Wimpy pension deal

Steven Greenhut: We got the heads up earlier that the governor had negotiated a blockbuster pension deal with four public employee unions, but now we see that this is no sort of deal. As the Bee reported, “Newly hired patrol officers and firefighters would come in under a new pension formula that would allow them to retire at age 55 with 3 percent of the average of their highest three years of pay multiplied by their years of service up to 90 percent of that average wage. Current employees can retire at age 50. New and existing employees in all four groups would increase their pension contributions to the California Public Employees’ Retirement System from the current 5 percent of their pay to 10 percent.”

These are minor concessions that will have absolutely no effect on the coming pension tsunami for retired public employees, many of whom are members of the $100,000 Pension Club. And get this: the unions get some huge payoffs in return — additional step raises and protection from earning the minimum wage during a budget standoff. The governor blinks as usual, but now he gets to claim that he fixed the pension mess and can say that he has made good on his threat not to pass a budget without pension reform.

The unions get to pretend that they, too, are interested in reform and aren’t simply self-interested folks who don’t care about what their out-sized pensions are doing to the budget and to public services.

If this is the governor’s idea of pension reform, then bring on the initiative process!

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  1. StevefromSacto
    StevefromSacto 16 June, 2010, 16:36

    Yeah, anything that doesn’t slash current retiree pensions to the bone and force current employees into 40l(k) crapshoots is “wimpy.”

    And God forbid the governor should actually try to negotiate with his employees. Mandates and right-wing screeds are much more fun.

    Reply this comment
  2. Tough Love
    Tough Love 17 June, 2010, 06:35

    Steve you got it right but the the BIG taxpayer screwing is in the extra “steps” …

    Example: Assume a policeman under 3%@50 Plan reaches 30 years to get the 90% of pay pension, and lets assume the impact of these EXTRA STEPS is to grant $10,000 in higher pay that would not otherwise have been there.

    That means this officer will get an additional 90%x$10,000 = $9,000 extra EVERY YEAR, COLA adjusted … for HIS & his SPOUSES Life. The actuarial Life annuity factor for a COLA-adjusted joint and survivor annuity to someone age 55 is roughly 25.

    Hence this extra $10,000 in pay is WORTH (meaning it will cost the TAXPAYERS !) roughly 25 x $9,000 = $225,000.

    The Unions have snookered the Taxpayers AGAIN !

    Reply this comment
  3. OCO
    OCO 17 June, 2010, 06:45

    When i read this so called “pension reform” last night in the Sac Bee I almost fell out of my chair with laughter. It is no reform, it is a joke just like like Steve says.

    3%@55 is no improvement, in fact very few gov employees retire at age 50, so in reality it will be no savings at all. The 3% multiplier is so far out of balance with reality that it is really nothing nmore than a joke on the public. The multiplier should be 1%, and if they don’t like 1%, then put them into SS.

    The gov should put everyone!! into Social Secirity-that way there is no double standard, and if some yahoo wnats to “retire” at age 50 or 55, fine, then let them, on THEIR OWN 401K.

    StevefromSacto- It is very hard to take you seriously when you refer to reducing a $3-10 million average CHP pension at age 50 or 55 as “slash[ing] current retiree pensions to the bone”.

    Reply this comment
  4. Tough Love
    Tough Love 17 June, 2010, 08:00

    Pay StevefromSacto no mind … he’s one of the trough feeders riding this gravy trian.

    Reply this comment
  5. StevefromSacto
    StevefromSacto 17 June, 2010, 09:24

    OCO, if you were only interested in curbing what you believe are “excessive” pension benefits, I might have some sympathy. But you know full well that you and your ideological buddies don’t want to stop there. You want to cut ALL benefits for current retirees–even though the average benefit paid out by CalPERS–is less than $25,000 a year–and eliminate the current pension program for ALL current and future employees.

    It is very hard to take you seriously when you point to a $3-10 million pension as “average”. In order to reach even $1 million in lifetime benefits, the average state employee would have to live to age 95.

