Mostly Good News On CA Pensions

NOV. 5, 2010

By STEVEN GREENHUT

Those of us who applauded the national backlash against the Obama administration’s big-government overreach have been straining to find good news in California, which defied the national trends by electing a slate of liberal Democrats and approving an initiative that makes it easier for the state’s Democrats to raise taxes and pass budgets without Republican help.

 To make matters more depressing, a much-celebrated city initiative in San Francisco to rein in the crushing costs of pensions was handily defeated on Tuesday. The city’s progressive Democratic public defender, Jeff Adachi, sponsored Proposition B because public employee pensions were sapping the life out of other programs. I saw a grand opportunity to build a coalition between conservatives/libertarians and old-fashioned liberals who understand that lush and underfunded pensions threaten their values, too.

It must have been wishful thinking to believe that San Franciscans would approve of such a sensible solution especially in the face of massive union funding on the “no” side. As one lefty blogger put it, “While Prop B’s victory would have been a national news story, its defeat deprives the media of the ‘even liberal San Francisco is cracking down on public employees’ narrative that it sought.” Yes, many of us sought that narrative, which would bode well for a state with an unfunded pension liability estimated at between $326 billion and $500 billion.

Nationwide, some figures put the liability at around $3 trillion. “When the city of San Francisco starts closing public pools because it has to fund the pensions of retired workers, then city residents will start to realize that Jeff Adachi wasn’t crazy” and that pensions need to be reformed, said Jack Dean, the Fullerton-based publisher of www.pensiontsunami.com and a board member of Californians for Fiscal Responsibility. But Dean notes that despite the setback in San Francisco – always a long shot because of the city’s voting dynamics – the pension-reform news from California on Election Day was overwhelmingly on the good side.

In Redding, “voters retained the fiscal conservative majority Tuesday after one of the most polarizing City Council races in recent memory,” reported the Record Searchlight. “Voters strongly supported Measures A and B, non-binding initiatives expressing popular approval for curtailing employee benefits.” I gave a speech about public employees in Redding last year and was glad to see voters reward the courageous council members there.

In Bakersfield, residents passed Measure D, which would significantly scale back retirement formulas for new public safety employees. Currently, police and fire receive the “3 percent at 50” benefit, meaning they can retire after 30 years of employment at 90 percent of their final year’s pay as early as age 50. Under the new “2 percent at 50” deal, they can retire at age 50 with 60 percent of an average of their final three years’ pay. It also requires increased employee contributions to retirements. Supporters overcame fierce union opposition.

In Carlsbad, voters overwhelmingly approved Proposition G, which requires the public to vote on any increases for pensions for public safety officials. The city recently implemented a lower second-tier pension benefit for new hires. As the San Diego Union-Tribune reported, “San Diego voters gave a stiff rebuke to city leaders Tuesday by roundly rejecting a proposed sales tax increase, setting up a difficult choice for Mayor Jerry Sanders on whether to follow through on his threat of devastating cuts to public safety if Proposition D failed.” Officials wanted the increase so that they would not have to change the pension system and trim other employee costs to reduce the city’s $70 million deficit.

“Menlo Park voters took the city’s fiscal matters into their own hands Tuesday night by voting overwhelmingly in favor of a measure that will reduce pension benefits for all new employees except police,” reported the San Jose Mercury News. It passed with 72 percent “yes” votes, which is an astoundingly large victory. In San Jose, the unions fared well in City Council races, but voters approved Measure V, “which limits how much outside arbitrators can award in pay and benefit increases to police and firefighters,” according to the Mercury News. That measure won by a 2-1 margin.

Another measure backed by the city’s pension-reforming mayor, Chuck Reed, was approved. Measure W allows the city to offer lower retirement benefits to future city employees. In Riverside, voters faced competing pension-related initiatives – one sponsored by the sheriff deputies’ union to limit the ability of the board of supervisors to limit pension benefits and a board-sponsored measure approving of the board’s ability to adjust pension benefits. They both passed, according to the Valley News, but the one backed by supervisors gained more votes and will be the one that goes into effect.

In Orange County, a pension-reform advocate won a seat on the county Board of Supervisors and an outspoken pension reformer won a Fullerton City Council race.  There were many bad results in California, especially the state level, where voters elected a governor who gave public employees collective bargaining rights in a previous era and who won this time by relying on the political help of the public sector unions, who spent record amounts on indepedent expenditures on his behalf. Nevertheless, there is encouraging news at the local level, where Californians are in a mood for pension reform. As the state’s finances get worse, I expect this movement to gain steam. Perhaps local voters will have to force the issue on a state government that is less likely to tackle it than before.

