CA pension plans prompting tough tradeoffs

pension_reform_moneyDespite a sounder economic footing, California’s pensions problem has deepened. That was the conclusion drawn by analysts who warned that new accounting rules would shine a startling spotlight on practices long kept in the shadows.

“The Governmental Accounting Standards Board is implementing new rules that require governments, for the first time, to report unfunded pension liabilities on their 2015 balance sheets,” Lawrence McQuillan noted at the Sacramento Bee. “Overall from 2008 through 2012, California local governments’ pension spending increased 17 percent while tax revenue grew only 4 percent.”

County by county

Critics have pointed to evidence of a pattern of conduct in masking pension costs. As Steven Greenhut has observed, a grand jury investigation into Marin County pension practices produced a recently issued report with damning details:

“The county’s governments increased pension benefits 38 times between 2001 and 2006. Each time, agencies were supposed to provide public notice about the proposed changes, obtain actuarial reports detailing the future costs of the benefit hikes, and detail the degree to which the increases will affect the funds’ financial conditions.”

Instead, officials “violated these requirements in a variety of ways — providing little, if any, notice to the citizens of Marin County that they would be responsible in the future for hundreds of millions of dollars in pension costs,” the report concluded.

In nearby Sonoma County, where roads have fallen into disrepair, residents were recently hit with a 25-cent increase in the sales tax. “California has the highest gas taxes in the nation, a portion of whose revenues is specifically dedicated to local transportation. Yet Sonoma estimates that it needs to spend nearly $1 billion over the next two decades to keep its roads in shape,” the Wall Street Journal reported. The reason for the budget imbalance, the Journal noted, was pension costs:

“Retirement-benefit costs for its public employees are skyrocketing. Between 2005 and 2014, Sonoma’s annual required pension contribution more than doubled, to $52 million, while tax revenues increased 25 percent, to $247 million. Thanks to state balanced-budget requirements, something had to give. In Sonoma it was basic infrastructure.”

As other county-level developments confirmed, budgets have often been locked into producing runaway pension increases. An Orange County Register study revealed that the Orange County Employees Retirement System discovered dozens of fresh retirees whose first-time pension checks neared or exceeded what’s known as their “final average salaries.” But in an email to the Register, OCERS’ deputy chief counsel, David Lantzer, warned that upward adjustments in pension amounts “are statutorily required and may increase retirement benefits to more than 100 percent of a member’s final average salary.”

Broad consequences

As David Crane noted in a critical analysis at Capitol Weekly, county level practices have fostered a statewide problem that has long festered at the level of statewide regulation. “U.S. public pension fund officials get to choose how to account for public pension promises,” he noted. So as the economic picture began to sour in the mid-2000s, California officials used accounting measures to downplay “the reported size of liabilities created by pension promises” so as “to claim that the future costs created by the promises will be smaller than they really will be.” Even though California’s fiscal and economic position has otherwise rebounded, “the more that liabilities were suppressed by aggressive accounting in the past, the greater the rebound effect in the future.”

Marin County’s misleading increases mirrored those long underway in Sacramento, Crane and Greenhut alleged, when in 1999 state legislators retroactively hiked pensions for the California Highway Patrol. That move helped touch off the wave of consequential public pension increases later masked by accounting choices.

Amid the big new outlays planned in Gov. Jerry Brown’s budget, the increasing pressure added by pensions could upset what the governor has hoped is a delicate but dependable balance. “At the end of 2015 the rainy day fund will have a meager $3.5 billion, and the Governor cautions that the ‘budget remains precariously balanced and faces the prospect of deficits in succeeding years.’ Last year the state Legislative Analyst’s Office warned that a modest dip in income growth could trigger multibillion-dollar deficits due to built-in spending increases,” according to the Journal.

11 comments

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  1. Dork
    Dork 4 June, 2015, 06:52

    responsible in the future for hundreds of millions of dollars in pension costs,

    Here they ADMIT it is nothing more than a PONZI Scheme, requiring future investments from future investors to pay for day to day expenses is the very definition of a PONZI SCHEME, and wholly ILLEGAL under Federal Law.

    It is also an act of SLAVERY, forcing future Generations to Labor for our WANTS TODAY.

    Abolish them all and dump everyone into Social Security, and turn over ALL FUNDS to Social Security to offset the cost.

    Reply this comment
    • Bill G.
      Bill G. 4 June, 2015, 07:52

      Chill, Bra…It’s all good, really really good. These public sector employees in MARIN are simply being compensated for the opportunity cost of all the big bucks they could have made in the fat booming private sector.

      Reply this comment
      • Ulysses Uhaul
        Ulysses Uhaul 4 June, 2015, 19:39

        CWD plays you like an old west general store bought fiddle on pension gloom and doom!

        Taxes will cover shortfalls. End of subject me laddies!

        Reply this comment
  2. S Moderation Douglas
    S Moderation Douglas 5 June, 2015, 00:11

    “the Wall Street Journal reported. The reason for the budget imbalance, the Journal noted, was pension costs:”

    The Wall Street Journal “reported” no such thing. That was an opinion piece by Stephen Eide, a senior fellow at the Manhattan Institute.

    Reply this comment
    • SkippingDog
      SkippingDog 5 June, 2015, 11:19

      It’s amazing how they repeatedly use opinion pieces as “proof” of whatever they’re trying to prove at the time. Almost as good as when the authors cite previous CWD posts as their support.

      Reply this comment
  3. desmond
    desmond 6 June, 2015, 05:13

    The GASB reporting for 2015 will be interesting. I suspect there are some horror stories about underfunding, and others won the so bad. The change is overdue so local taxpayers have transparency on the issue. It will be helpful when a parcel tax, sales tax increase, school bond, are presented to the voters.

    Reply this comment
  4. Ted
    Ted "Doc VanNostrum " Steele 6 June, 2015, 22:21

    Calpers value today 303 BILLION

    Once again the initiative usual suspects have created yet ANOTHER unsustainable and unlawful initiative—- sad to see folks invest in it—- and— of course there is zero actuarial assurance that if it “was” law— it would save ANY money—- looks like taxpayers would be required to make up for the loss of member contributions! LMAO

    Reply this comment
    • Donkey
      Donkey 7 June, 2015, 22:01

      Teddy, my little RAGWUS feeding parrot. It seems that political left leanings makes one lose the ability to understand math concepts. You fail to grasp the fact that the state alone owes over a trillion dollars to you feeders and the nation as whole owes 15 trillion bucks to you RAGWUS scum. The longer the nation waits to lower your take the faster the end for you thieves will come. LOL 🙂

      Reply this comment
      • Ulysses Uhaul
        Ulysses Uhaul 8 June, 2015, 10:15

        Dumbky

        Your vile rants are unkind. Pensions are cost of governance. Guaranteed by taxpayers.

        Without government you would be hunted down behind your rusty Sunset Beach over mortgaged privledged abode and unkindly redistributed.

        Use some judgement….if the Huns, Visigoths and Vandals come to your gates the Ragwinetti lead by Ragwanettus wil save your Denny’s Groupon chits for you.

        Reply this comment
        • Donkey
          Donkey 8 June, 2015, 21:15

          Ahaul, I had to laugh reading that you wrote down Huns. I just happen to be a direct descendant of Attila.
          Pensions are not the cost of government. Pensions in the RAGWUS sector are a crooked scam placed upon hard working citizens to enrich the inside tallywackers of government goons, and nothing more. 🙂

          Reply this comment

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