    Tough Love, you moron, I’ll say this one more time…I am NOT a state employee and I am NOT in the CalPERS or any municipal pension plan.

    The real trough feeders are the oil companies who pay no oil extraction tax and the large corporations with their tax breaks and loopholes. That’s who is on the gravy train in California.

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  6. Russell
    Russell 17 June, 2010, 09:52

    Yes – bring on the initiative process!! I still don’t know what happened to the CFFR pension reform proposals that were going to be on this years ballot.

    Reply this comment
  7. Tough Love
    Tough Love 17 June, 2010, 10:21

    Dear StevefromSacto:

    (1)First, if you’re ….. “NOT a state employee and I am NOT in the CalPERS or any municipal pension plan”. How about answering this question directly … Do you of any member of your family receive income from employment in ANY Public or quasi public employment ANYWHERE, or belong to ANY Public or quasi public pension Plan ?

    (2) Quoting your response directed to OCO…”You want to cut ALL benefits for current retirees–even though the average benefit paid out by CalPERS–is less than $25,000 a year–and eliminate the current pension program for ALL current and future employees. ”

    Isn’t it convenient (and very misleading) to quote an “average” figure, one low BY DESIGN, because it includes retirees the retired many years ago at lower wage levels, as well as part-timers, and part-career workers. A much more useful figure would be the average pension for 2009 full-career safety-worker retirees. I would wager that it is easily in excess of $100,000 …. likely 4- times greater than what a similarly situated (in pay, retirement age, and years of service) Private Sector worker gets from his/her corporate sector job. Why is this fair …. when 80-90% of it is paid for by taxpayers?

    And no, I would not like to ….. “eliminate the current pension program for ALL current and future employees”. But YES, I WOULD like a very significant reduction in the pension formula (not for PAST, but) for FUTURE years of service for CURRENT (yes CURRENT) employees.

    Why ? Because the current plan is grossly excessive, unsustainable, and grossly unfair to taxpayers.

    Now ….go look in the mirror … and look for the “moron”.

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  8. John Seiler
    John Seiler 17 June, 2010, 14:31

    This is wimpy. But more will come. Much more. The Depression returns in 2011, like Gozilla Part II, and will rip the state economy even more than the 2007-09 Depression did.

    Not only new hires will have their pensions cut, but existing employees, and even those already retired.

    There is no more money. Take that to the bank. Then watch the bank go bankrupt.

    Reply this comment
  9. StevefromSacto
    StevefromSacto 17 June, 2010, 15:47

    Amazing, Tough Love. Let me spell it out for you. I’ll try to use small words and sentences.

    1. Although it is none of your damn business, the answer is NO. Neither I, my wife, my child, my aunts, my uncles, Grandpappy Amos, nor my long lost nephew in Cleveland have the audacity to work for any government or receive any public or quasi public pension benefit. Can I be any more direct than that, you pompous jerk?

    2. Anyway, even if they did, would you and your buddies on the Rabid Right take away their freedom of speech because they receive a public pension. Oh, yeah, you probably would. In ToughLove Land, only anti-government zealots have rights.

    3. I know I have said this many times before, but perhaps it will sink in this time. 75 cents out of every dollar paid out in CalPERS benefits comes from fund investments. 13 cents comes from employee contributions–those people who you righties claim don’t pay anything and get all kinds of free benefits. Only 12 cents of every benefit dollar comes from the employer (the taxpayers). That 80-90 percent taxpayer funded figure is just a load of crap.

    3. Wait a minute, here. It’s OK for OCO to use his/her outrageous “average” payout of up to $10 million for a CHP officer, but it’s wrong for me to use averages for all public employees. You obviously aren’t going to limit your recommended changes in pension to public safety employees, you’re going to downgrade ALL public employees. So why do you just use safety worker retirees in your arguments? Is it because all your bitching about “greedy” public employees doesn’t play when your talking about a file clerk at the DMV?

