing their payment of payroll taxes as they begin to draw out entitlement monies, and significant avoidance of sales taxes as they reduce their spending to “socks and underwear”. Slowly they slip out of the “consumer economy” and “tax paying foundation”.
This is no big deal if you have a steady flow of population to replace them each year. But consider this – right now the over 65 group is about 13% of our national population. At it’s peak it will be above 25%. That means 10% of our “consumer economy” will basically disappear, only to flatten out or return in a later generation.
I believe the biggest reason for the bursting of the housing bubble was so many “baby-boomers” approaching retirement at the same time, but not having enough people in the next generation to buy what was now considered to be excess real estate. And yes, I am fully aware of all the poor lending practices, derivative scandals, dissolution of barriers between banks/insurance/equities, and basic legislative screw-ups at so many levels. But, demographics trump all other causes.
I concur with authors above who state there will be a massive devaluation of currency. To support this I recommend a review of the Bretton Woods Agreement from the end of World War II. (You can Google it easily.) It requires too much detail for this space, but basically all the countries were in debt up to their eyeballs from the war and they were able to get some breathing room by a scheme of re-valuing currencies.
I look forward to your feedback.
January 26, 2010, 4:33 amGates1588 says:
Thought I had proof-read my last post closely enough. In the first paragraph, I intended to applaud the fact there is very little “name-calling” on this forum.
January 26, 2010, 4:36 amJeff H says:
I don’t know about that. I come across all sorts of mid-50′s retired LEO’s in my field. Granted, these guys were in senior roles before retiring from their agencies – things might be different for a 30-year beat cop. But the idea that cops/firemen can pull down pretty generous pensions for more years than they actually worked is nuts.
January 26, 2010, 7:58 amBobPDX says:
This is the real fleecing of America.
Government pensions.
Oregon has the same problem with guaranteed cost of living increases at the taxpayer expense. 34% of our taxes go to Oregon Public Retirement System and it’s going up.
Besides the guaranteed cost of living, here is the problem. 25, 50, 85.
Start working the govi job at 25 years old, retire when your 50 at 90% pay and live to be 85.
Don’t forget health care coverage.
This is the same for all state, county, federal and postal workers.
How many private sector jobs have pensions like this?
Answer…None.
January 26, 2010, 8:39 amBigMike252 says:
[A]t some point, someone is going to have to get honest about the fact.” That point is now!
January 26, 2010, 11:37 ambozo mann says:
It’s time Governments come into the 21st century. No more unfunded liabilities. Freeze Defined Benefit Pensions. New hires are entirely Defined Contribution Pensions. Those underfunded Defined Contribution pensions have no new liabilities added until fully funded, then future increases will be based upon the Defined Contributuions.
January 26, 2010, 11:49 amQ. What are acorns?
A. Nuts.
bozo mann says:
It’s time Governments come into the 21st century. No more unfunded liabilities. Freeze Defined Benefit Pensions. New hires are entirely Defined Contribution Pensions. Those underfunded Defined Benefit pensions have no new liabilities added until fully funded, then future increases will be based upon the Defined Contributuions.
January 26, 2010, 11:51 amQ. What are acorns?
A. Nuts.
bozo mann says:
It’s time Governments come into the 21st century. No more unfunded liabilities. Freeze Defined Benefit Pensions. New hires are entirely Defined Contribution Pensions. Those underfunded Defined Benefit pensions have no new liabilities added until fully funded, then future increases will be based upon the Defined Contributuions.
January 26, 2010, 11:51 amQ. What are acorns?
A. Nuts.
Cops cop says:
Hello all,
I thought that I would provide some perspective from a cops point of view.
First, I have been on the job for twenty years in a town in central California with a population of 100,000 people. To say that I have a less than dangerous job is easy for a guy who never walked in my shoes.
When was the last time someone punched you in the face?
Or you went to the hospital because a hype stuck a syringe in you during a fight…try telling your wife that you might have Hep C, HIV, and won’t know till the results come back from the lab?
When was the last time you rolled around on the ground with a gang member who was trying to pull his gun out before you could unholster yours?