20 comments

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  1. Centurion
    Centurion 5 November, 2010, 13:29

    Funny. I thought…fromt the title…that this article would be about California pensions……

    Reply this comment
  2. Generoyb
    Generoyb 5 November, 2010, 14:05

    For whatever reason, perhaps global warming, San Francisco is not getting adequate oxygen. Their behavior is 100% predictable. Do not look to that city for any type of rational behavior.

    Reply this comment
  3. DavidfromLosGatos
    DavidfromLosGatos 5 November, 2010, 15:39

    So long as the city/county of San Francisco is the one paying for their public employee costs, and they do not look to the state or federal government to bail them out, then it is up to their registered voters to decide how much to pay, since it’s their money, so to speak.

    But if they eventually go belly up, will the rest of us be stuck with the pension/healthcare bills (ala GM and Chrysler)?

    Reply this comment
  4. Fred Mangels
    Fred Mangels 6 November, 2010, 06:28

    But if they eventually go belly up, will the rest of us be stuck with the pension/healthcare bills (ala GM and Chrysler)?

    I could be wrong but I think the city employees are all on the CalPers system, aren’t they? If that system doesn’t have the money, state taxpayers have to pay the balance.

    Again, I’m not sure.

    Reply this comment
  5. Charles Sainte Claire P.E. and proud of it
    Charles Sainte Claire P.E. and proud of it 6 November, 2010, 12:19

    If you take a “perfectly safe” discount rate of 4% you will get a Trillion dollar deficit. And if you apply a discount rate of 7.75% which Calpers uses you will show a shortage of money, but nothing like “trillions”. Calpers made 7.79% over the last twenty years including the recent financial meltdown. And they will make it again. Numbers don’t lie. Only liars lie. To You. Thanks to California Watchdog. The newspaper of the imbeciles.

    Take your own personal choice. WOW, we are dying here. Sell me another yellow sheet newspaper, Mr. Greenhut.

    Reply this comment
  6. Andrew
    Andrew 6 November, 2010, 12:19

    I guarantee that Bakersfield will have major problems recruiting peace officers to work in that city once the economy turns around. But then again, with this vote they will get what the deserve because they asked for it.

    Reply this comment
  7. Chris
    Chris 6 November, 2010, 14:30

    Greenhut is another blowhard trying to a make a living selling garbage journalism. Wall Street caused the crisis we are in now, not people with pensions. When this crisis passes, what will be the next sensationalistic subject Greenhut tries to exploit?

    Reply this comment
  8. Fake Rex ther Wonder Dog!
    Fake Rex ther Wonder Dog! 6 November, 2010, 16:48

    If you take a “perfectly safe” discount rate of 4% you will get a Trillion dollar deficit. And if you apply a discount rate of 7.75% which Calpers uses you will show a shortage of money, but nothing like “trillions”.
    =====================
    Yes, and try using the ACTUAL CalTurds earned discount ROI of the last 10 years-2.41% and you get a trillion+ deficit.

    Reply this comment
  9. john moore
    john moore 7 November, 2010, 17:22

    Here in Pacific Grove,the city issued 19 million dollars of Pension bonds in 2006 and paid the money to Calpers to pay for the [email protected] deficit. Since,Calpers has lost ,not just the 19 million,but an additional 16 million. In 7 years our little town has incurred an 80 million dollar deficit from pension losses(including interest on bonds) That may exceed the equity of all properties in PG. Our deficit coumpounds by doubling every 9.3 years. Bubba,this won’t pass.EVER

    Reply this comment
  10. SeeSaw
    SeeSaw 7 November, 2010, 21:32

    How can the abrogation of the collective bargaining rights of workers all over the State of CA be considered good news?

    Reply this comment
  11. DavidfromLosGatos
    DavidfromLosGatos 7 November, 2010, 22:05

    John Moore, Sounds like Pacific Grove is doomed, but they apparently have plenty of company. In the end, all of these public pensions will default to the state and then to the feds, and our collective standard of living will take the hit. Maybe the feds will pay dollar for dollar, or (more likely) they will impose some limits one the high end pensions, such as done when privte company pensions default (In re UAL). Time will tell.

    SeeSaw, I suppose the answer to your question depends on whether you believe the purpose of government is for the government employees to maximize what they can take from the rest of us.