    4. Last time I checked public employees were taxpayers, just like you. Last time I checked they had mortgages to pay and families to feed. But you don’t give a damn if Meg throws tens of thousands of them out of work. Because in your eyes they’re not “real people.”

    Please, Lord, if I ever become as greedy and selfish as that, take me out and shoot me.

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  10. StevefromSacto
    StevefromSacto 17 June, 2010, 15:54

    John, it is not true that there is no more money. It is true that the Republican right and our schizoprhenic governor refuse to allow us to find any. You say poor me, I say BP.

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  11. OCO
    OCO 17 June, 2010, 17:01

    John, it is not true that there is no more money. It is true that the Republican right and our schizoprhenic governor refuse to allow us to find any

    “find any”…That is code for TAXES, to go right into the public employee pockets.

    Reply this comment
  12. OCO
    OCO 17 June, 2010, 17:02

    Time to put the gov employees into SS!

    Reply this comment
  13. john moore
    john moore 17 June, 2010, 18:20

    This deal will continue to compound deficits as far as the eye can see. Unfortunately,it creates the illusion that the system has been reformed. It is important to understand that the PERS system would be under water with [email protected]

    Reply this comment
  14. Tough Love
    Tough Love 17 June, 2010, 19:15

    Quoting bigmouth StevefromSacto …”75 cents out of every dollar paid out in CalPERS benefits comes from fund investments. 13 cents comes from employee contributions–those people who you righties claim don’t pay anything and get all kinds of free benefits. Only 12 cents of every benefit dollar comes from the employer (the taxpayers).

    Are you really stupid enough to believe this, or do you read too much Union bullshit.

    There are ONLY 2 original sources of contributions … the employee (in the rare city where THEY actually pay their share) and the employer (meaning the taxpayer). There is no 3-rd source called “investments”.

    Investment income derives FROM these 2 source of funds, and in their absence, there would be no investment income.

    To say it so a simpleton can understand, any investment earnings generated from taxpayer sources would have stayed in the taxpayers’ pockets if they did not have to make the original (excessive) contribution.

    Take a class in economics …. boob !

    If your not a Civil Servant, why are you so hell bent on a continuation of their grossly excessive pensions & benefits ?

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  15. OCO
    OCO 17 June, 2010, 20:52

    75% of the payments do NOT come from investment returns-that may have been true IF the fund did not lose $100 BILLION big ones in 2008, and it produced a 7.75% ROI that future payments are based upon. The ROI from 99-09 was only 2.41%.

    Stevefrom Sacto read that 75% statistic from years ago-when it MAY have been true (may not have been too)when CalTurds was returning double digit returns…then the 75% number was very possible-but that is most certainly NOT true today.

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  16. OCO
    OCO 17 June, 2010, 20:54

    Unfortunately,it creates the illusion that the system has been reformed
    Only a moron would beleieve this fraud is “reform”.

    As most people here are saying (that this is BS) I am sure the general public will see the truth too-this is a joke and not real reform.

    Reply this comment
  17. OCO
    OCO 17 June, 2010, 20:57


    John, it is not true that there is no more money.
    Steve, that comment is so ridiculous it is hard to take anything seriously from you after reading it.

    The entire country (and even the entire world) is in one of the worst economic meltdowns in history. To claim there is money out there in light of such facts is perposterous.

    Reply this comment
  18. StevefromSacto
    StevefromSacto 18 June, 2010, 10:08

    OCO and Tough Love: A tag-team for the Rabid Right.

    OCO, take a class in civics. TAXES are used to support our schools, provide health care, keep our roads maintained, provide us with police and fire protection, and so much more. But I guess you live in some kind of private compound where you don’t need any of those services.

    Take a class in history. Justice Oliver Wendell Holmes said “Taxes are the price we pay for a civilized society.” Guess that shows the kind of society you want, OCO.

    Take a class in economics. Learn about interest and dividends and compounding and all those other neat things that take the original money paid by employees and taxpayers into CalPERS and build it up to far more than the original investments.