Or the last time you were forced to take another human life…and worse yet deal with the aftermath of describing how you killed him to his family during court depositions, and crying because you your heart was breaking for a mother who’s son had chosen the wrong path?
Or the last time you investigated the death of a 4 year old girl who looked just like the daughter you left at home before coming in to work?
Or the last time you scraped a dead child off the street after being run over?
Or the last time someone took a shot at you, and you came to realize that this is for real, and these guys are playing for keeps?
Or the last time you buried a friend who’s only mistake was to choose a life of service?
I have watched several of my friends be buried because of this job that is less dangerous than being a fisherman, or tree cutter????
Please think before you speak or write.
Cops have earned their pension and should be rewarded by society for the service that they have provided. I pay 9% into my retirement and have done so since the beginning of my career. The state has made mistakes but should honor it’s commitment to public servants.
BTW. I write from personal experience and have dealt with everything about which I have written.
January 26, 2010, 12:30 pmDan Weber says:
You don’t have to change professions. You can cut back to a small amount of part-time work, maybe as a security guard, just to hold you over until you hit the actual retirement age.
BTW, I see many folks saying we need to get rid of defined-benefit. You don’t have to do this. But you do need to buy your defined-benefit plan from a private business. Every paycheck, your employer purchases (say) a $5 annuity that starts paying out when you hit (say) 65. We might even give individual employees the option of choosing their own retirement date, which they could change over time for ongoing contributions. (I might enjoy getting a few hundred bucks a month when I’m 50, but getting more money when I’m 60 or 70.)
Promising future benefits is the same as borrowing money, but it allows current legislatures (and management at for-profit companies, while we’re at it) to pretend that they are passing balanced budgets when they aren’t. You don’t solve it by “requiring funding.” You leave that job to someone else who is putting their own business on the line. Insurance companies offering life insurance are a good fit, since they are placing bets against people dying there, so matching that up with bets against people living long partially offsets that risk. (Obviously the risks of young people dying are not the same as the risks of old people dying, but the two groups are not completely disconnected.)
January 26, 2010, 12:41 pmAllan Walstad says:
Seems you just can’t win. Have too many kids and the population explosion drags us to hell. To few, and there’s nobody to take over. But it’s not entirely clear to me that the younger generation must take a beating here, not in a free market. The large older generation built a huge supply of productive capital which is more, per person, when inherited by the smaller younger generation. The real problem is with the coercive “pay-as-you-go” programs that don’t run off of accumulated capital but simply rob the younger to pay the older. That’s true of SS as well as these pension plans.
Well, maybe 65 is the new 55. At least some of us boomers don’t intend on retiring anytime soon. (I’m about a year in from the leading edge of the wave.) And if you’re spending less, you’re saving more, no? Saving is capital formation. It’s building the future. Taxes and consumption don’t make us (or the next generation) wealthier.
January 26, 2010, 12:43 pmAllan Walstad says:
Cops cop: I respect your efforts. I have no problem with your earning a good income and investing whatever portion of it you choose in a private retirement plan, with matching at some level by your employer. Nevertheless, your personal worthiness does not solve the problems caused when today’s politicians incur liabilities that future taxpayers will have a very difficult time meeting.
January 26, 2010, 12:53 pmMark Field says:
Like I said, this is harder than you think. The job market right now is bad for everyone, but it’s never good for those over 50.
January 26, 2010, 1:17 pmValentinne says:
Due to gerrymandering there are few elected repubs in CA and those that are in office are nuetered.
January 26, 2010, 2:58 pmGates1588 says:
Alan Walstad says, “…if you’re spending less, you’re saving more, no?”
Yes, and no. It’s possible to retire and continue saving, but it is a rarity. For most folks they are spending less because they have significantly less income. Regretfully, nearly a third of retiring Americans have ZERO in their retirement accounts and expect to live off Social Security and some form of state aid. And, those that do have something in savings have, for the most part, underestimated how much they needed in principle to maintain their standard of living for as much as five years, let alone the balance of their lives.
