Little Hoover: Cut Current Pensions

John Seiler:

It’s not Wisconsin — yet. But today the Little Hoover Commission released a new report on California pensions that pushed forward the serious cutting of government-worker costs on the state budget.

Public Pensions for Retirement Security” is 106 pages of well-reasoned analysis of what got the Golden State into a sinkhole of budget trouble — and some reforms that can help get us out.

Little Hoover:

Treated like another speculative house during the boom, the state allowed public agencies and employees to pull equity in the form of increased retirement benefits from the pension funds whose value was inflated by optimistic market return estimates.  The retirement promises that elected officials made to public employees over the last decade are not affordable, yet this is a mortgage that taxpayers cannot walk away from easily.

Right. But Little Hoover calls only for cuts in pensions for the future income of current workers, as well as new hires. I think they didn’t go far enough. Here’s what they say about those already retired:

Pension benefits promised to retirees are irrevocable, as are the promised benefits that current workers have accrued since their employment began.  It also remains difficult to alter the theoretical, yet-to-be earned benefits for current workers.  This situation, reinforced by decades of legal precedent, leaves little room for state and local governments to control mounting retirement costs, particularly when the only venue for change is the bargaining table.

But there’s a problem: There’s no money for this, either. So even existing pensions will have to be cut.

Those of us in the private sector have seen our 401(k) funds shrink, and Social Security’s retirement age hiked. The retirement age will be increased further. More shrinkage in retirement expectations is likely. That’s unfortunate, but reality.

Why shouldn’t those our taxes support share the difficulties with us? Were promises made to them about their pensions? Yes. But there’s nothing so evanescent as politicians’ “irrevocable” promises, even if put into a constitution.

Remember the first President Bush’s “Read my lips! No new taxes!!!!” in his 1988 campaign? In 1991, he broke his solemn word and raised taxes. Or how about, “Change we can believe in” from Candidate Obama in 2008? How much change have we seen?

Little Hoover’s report is welcome. It’s a start in pushing for cuts. More cuts will come.

Feb. 24, 2011

4 comments

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  1. Jim
    Jim 24 February, 2011, 21:56

    Most private sector workers will NEVER be able to retire. The lucky ones will remain employed until they drop.

    And they will be FORCED to pay for the lavious retirement benefits of public sector workers, bureaucrats and politicians.

    Reply this comment
  2. Wayne Martin
    Wayne Martin 25 February, 2011, 11:30

    > But there’s a problem: There’s no money for this, either. So even
    > existing pensions will have to be cut.

    Well, we could always increase taxes on the 50% of the state that pay taxes.

    There are perhaps 13M-14M workers/taxpayers in California, and somewhere around 20M property owners (estimated). If every taxpayer (income and property) were required to pay a surcharge of $1000 per worker, and $1000 per parcel of owned land, this would generate $20B-$30B more for the retirement funds that will soon be paying $100K-$200K pension payouts for perhaps 50% of the current public sector work force (about 1.6M FTEs and 400K PTs).

    Who among us is so mean-spirited not to want to pay just $1000 a year more so that those in the public sector can receive the $4M to $12M 30-year payouts that they have been promised?

    Reply this comment
  3. stevefromsacto
    stevefromsacto 26 February, 2011, 09:14

    Ooops. I guess John didn’t read the footnotes:

    How far do you have to get into the Little Hoover Commission on pension reform to start questioning its results?

    How about the graph on page ii that shows the percentage of funding of major pension funds in California.

    It looks pretty bad, but then when you look closely, the numbers just don’t look right.

    CalPERS, the last time I looked, had around 230 billion dollar invested in a broad portfolio of assets, but the handy chart that shows that CALPers is only 61% funded has a value on the graph that looks like it’s around 180 billion.

    A quick check of the footnotes shows that the chart was based on numbers from the end of the fiscal year 2008-2009, not the most recent fiscal year.

    How important is that?

    Well, the value of CALPers investments as of June 30th, 2009 was $178.9 billion. By the date that the Little Hoover report was released, that number had increased by 50 billion dollars. Even using numbers from the end of FY 09-10 would have been much more honest, but the rebound from market bottoms is only mentioned in passing in the body of the report.

    This is not a trivial difference, and CALPers is not unique in posting large gains since the market bottom. CALStrs is the second largest pension fund in the state and covers teachers and community college professors. Since March 2009, when markets bottomed after a global financial Great Recession, the CalSTRS investment portfolio has rebounded by more than $34.8 billion to $146.4 billion.

    Little Hoover = Big Lie.

    Reply this comment
  4. John Seiler
    John Seiler 27 February, 2011, 11:26

    Steve: As usual, you have a point. But let me add something else: The market values of everything are inflated because Bush and Greenspan, after 9/11, debased the dollar to prop up the economy (the opposite happened; Keynesianism always fails). Obama and Bernanke have continued the devaluation. The devaluation is the reason we now have inflation again. Check gas and grocery prices. There was no economic “recovery,” only the illusion of one.

    The government-pension investment values, in pre-inflation 2001 dollars, are actually WORSE than in 2009.

    Reply this comment

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