    I am so pleased that you admit that is some truth to my statement that 75 percent of the pension benefits come from fund investments. Actually, it was true right up until the recent stock market crash, and it will be true again as the market rebounds.

    Finally, please stop with this garbage that there isn’t any money out there. You tellin’ us that BP is broke? You tellin’ us that BP and the other oil companies can’t pay the same oil extraction tax to California that they pay in EVERY OTHER oil producing state, including socialist hotbeds like Texas and Alaska?

    If you really believe that, how the hell can anyone take you seriously?

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  19. OCO
    OCO 18 June, 2010, 10:23

    I am so pleased that you admit that is some truth to my statement that 75 percent of the pension benefits come from fund investments.

    It was a qualified statement, I did not “admit” it, I said it MAY have been true many years ago.

    If you read my entire post you would have seen I said the ROI form 99-09 was 2.41%

    And while taxes are needed to fund gov, they are NOT needed to fund $5 million GED educated ff and cop pensions.

    Reply this comment
  20. Tough Love
    Tough Love 18 June, 2010, 12:36

    Dear StevefromSacto,

    Take a look at the following Public Vs Private pension workup I put together a while back … and tell me WHY you think this is “fair”.

    If you “do the math” ….

    The total “value” of benefits at retirement is the present value of all future payments, be they pensions benefits, healthcare premium subsidies, or anything else. Some of these future cash flows are definitively known at the time of retirement (e.g., fixed monthly pensions), and others need to be estimated (e.g., healthcare premiums, the incremental value of future COLA pension increases, etc.). However, all of these future payments can be reasonably estimated (sometimes with several options such as the low, medium, and high liability estimates routinely provided by the Social Security Administration). Once all known and estimated future payments have been determined, they can be discounted to the point of retirement at an assumed interest rate and an assumed mortality rate (for those payments that cease upon death). The interest rate used in this calculation is very important, but actuaries routinely do calculations of this sort and the range of reasonable interest assumptions for this purpose is fairly narrow.

    The present value of all retirement pension and benefit payments can be looked at as the answer to the question ….. How much would an insurance company charge in a single payment at the time of retirement to take on the guaranteed responsibility to make all future payments in lieu of the former employer.

    If we examine two 30-year service, age 55 workers (one Private Sector & one a Policeman or Fireman) making $100,000 in base pay + $20,000 in overtime at retirement, what would these present values be?

    Being somewhat versed in the subject of employee benefits I’ll describe the “likely” pensions & retirement benefits afforded each and then estimate their present values.

    Let’s assume the Private Sector worker is one of the few lucky enough to still have the older traditional-style defined benefit pension plan, and does NOT contribute towards its cost (common practice in Private Sector plans). With 30 years of service and with a typical formula that takes into account wages above and below Social Security “covered compensation”, this worker would likely receive about 40% of final 3-year average pay at normal retirement age, and overtime would NOT be included in benefits-bearing compensation.

    Here’s how the Present value would be calculated …

    Assume $95,000 is the AVERAGE of the last 3 year’s base salary, so 40% x 95,000 = $38,000. But this would be payable only if the employee waited until his plan’s “normal retirement age”. Let’s assume that his plan’s normal retirement age is 60. Since he will start collecting his pension 5 years early, there would be an “actuarial reduction” of 4 to 6% per year (just like Social Security applies when someone starts collecting early at age 62). Let’s assume the yearly reduction is 5%. So … we now have an annual pension of $38,000 x .75 = 28,500.

    Now, to convert this to a “present value” we need to apply a life annuity factor (which incorporates the interest and mortality discounts discussed earlier). For someone retiring at age 55 this “factor” would be a multiplier of about 15. So … the present value of this worker’s pension is $28,500 x 15 = $427,500.

    We will also assume there are no post-retirement healthcare benefits, as such benefits are VERY rare in the Private Sector.

    Now let’s calculate the present value of the Policeman’s pension & benefits.