It’s easy to forget that “retirement” is very much a modern invention as life expectancy has expanded well beyond what was once thought to be the productive years of our lives. When first created, Social Security was expected to benefit less than half the working population. After all, life expectancy was well under 65. Today, with life expectancy in the mid-80′s and prospects to go longer (obesity hysteria aside), the problem only gets worse.
I am 61, and getting a bit tired. But, I know I will be working well into my 70′s at a minimum. Everyone needs to admit retirement ages must be redefined immediately, and that most folks will not benefit by the adjustment, except to be actively engaged in the workforce a few years longer. If we don’t, on a national scale, we will be crushed by our entitlements.
January 26, 2010, 3:07 pmTough Love says:
“Funding” shortfalls are the symptom, NOT the real PROBLEM. The PROBLEM is the vastly excessive pension formula.
Proposed changes still miss the mark by miles as they ONLY suggest formula reductions for NEW employees. These employees will not retire for 20-30 years, and we’ll save NOTHING until them … and without doubt going broke along the way (likely within 2-3 years).
We need to reduce the pension formula for FUTURE years of service for CURRENT (yes CURRENT) employees….. or nothing else will matter
January 26, 2010, 4:59 pmAllan Walstad says:
Right, but in my opinion the problem is with wasteful government programs that hook people into dependency on a dole, not necessarily with changing demographics per se.
We’re close in age, Gates, and my intention is to keep on working for as long as possible. (Of course, I do have a cushy college teaching job.) I’ve been arguing for some years now that the way out of the SS mess is to raise the retirement age several months each year, indefinitely. The effect on people nearing retirement will be small, but young folks just entering the work force will understand that they will be responsible for saving for their own retirement–as is appropriate in a free society.
January 26, 2010, 5:07 pmCops cop says:
Allan:
Its about the promises made. If you think that things can suddenly change when times get tough and the public can break the promises made to those who keep you and yours safe, then maybe you should try living in Mexico. Cops are paid well for a reason. It’s easy to sit behind a computer and opine about how public employees are fleecing the system, that is until you climb into a black and white and get a taste of what they do every day.
I will admit that things have gotten out of hand, but who’s fault is that? During the good times the Govt. should have been saving and being responsible. Instead they give money to illegals and dirt bags.
Now in the bad times people want to gut one of the few systems of government that actually works…law enforcement. Once again if you don’t think we have a pretty good law enforcement aparatus try going to Mexico and see how it works for you.
I am very concerned for the future, but we can’t let this ball roll over those who make it possible for us to live in peace.
We can start by cutting off all aid to anyone who is not a citizen and begin deporting illegals immediatley.
January 26, 2010, 5:19 pmTough Love says:
Dear COPS COP ….
The public appreciates honest service, especially from those that protect us. And we pay you very well for your services, recognizing the skills, training, and risk.
However, you do not want us to change the deal NOW (by lowereing your pension), but didn’t YOU change the deal on US (the TAXPAYERS). When you were hired, the deal was that your PAY would be lower in exchange for great job security and a better pension.
NOW, via your union’s BUYING of the politicians you’ve got BOTH … better pay , and VASTLY better pensions & benefits.
Well … please don’t get mad at me when I say …NO, I don’t wnat to keep that pension promise … as you broke your end of the bargain, and now I must break mine.
WHAT we need immediately to avoid a very near-term bankruptcy in CA is not only a reduced pension for NEW employees, but a significant reduction in the pension formula for FUTURE years of service for CURRENT (yes CURRENT ) employees.
As well as elimination or a bigtime cut in retiree healthcare.
January 26, 2010, 6:22 pmGates1588 says:
Tough Love and Allan are saying what we all know, but what has been up to now the unspeakable. I am not a professor, but I do my share of guest lecturing about finance and other topics. Many students already come up to me afterwards and start the dialog by saying, “I know Social Security will be broke before I retire and I will never see a dime, so my plan is XYZ…” Any changes made involving those under about age 50 will surprise no one.