    Reply this comment
  12. SeeSaw
    SeeSaw 8 November, 2010, 00:43

    David, the federal government’s PBGC is for private sector, defined benefit pension systems, not public pensions. I would not even think about CalPERS going into default. It was in existence during the Great Depression and made it through that. It currently has enough funds to pay benefits now and into the future. The portfolio stands at 222.9 billion dollars. I don’t plan on shedding tears for CalPERS.

    I am at a loss as to how to address your accusation, because in all of my years working for a public entity, there was no such plan, to steal from others. My purpose was to serve the public–I did that. I never went to work with a pension in mind. In fact, CalPERS was not present at my employer, when I began in 1967, and there was no SS either. I was there to earn money to help support my family. My employer eventually contracted with CalPERS. To me, it was just a fringe benefit that I was happy to receive. Private sector employees had fringe benefits too, did they not? To be accused of planning to take from the rest of the citizenry is offensive to me, because it is simply not true. From my knowledge, this scapegoating of public employees is very recent, since the global economic meltdown of 2008.

    Its sad to see how you and your ilk are all demonizing these public unions. Where unions are involved, there is a collective bargaining process that both the employer and the employees had agreed to abide by. In many of these instances where pension issues were on the ballots, the collective bargaining process has been thwarted–perhaps illegally. So, you will probably be seeing, in some of those districts, money that the voters thought they were saving, will instead be spent on legal fees.

    Unions are irrelevant of the pension plans–in fact the high pensions that have everyone in such a frenzy are received by former dept. heads and high level managers–not rank and file workers who are, in some cases, union members.

    Reply this comment
  13. riptitde2
    riptitde2 8 November, 2010, 11:25

    Public pension funds need to abide by the same rules as the Private sector. If that were the case, we would not have the problems we have today. Either do away with Govt Defined Benefits plans, or make them subject to ERISA and all the other private sector regulations.

    If this were the case today, many of the State public pension funds would not be able to accrue additional benefits until they funded their plans up to an 80 or 90% level. Furthermore, no one would be using interest rates of 7% or higher for rate of return assumptions. It’s not allowed that high currently on the private side.

    Pension spiking, based on final year of work, not allowed either.

    There are more examaples, but you get the drift. The ‘special’ Govt rules lead to the abuse of the system.

    Reply this comment
  14. hstad
    hstad 8 November, 2010, 15:40

    SeeSaw – now who is scapegoating – “the global economic meltdown of 2008”? Most government entities, municipal, county and state have had a pension problems for well over 15 years. The seeds were planted by that idiot you just elected – Jerry Brown. You just haven’t heard about it because the crooked politicians have papered it over, year after year. The idea that someone can retire at the age of 50 and get paid 100% of their pumped up(last 3 years) salary is ludicrous. Also the medical benefits are also out of control. But I understand, you guys on the government side won’t believe their is a problem until the state, etc., goes bust. Tell me, why should the taxpayers pay for investment losses by increasing our taxes? Nobody guarantees to replace my 401k losses?

    Chris – sure blame it on Wall Street – nice! Not on those lousy politicians selling their votes to your union buddies for outrageous pension benefits. What about the the losses to cover for your pensions guarantees, how do you explain that to taxpayers who do not have such guarantees?

    Reply this comment
  15. DavidfromLosGatos
    DavidfromLosGatos 9 November, 2010, 10:23

    Seesaw,

    I did not accuse you of anything. I was simply responding to your question.

    If the purpose of the state and local government is to redistribute wealth to the government employees, then I would agree that the “abrogation of the collective bargaining rights of workers all over the State of CA” is not good news.

    But, if the purpose of the state and local government is to provide essential services to the citizens (or occupants, if you prefer) of the state and local municipalities, then “the abrogation of the collective bargaining rights of workers all over the State of CA” is very much good news, since otherwise there will be a severe reduction in services that can be provided in order to pay for tens of thousands of spiked pensions out of the general funds.

    If by my “ilk” you mean is someone who does not like living in a bankrupt state that already over-taxes its productive citizens yet can no longer provide basic public services such as state parks because of the pie-in-the-sky public employee pension promises (hstad articulates this well in the prior comment), yes, that is my ilk.

    Reply this comment
  16. DavidfromLosGatos
    DavidfromLosGatos 9 November, 2010, 10:34

    And, SeeSaw, I completely agree with your last point:

    “Unions are irrelevant of the pension plans–in fact the high pensions that have everyone in such a frenzy are received by former dept. heads and high level managers–not rank and file workers who are, in some cases, union members.”