    The pension formula for the policeman is often 3% of the last year’s salary (including overtime) per year of service and with no “actuarial reduction” for collecting benefits at age 55 (unlike for the private Sector worker). So … we have ($100,000+$20,000)x.03×30 =$108,000. But, we’re not done …

    The policeman’s pension includes a provision for post-retirement COLA increases (while essentially NO Private Sector plans do so). Although this may surprise the reader, the “value” of this added benefit is VERY significant. Even with a modest long-term inflation assumption of 3%/yr, the addition of a COLA benefit for life increases the value of the pension by at least 50%. Hence, the levelized annual pension (with the COLA) is now $108,000×1.5=$162,000.

    Using the same annuity factor of 15 (as used in the Private Sector workup above), we have a present value of 15x$162,000=$2,430,000.

    But wait, we’re still not done (2 more items to adjust for) …

    First, in fairness, the policeman contributes a percentage of his pay toward his pension (unlike the Private Sector worker), and the accumulated value (at interest) of these payments at retirement should be subtracted from the above $2,430,000 for a fair comparison. For this policeman whose final total pay was $120,000, I have calculated the accumulated value at retirement date of his contributions to be roughly $400,000. Hence the present value of this officer’s pension (offset by the accumulated vale of his contributions) is $2,430,000-$400,000=$2,030,000

    Second, this officer gets free or heavily subsidized retiree healthcare for himself AND his family. Since he is not eligible for Medicare until age 65, his healthcare premiums are very expensive and are expected to increase annually at 8-12%, triple the rate of regular (non-medical care) inflation. The present value of this benefit and the post Medicare age healthcare subsidy is roughly $500,000.

    Hence, the present value of this officer’s pension AND retiree healthcare benefit is $2,030,000+$500,000=$2,530,000.

    Now, let compare the present value for these 2 workers making the SAME pay, working for the SAME number of years, and retiring at the SAME age.

    The Private Sector worker’s EMPLOYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $427,500.

    The Policeman’s TAXPAYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $2,530,000.

    The crisis associated with funding Civil Servant Pensions and benefits is NOT a revenue shortfall issue. It is CLEARLY one of EXCESSIVELY GENEROUS pensions and benefits as the above calculations demonstrate.

    For 2 similarly situated workers (in pay, years of service, and retirement age) the Policeman’s package of retirement benefits costs the TAXPAYERS almost SIX TIMES what the typical Private Sector employer is willing to pay.

    Clearly, if the Private Sector employer provided the same benefits to his workers that the policeman receives, his company would likely go bankrupt in short order.

    These unreasonable benefits have been provided due to a political structure that rewards politicians for “giving-away-the-store” of not their own, but TAXPAYERS’ money, for personal gain. This “gain” may simply be to feed their ego, garner the union support needed to get re-elected, or perhaps worse … for current or future personal financial gain.

    In any event, the current situation is without doubt unsustainable and without MAJOR REDUCTIONS to the benefits provided CURRENT (not just NEW) public employees, towns, cities, and states will be filing bankruptcy with increasing frequency.

    Unfortunately, since difficult change is delayed and delayed and delayed to avoid the confrontation (with very aggressive unions), important public services will suffer tremendously until action is FINALLY taken.

    I’m sure there will be Civil Servants (with vested interest in the status quo) that will say my figures are wrong. Estimates are necessary, and small variations in assumptions will change the figures to a minor degree, but the final relationship is quite accurate …. TAXPAYERS are forced (via their taxes) to pay almost SIX times as much as the Private Sector employer is willing to pay.

    By-the-way … any qualified actuary can verify the reasonableness of my figures and conclusions, …. and I would welcome the actuary who offers to do so ……

    Bye-the-way ……… I didn’t mention it above, but it’s worth a comment …… Civil Servants often take advantage of what’s commonly called “spiking” to unfairly boost one’s pension just before retirement. This takes many forms: large last minute promotions and/or raises, excessive/unusual overtime, cashout of sick and/or vacation days with the payout included in “compensation” for pension calculation purposes, or inclusion in “compensation” of miscellaneous “allowances” (housing, vehicle, parking, uniform, etc.).