The hard nut to crack will be getting those already receiving, or on the the cusp of receiving, benefits to be willing to take a hit as well. Adding to what is suggested by the two of you, age group changes in COLA might help.
For example, keep the current schedules for those 85 and above and let them have the same annual changes they always have in the past based on formulas for GDP. Those 70-80 would receive half of the current COLA formula for the balance of their lives, but the same base currently allowed. Those under 70 would not receive any COLA adjustment (or a fraction increased each year of age), and their base year of qualification would be adjusted quarterly instead of annually as it is now.
I may not be clear in my presentation, but the goal is to more aggressively encourage folks to maximize their pension by staying in the work force longer. For example, the first year a person can qualify for Social Security retirement is now age 62. Amend that to age 65 for those born after 1960. But, for every quarter a person keeps working their potential benefits grow, and are fully maximized at age 85 – the current average life expectancy.
January 26, 2010, 6:29 pmCops cop says:
Tough Love,
I have broken no promise. I have been an honest hard working public servant. That my community felt it important to keep my wage competitive is important.
How important is your safety? How important is it to get help when you call 911? I keep my end of the bargain every day. Why now do you not have to keep yours? Does that mean that I can simply walk away from my obligation to you as well?
BTW I never made a pledge of poverty for a pension. I am amazed that people actually believe that. I expect to be compensated for work that is tough, disgusting, and at times terrifying.
Its funny that when times are good everyone told me that you could not pay them to do what I have had to do. Now…you folks want my pension. One hell of a differnce a few years makes.
Also please do not patronize me and tell me that you respect my service, then advocate to steal what I have earned through 20 years of work.
You will take from the person who has worked for your safety, but do not address the issue of giving benifits to folks who don’t even belong in this country…I guess I know where I stand.
January 26, 2010, 6:51 pmGates1588 says:
To Tough Love: Every day you are faced with people who are unsuccessful in dealing with the angst in their lives. As you have eloquently put it, your life is on the line constantly.
But here is OUR problem (yours, mine and all the others who have posted on this forum), the breadth of the financial angst in America is just beginning to come to a boil. Unless we do something and soon, your current promised pension won’t be worth the paper it is written on.
Regarding your last remark, I have told my staff for several years now that history is full of cycles, and one of them is whenever a major economic calamity occurs the populace looks for scapegoats, and usually the easiest is the last group into the room (in this case the Latino community). The dialog on immigration is heading toward the precipice of social strife (remember the Watts riots?), even as the illegal immigration reverses and so many head home because there are no longer any jobs here.
The largest group of illegal immigrants is those that over-stayed their visas years ago. They came in legitimately, but found it too good to go home. In hundreds of thousands (perhaps millions) of cases America is the only place their children have ever known.
As for where you stand, it is shoulder to shoulder with the rest of us as we try to tackle the biggest problem of the last two generations, our financial future as a nation.
January 26, 2010, 7:20 pmjohn moore says:
Here in Pacific Grove,we adopted 3@50 at a time that we were in deficit with 2@50. Then the City issuede pension bonds to pay off its’ deficit and Calpers lost much of the bond proceeds. Calpers investment losses dwarf the cost of benefits annual payments. Any reform that does not cap the Citys’ responsibility for investment losses,will not help Pacific Grove. We can’t get relief in Chapter 9 because of Govt. Code,sec 20487,which prohibits the modification of a Calpers contract in Chapter 9.PG is done’
January 26, 2010, 7:25 pmGates1588 says:
Oops, I guess it was Cops Cop I should have been responding to.
January 26, 2010, 7:32 pmTough Love says:
Quoting COPS COP …”That my community felt it important to keep my wage competitive is important. I keep my end of the bargain every day. Why now do you not have to keep yours? BTW I never made a pledge of poverty for a pension. I am amazed that people actually believe that. I expect to be compensated for work that is tough, disgusting, and at times terrifying.”