    To me (my ilk), the problem is not unions per se, but the ability of all public employees to plunder the treasury they are supposed to safeguard. And, it very much starts at the top. The former city manager and police chief of Bell are Exhibits A and B. The later guy adds insult to injury by claiming he was disabled moving out of his office(?!) so that he can avoid the very taxes needed to help pay for his $400K a year public pension.

    Reply this comment
  17. SeeSaw
    SeeSaw 9 November, 2010, 13:13

    hstad, your retirement at 50 scenario with 100% is just ludicrous. I believe the only employee groups who have 3% at 50 are public safety, and the cap on that formula is 90%. One collecting the full 90% would have had to begin a full-time public safety career at the age of 20–very rare. I was a miscellaneous employee–worked for 40 years, and I saw a lot of people retire. I only remember one miscellaneous guy, age 53, who began at the age of 18. His particular forumula would still have required him to work until age 60 to get the full amount. Just like in life, some come out better than others. Even at my former muni, the formulas for new hires, public safety and miscellaneous both, have been amended downward. As for those who are getting into the six figure range, they are all former managers, not rank and file union members. And, don’t go around blaming Jerry for that. The bloating that came about in management, public employee salaries, started long after Jerry was gone. Jerry is nuts alright–nuts like a fox, ha ha.

    You evidently do not even consider public employees as part of your citizen group, and one who pays as many taxes as anyone else. To me, the economic equation is simple: If you need a product, you go to the store and buy it, and the receiver of your payment, takes that money and fulfills his own needs, including retirement funding, or whatever. The same holds true with the people who provide public services. Nobody is stealing anything–they are earning it. I am never going to “damn” a system that I am benefitting from, when there was never anything dishonest about the process I participated in.

    There is no question that the public employee unions are the scapegoats dujor in this recession. You only have to read the newspapers and watch TV to see that.

    David, the Bell situation and a few others in the area surrounding LA are aberrations–the results of fraud being committed by crooks on unsuspecting constituents who did not understand what was going on under their noses. And, they never voted. The gentlemens’ agreement between the CM and the PC in Bell is criminal.

    We could argue these points around and around. I don’t like seeing a group of people that I was involved with for most of my life, accused of plunder when all they have done is get up every day and go to work and perform their job like everyone else who works. I will speak out and defend myself and them for as long as it takes.

    Reply this comment
  18. Steven Greenhut
    Steven Greenhut 9 November, 2010, 14:00

    Many public safety employees retire with more than 100 percent of their final year’s pay once all the pension-spiking schemes are employed. And if the “3 percent at 50” scenario were so rare, why have the safety unions fought so hard for it? It’s quite common actually — even if an officer starts work at 22, which is quite common, then he or she can retire at 52 with 90 percent of the final year’s pay. This is standard. The categories of public safety keep growing, by the way (milk inspectors, billboard inspectors, etc.) Even if one believes that public employees — many of whom have jobs that should not exist, or should be handled in the private sector — deserve to retire with much more generous pensions than average citizens, one has to deal with the unfunded liabilities. Thanks to union power, the taxpayer is on the hook for hundreds of billions of dollars more than our ability to pay for these lush deals. But it is true that the public sector management types have been particularly abusive.

    Reply this comment
  19. SeeSaw
    SeeSaw 9 November, 2010, 14:53

    CalPERS does not use those spiking schemes. I was debasing the claim that so many of these public safey retirees are leaving at 50 with 100%. In CalPERS they would only get 90%. If you can find a rank and file union worker that retired at 50 with 90%, stand them up as an example. After working 40 years in the public sector, I don’t know one.

    Reply this comment
  20. DavidfromLosGatos
    DavidfromLosGatos 9 November, 2010, 15:03

    Steven Greenhut,

    You are an expert on this topic. I am not.

    Assuming nothing drastic is done (and I for one believe nothing drastic will be done), aren’t CALPERS and CALSTRS doomed to insolvency? Accounting tactics and a few measures here or there may delay the inevitable, but I don’t see a politically viable solution in California.

    Private companies that make unsustainable pension promises eventually go bankrupt or otherwise close down. Public employees can cajole, threaten and scream for more taxes, but you can only squeeze so much out of the rest of us without consequences resulting in less total tax revenue being collected. On the other hand, I do not expect public employees of any stripe to voluntarily accept a substantially less generous pension than they have been promised.

    Is this just a slow moving train wreck that we are standing around watching?

    Reply this comment

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