    None of this is EVER allowed in Private Sector employer-sponsored plans (employers are spending THEIR OWN money, not TAXPAYER’S, and would never be so foolish). For every $10,000 of “spiking” that works its way into the above Policeman’s “compensation”, it costs the TAXPAYERS an additional $10,000x.03×30×1.5×15=$202,500 !

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  21. StevefromSacto
    StevefromSacto 21 June, 2010, 09:04

    The Economic Madness Of Cutting Pension Benefits
    by: Robert Cruickshank

    Calitics Weblog

    As pension reform heats up, both here in California and in Congress, it’s important to understand the underlying economic context – and why slashing benefits would be a stunning act of madness, likely to prolong our recession and budget problems instead of solving either one, at the expense of our basic standard of living.

    We live in an economic era characterized by too much debt, itself a symptom of low wages and high costs of living. Although much of our media discussion of economic policy is still locked in the 1970s, obsessed with an obsolete worry about inflation, the reality is that households are not making enough money to pay the costs of living in 21st century California.

    High taxes aren’t the problem – how could they when taxes are at their lowest point in 60 years? No, the problems come from elsewhere. As Dave Johnson showed in charts, wage stagnation that began with Ronald Reagan has led to a decline in the savings rate and a massive concentration of wealth at the higher end of the income scale.

    Meanwhile, the cost of living has soared. Gas prices are now permanently at a level unimaginable at any time after 1981, and are likely to rise for the foreseeable future. Health care costs are still rising at an unaffordable rate. Even with the market crash, housing is still unaffordable to most Californians unless they’re willing to move to the urban fringe, savings which are canceled out by the cost of the commute.

    Overall the economic situation is that of what Richard Koo called a balance sheet recession – where the private sector is scaling back on spending to purge debt, creating a long-term recessionary environment. The only solution is to increase wages and create more jobs. The absolute last thing you want to do is to slash wages – or pensions, for that matter.

    Cutting pensions would be like taking a shotgun, aiming it at our feet, and pulling the trigger. It would cause a cascade of economic problems that would dramatically worsen our economic crisis.

    But that’s exactly what some people are now arguing needs to be done. Last week Governor Arnold Schwarzenegger announced a pension reform deal with several state employee unions, including AFSCME. The deal preserves current pension payments, and creates a two-tier system whereby new hires pay more of their wages into the system. It’s not an ideal solution, but it’s better than the alternative.

    In assessing the pension deals, California political commentator and friend Joe Mathews argues that the deals don’t go far enough, and that what’s needed is to slash the benefits of current workers.

    Here’s Joe Mathews’ response to the pension deals:

    “Current workers, particularly baby boomers, are virtually certain to get so much more out of the system than they pay into it that they ought to be arrested for generational theft. They need to take more of the hit for this. That’s a difficult position to take, politically and legally, but it’s also the right one.”

    I could not disagree with this more strongly if I tried. There are many things wrong with this assessment, and I’ll take them in turn.

    First, the “generational theft” argument. Generational theft is a very real problem. Young folks, those of us under 35, have been systematically robbed for the last 30 years. Our K-12 education was weakened through budget cuts. We were made to take on unaffordable student loans to get the same university education that our elders received for a fraction of the price. Older generations use Prop 13 to subsidize their own wealth while making it almost impossible for younger Californians to purchase a home of their own. When teabaggers in their 50’s complain about debt because of the burden it will leave to the young, they are shedding crocodile tears, because they are systematically destroying the future of those same young people they misleadingly claim to care about.

    But that does not mean the answer is to engage in our own generational warfare by slashing their pensions. Already many retired Californians struggle to make ends meet. Too many have to choose between pills and other costs, including housing costs. Cutting the pensions of those already retired would merely redistribute those costs onto everyone else, working people already struggling with low wages and high costs of living.