PLEASE ……… Your “community” NEVER agreed to the absurd (combined) level of pay, pensions, and benefits …easily $200K/yr when building in the true cost of your employer-paid-for share of pension & retiree healthcare. You have gotten that ONLY because your VERY greedy union has stuffed the legislature and town councils with supporters BOUGHT with UNION money & votes. Your a cop … doesn’t this sound a lot like a bribe, conspiracy, or racketeering? This quid-pro-quo between the union workers and those that approve their pensions & benefits so apparent it STINKS !
As for your comment regarding poverty…. ??????? If you got ZERO pension & benefits, your PAY alone would put you in the top 10% of US earners …. you call that poverty? You need to get your head out of your ARS.
Although your pay is also excessive, I’m currently would only like to see a reduction in your pension & benefits … just be happy for that.
You ..”expect to be compensated for work that is tough, disgusting, and at times terrifying.”. You have been … and when factoring in the pension & benefits, well MORE than the position calls for.
January 26, 2010, 7:58 pmSmitty says:
The problem is CA has trillions in unfunded & underfunded public employee liabilities. The rub is most if not all those “unfunded & underfunded liabilites” are “off budget”, in essence everybody pretends they aren’t there.
CA doesn’t know the scope of underfunding, they dont want to know, that would curtail its spending and social agenda, the CA legislature would prefer to think they can simply print money through benefit package liabilites that will never have to be paid, except now some have to be paid.
Even worse those those unfunded liabilities aren’t enforceable, the state needs public approval to assume debt, all those unfunded liabilites are essentially illegal debt.
All those public employee contract liabilities were created through fraudulent contracts written and accepted in bad faith by all parties, the public employees as well as administrators and elected officials all knew their pension & healthcare deductions and employer contributions (state contributions) were waaay short of the minimum required to support their contract terms, they all chose to ignore reality and sign anyway knowing the contract they signed may not be fully backed by employer contributions.
All this debt is basically illegal and unauthorized, if all the debt and its service were quantified, CA would be bankrupt by well over a trillion dollars and all those unfunded liabilities would be voidable in bankruptcy court.
The immediate & future problem is CA needs to re-direct an ever larger unknown but predictable portion of its budget to these unfunded liabilities every year to deliver the level of benefits “promised”, unfortunately CA needs to replace those retired employees and pay their unfunded liabilities and fully fund their current existing employees with the same amount of money as last year or perhaps even less.
CA also has the problem of having “invested” a huge chunk of its public employee assets into sub-prime & fraudulent housing bonds in a lame ass attempt to pump property tax revenues.
The only solution is for CA to void all pension & healthcare contracts and liabilities (this will suck for some public employees), limit the state’s liabilities to the state pension & healthcare assets owned by the respective employees, and to prevent the looting of fully or partially funded employees by unfunded employees and reduce govt to a fully funded affordable level, which would mean dramatically reduced benefits or dramatically increased paycheck deductions plus a huge reduction in the overall number of public employees.
But wait there’s more, CA’s social & spending agenda has short & long term demographic consequences, replacing its native highly skilled, highly educated healthy white population with an unskilled, illiterate, far less healthy diabetic Latino immigrant population has demographic consequences too, mainly more social spending demands combined with far lower income & property tax revenues.
Oh ya, all the judges have under funded pension packages too.
January 26, 2010, 8:03 pmTough Love says:
January 26, 2010, 8:06 pmAllan Walstad says:
As the posts from Cops Cop should make clear, there are two issues here: first, what went wrong? Second, what to do? I believe in general that in order to move forward it’s necessary to recognize and acknowledge how we got into a mess, that things were done that shouldn’t have been done and that have to stop being done.
Cops Cop, if you work for a company and the company makes promises it can’t keep, then the promises can’t be kept. If it goes bankrupt, you just get your share of the wreckage, whatever that may be. Sometimes prudence dictates settling for less, in time to avoid getting much, much less. Sorry. Same with the State of California. We know how politics works, how pols buy off special interests, how they deliver concentrated immediate benefits that have widely diffused and longer-term costs. You know you need to keep your wits about you on your job; well, you can’t necessarily get away walking around with political and fiscal blinders on the rest of the time either. What has to be done at some point is to take a realistic look at inflow and outflow and make necessary adjustments while there’s still time (if there is) to avoid collapse.