    Mathews didn’t appear to be calling for slashing pensions to those already retired, but for those currently working. But the outcome would be the same anyway. I’m 30, and my parents are in their mid-50s. One is fully vested in CalSTRS, the other has lost most of their 401k retirement to the market downturn. I cannot possibly imagine how my economic future would be improved if they had less money at retirement. I’d have to make up the difference if they had medical costs, housing costs, or other costs that they might struggle to afford of their state pensions and their Social Security benefits are slashed.

    In fact, it would be yet another form of generational warfare against my generation if the pensions of my parents and their generation are slashed.

    The better solution is to go after the massive wealth possessed by the top end of the income scale. California is still an extremely wealthy state. We just don’t tax most of that wealth, and we should. Yet Mathews argues we shouldn’t do it. Nowhere in his column does he indicate higher taxes should be on the table. Mathews suggests that the wealthy and corporations should “give back,” but frames it as a general call for sacrifice, when in fact we need a fundamentally different approach to taxation that seeks new revenues from the rich without slashing benefits for others.

    Instead he makes this sound like we have no alternative but to cut pension benefits. Remember what he said in the section I quoted above:

    “They need to take more of the hit for this. That’s a difficult position to take, politically and legally, but it’s also the right one.
    It’s neither necessary nor right that current workers see their benefits cut. We have choices, and one of those options is to raise taxes on the wealthy to bring in the revenue we need to sustain current pensions.”

    Of course, we also have to remember that the current bill for pensions is artificially inflated because of the recession. If we have economic recovery and growth, then state pension funds will be in a much stronger position. But if we give in to the desire to have widespread austerity, recovery will collapse, the state budget deficit will grow and persist, and the pension funds will continue to struggle.

    California’s unions understand this basic reality. Mathews argues they don’t:

    “But these unions are one important part of the problem. While they don’t always seem to recognize it, they have a strong interest in being part of solutions to make state government fiscally solvent.”

    And yet the solution being proposed – slashing benefits – will do absolutely nothing to make state government fiscally solvent. It will mean there’s less money available to spend, meaning less sales tax revenue. Less consumer activity means there’ll be less jobs available, meaning less income tax revenue. With fewer jobs available, and wage stagnation, and now the added financial burden of paying the costs of retired family members that used to be borne by the pensions and other state services that have been cut, younger folks won’t be able to sustain the economy. Retirees and baby boomers will have to sell their homes for the cash, and in a recessionary environment where the young aren’t able to afford the present market value, home values will spiral downward, causing further economic ripple effects as well as reducing property tax revenues.

    It is a senseless outcome. California’s unions are absolutely right to fight it. While they are framed as solely defending the wages and benefits of their members – as if there was anything wrong with that – these unions are also defending the economic prosperity and fiscal viability of the state of California. Their unwillingness to embrace deflation and depression should be lauded, not chided.

    Mathews concludes by reasserting his claim that slashing benefits is necessary to our state’s future:

    “But savings on pension obligations can’t be the only money that elected officials and voters grab to balance the budget and put the state on a better long-term footing. Everyone needs to give back — from those who rely on public services to the wealthy and corporations, who have seen their taxes cut even as Californians experience government service cuts and income and sales tax increases.”

    Of course, those income and sales tax increases have not damaged the state’s economy. Since they went into effect in April 2009, the state has experienced a very halting and slow recovery – but it has not slid deeper into the recession. Had those tax increases not been accompanied by Hooverism – including but not limited to the loss of nearly 30,000 teaching jobs – California might be starting a more robust economic recovery.

    More importantly, the notion that “everyone needs to give back” just doesn’t make sense given our economic distress. We’ve already given back too much. We gave back our wages. We gave back our ability to afford health care and housing and transportation. We gave back the robust public sector services that created widespread prosperity in the 1950s and 1960s. We gave back affordable, quality education. And too many of us have given back our future.

    No, it’s time for someone else to give back. It’s time for the wealthiest Californians, and the large corporations, to give back. For 30 years now they have benefited from economic policy designed to take money and benefits from the rest of us and give it to those who already have wealth and power. Mathews agrees the wealthy and corporations should give back – but that ought to be the centerpiece of the solution, instead of being linked to a downward spiral in living standards and economic prosperity.

    We are now experiencing the predictable outcome of such policies – the worst recession in 60 years, an intractable downturn. The way out isn’t to worsen the crisis by slashing pensions. The way out is to return to the sensible tax rates of the 1950s and 1960s and make the rich pay.

    It’s the right choice for California. Let’s hope that’s the choice we wind up making.

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  22. Tough Love
    Tough Love 21 June, 2010, 10:04

    Dear StevefromSacto:

    Now that’s (the CalPERS website) certainly an unbiased source of “facts”,isn’t it ???

    What’s the matter, you couldn’t defend the 5-6 times greater pension package for the policeman demonstrated in my comment, so you respond with this nonsense. For every economist that supports Cruickshank’s position, their are 10 who say deep deep reductions are necessary.

    To quote a small section from your comment …”I’m 30, and my parents are in their mid-50s. One is fully vested in CalSTRS, the other has lost most of their 401k retirement to the market downturn. I cannot possibly imagine how my economic future would be improved if they had less money at retirement. ”

    The operative word in that quote is the word “my” in the last sentence. Of course it won’t help YOU. You,(via YOUR family) are the recipients of the excessive largess … at taxpayer’s expense. YOU are not supposed to be “helped”. Fairness dictates that you (your family) get LESS to relieve the unfair burden they are pushing onto OTHERS … who get much less , while they pay (via their taxes) your (your family’s) way.

    Reply this comment
  23. StevefromSacto
    StevefromSacto 21 June, 2010, 13:41

    What’s the matter, you keep bringing up the policeman, but won’t discuss the file clerk at DMV.

    One more time: If you want to deal with “excessive’ public safety pensions (not all of them) or stop pension spiking, let’s talk. But if you want to punish everyone for the excesses of a few, I won’t buy that.

    By the way, it’s Calitics, not CalPERS.

    Reply this comment
  24. Tough Love
    Tough Love 21 June, 2010, 13:50

    Stevefrom Sacto,

    Ok, the non-satety worker pensions are only 4 times the comparably paid private sector worker …. is THAT supposed to be “fair”.

    It’s true at EVERY income level, that’s the problem.

    Reply this comment
  25. StevefromSacto
    StevefromSacto 22 June, 2010, 17:23

    No, the problem is you would rather spend your time trying to tear down public pensions rather than improve benefits for private sector workers.

    You are not interested in curbing truly excessive benefits, you want to attack the file clerk at the DMV and anyone else who dares to want to work in public service.

    And by the way, your line about “comparably paid” workers is pure bunk. Even though the right-wing cooks up studies that compare McDonald’s workers with budget analysts to “prove” that public sector workers are paid better than private sector workers, that’s just b.s. I’ve never seen a study from the anti-government crowd comparing a public sector budget analyst with a private sector budget analyst. And I’m not holding my breath waiting.

    Reply this comment
  26. Tough Love
    Tough Love 24 June, 2010, 17:59

    Dear Stevefrom Sacto,
    (1) Climb out of dreamworld. Corporate America will resurrect the old-style VERY EXPENSIVE Traditional-style (ala what Civil Servants get) when hell freezes over

    (2) No, I’m only to end the excessive compensation (the total of pay, pensions, and benefits) that Civil Servants at EVERY income level receive at Taxpayer’s expense

    (3) Comparably paid ….here’s a real easy example (no offense meant to subway clerks). Why does a NYC MTA token booth clerk (you know, the people who sell the tokens) have a compensation package 3x that of the typical bank teller ? Answer …. Civil Service.

    Reply this comment
  27. Tough Love
    Tough Love 27 June, 2010, 04:46

    Dear StevefromSacto,

    Here’s REALITY for you ……

    From the NY Times (link below), some excellent reading for those who are willing to accept the facts, the dire situation we’re in, and the changes that must be made.

    Pay particular attention to the last 3 paragraphs.


    Reply this comment

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