The same thing goes for Social Security, Medicare, and a whole lot of other things where political promises have been made that can’t really be kept.
January 26, 2010, 8:54 pmBob Smith says:
Then everybody will be made employees of the police or fire departments. Exceptions will be abused. Like base pay limits on pensions, for example. In Boston final year police and firefighters get temporary appointments to senior positions, including commensurate increases in base pay. Their pensions are based on that temporary increase in base pay.
January 26, 2010, 9:48 pmTough Love says:
Its EXACTLY because of very expensive gimicks like you noted that Private Sector taxpayers everywhere should renege on these overly generous pensions “promises”.
January 26, 2010, 10:12 pmKTWO says:
Allan: Good summation. And Smitty, whose ideas about legality I differ with, also kept focused on the real problem.
i.e. No one has the money.
CalPers doesn’t, Sacramento doesn’t. And Washington doesn’t either (except via the futile tactic of printing it).
If the problem is lack of money then the question is how to get it. That leads to the foundation of government and these questions.
Does any elected official, elected for only a term, have the authority to place unchangeable future obligations on anyone?
I think the answer, hard as it is, must be “no.” If the government can do that now, or could do it in the past, then what possible freedom can remain?
Correction of past mistakes must be possible. No matter who made them, with what wording, or however good their intentions were.
But back to CA and CalPers. What happens when CalPers fails? I offered a scenario yesterday. There will be attempts in court to compel taxation or outright confiscation to raise the money. If those lawsuits fail the matter ends, the pensioners are screwed. If it succeeds the outcome and consequences cannot be foreseen.
Could the sale of state lands and property adequately fund CalPers?
No. Because CalPers obligations as written can be infinite. They include future cost-of-living adjustments and medical coverage. Those costs are not known now.
IMO the best remedy is address the problem and reduce benefits now before CalPers goes broke. Let the legal fights begin. Better now than later. And amend the laws to stop repeating the mistake.
January 26, 2010, 10:43 pmjohn moore says:
Tough Love . Please see Gov. Code,sec 20487. It prohibits modification of a Calpers contract in a Chap 9. See the Vallejo Chap 9 where employee contracts were set aside,but no attempt was even made to modify the Calpers contract although Vallejo has a 200 million dollar +or- deficit in Calpers.If it could be done PG, and hundreds of other cities would be in Chap 9.
January 26, 2010, 11:33 pmBob Smith says:
Is that statutory or constitutional? If the former the legislature can change that any time it likes.
January 27, 2010, 12:43 amjohn moore says:
It is true that the legislature could eliminate Gov. Code sec. 20487,but right now the public unions control the legislature.Elimination of 20487 would make the negotiating playing field better for Calpers afflicted cities,like Pacific Grove et al..
January 27, 2010, 11:46 ammarkm says:
Before retirement, the government is paying someone $x/month. After retirement, they are paying him somewhat less than $x/month. If they didn’t hire a replacement, there’d be no problem – and I suspect that about half the time, Californians would be at least as well off if no one was doing the retiree’s job.
January 27, 2010, 6:53 pmTough Love says:
California’s pension formula for cops is generally 3%@50 meaning 90% of “pensionable” compensation if you have 30 years of service. Even if “pensionable” comp was nothing but base pay, with their annual COLAs (that NOBODY in the Private Sector gets) within a few years after retirement they will be receiving MORE while retired than while working.
But we all know that “pensionable” comp is most often well in excess of base pay … via spiking, inclusion of allowances, sick day payout, etc. With this and the phony tax-preferenced disability retirements, most full career cops easily make MORE in retirement than while working.
The Private sector TAXPAYERS get endlessly suckered paying for this GROSSLY excessive pension. The BEST OF THE BEST OF THE BEST Private sector pensions rarely pays more than 50% of final pay .. and with no post-retirement COLA.
California is financialy DOOMED unless ALL of their pensions ..STATE, CITY, COUNTY, TOWN … are reduced, not just for NEW employees, but for FUTURE years of service for CURRENT (yes CURRENT) employees.
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