Pension Iceberg Will Sink State Budget
JUNE 30, 2011
By WAYNE LUSVARDI
Imagine you’re a passenger on the ill-fated RMS Titanic luxury liner on its 1912 maiden voyage. But the Titanic had no warning of an iceberg lurking below the ocean surface — unlike the Pirate Ship California that can detect with modern sonar a huge iceberg of pension debt looming ahead that could sink the state government.
And imagine that you’ve been enticed to go on the maiden voyage of the Pirate Ship California based on the promise of a $4 billion prize at the ship’s casino, only to find that the ship is sinking even as the band plays on. The new-new-new California budget just passed by the governor and the Legislature is living out a Hollywood movie something like the above.
All the recent political and media drama surrounding the legislature having their salaries cut off until a balanced budget was approved is just postponing the inevitable. A recent article in the New York Times reports that the State General Fund has had to contribute $3.6 billion to help Cal-PERS meet unfunded pension obligations this year and expects to pay $3.5 billion next year.
$28 Billion Pension Payments
Citing several independent studies, the Times reports that California will need to begin designating an additional $28 billion of its $86 billion General Fund budget to meet pension shortfalls in the near future. Needless to say, this will likely capsize the Pirate Ship California and the rest of its fleet of local government pirate ships.
But Captain Hook Jerry Brown and his First Mate Darrell Steinberg in the sail house of the Pirate Ship California are nonetheless celebrating the plugging of a $4 billion gap in the 2012 state budget by wishing it away. If the fictional $4 billion does not magically appear, reportedly public school funding will have to be cut back in January 2012 — while the $3.6 billion in constitutionally mandated pension subsidies would continue. Pirates have no conscience in stealing from children.
12.5 Percent Return?
In 2008, the Cal-PERS pension fund lost $100 billion. CalPERS proudly states that it has plugged $70 billion of that loss already. But it is doing so by gambling that 12.5 percent annual rate of returns will continue indefinitely, when a 10-year Treasury-Bill is only paying about 3.0 percent and the Consumer Price Index is running at 3.6 percent.
How long can CalPERS keep asking the state General Fund to plug a hole in the hull of its boat with proceeds from the ship’s casino that are more than four times what you can earn on the safe rate on a T-Bill?
The idiom of rearranging the deck chairs on the Titanic is often used to describe something pointless or insignificant that will soon be overtaken by events, or that contributes nothing to the solution of a current problem.
The band on the Pirate Ship California is playing on as the ship starts to list to one side. And Cal-PERS continues to play the roulette wheel on the ship, hoping to stop it from continuing to take on water. A nearby rescue boat has offered a pump and way to permanently fix the leak on the ship. But Captain Hook ignores the offer.
Reversing the protocol for who first can get into lifeboats called for when a ship is about to sink on the open sea, the governor and Legislature shout: “Pensioners first! Women and children last!”
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Your fearmongering is based on worst-case scenarios drawn from the bottom of the economic downturn. If those conditions were to exist forever, there would indeed be problems. However, the situation has already rebounded substantially, and there is every reason to think that PERS is stable in the long run — which is the run that matters. Unfortunately, people with ideological axes to grind — people who hate government and want to tear it down for any reason — are continuing to use bogus data to frighten people.
Get real. Too many government workers with royal wages and benefits will either rule us or be swept aside by a massive and painful California financial collapse. How daft can liberals be? Read history of the belief comments of Eastern Europe Communist leaders while the Berlin Wall fell and millions took to the streets crying out for personal freedoms…
It is over…the Socialists in California have created a social/economic morass!
David:
Most respectfully, take your argument of fear mongering to the New York Times where I got my source of data. Thanks for reading CalWatchdog.
WL
The problem is, this is not the Titanic, We know in some cases we pay more out then private businesses. In fact some on State pensions make more retured than working; so why is this not being addressed?
Wl. Your right. Case closed!
In 2008, the Cal-PERS pension fund lost $100 billion. CalPERS proudly states that it has plugged $70 billion of that loss already
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They are still down over $130 BILLION, or more than half of the amount CalTURDS should be funded, which is $350 billion.
Your fearmongering is based on worst-case scenarios drawn from the bottom of the economic downturn.
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LOL…another public trough feeder telling a whopper lie. CalTURDS is underfunded by over 50%, that is not fear mongering, that is a bankrupt pension ystsem trying to ripp off the poor to fudn their $10 million retire at age 50 GED cop and fgirewhiner pensions.
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If those conditions were to exist forever, there would indeed be problems. However, the situation has already rebounded substantially, and there is every reason to think that PERS is stable in the long run — which is the run that matters.
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#1-, the condition has not rebounded, sunstantially oir otherwise, CalTURTDS is still BK. There is NO reason to think CalTURDS is going to get out of BK mode.
In California actuarial methods show the Public Employee Retirement Fund (Calpers) at a funding ratio of 87 percent but when private sector market valuation is applied to Calpers, the funding ratio drops to 48 percent, according to the Bigg’s study. Likewise, California teachers’ funding (Calstrs) ratio under current actuarial methods is also 87 percent, as opposed to 46 percent when private sector market valuation is applied. Pension experts say funding levels below 80 percent place the long-term viability of pensions in jeopardy and are nearly impossible to overcome without massive borrowing, painful tax increases, cuts to benefits and increased contributions. Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those below 65 percent are classified as “critical” under the Pension Protection Act of 2006.
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Unfortunately, people with ideological axes to grind — people who hate government and want to tear it down for any reason — are continuing to use bogus data to frighten people.
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LOL…the old “haters” argument from a fraudulent scammer-I love it!
Go home trough feeder, your scam won’t work here. Your days of GED cops/ff’s/prison guards/teachers/city managers/city attorneys/DA’s getting $10 million pensions at age 50 on the backs fo the poor and middle class are now over..
“…constitutionally mandated pension subsidies….”
What other constitutional provisions would you suggest that we ignore?
Where were all the complainers when the public employee pension laws were changed in 1999? Too many Republicans were trying to stop gay marriage (remember Prop. 22?) instead. Now you can deal with the consequences.
Where were all the complainers when the public employee pension laws were changed in 1999?
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No one knew about SB400, it was done with no oversight, no pubic input or notice, the public employee dominated CalTURDS board also left out all the downside and only submitted cost estimates on best case scenarios, and that is well documented.
The pension give aways were-and still are- always negotiated behind closed doors and outside of public view.
This is generational theft..pure and simple. This is not just a moral crisis of the first order, this is the moral crisis of our age. We are collectively endangering our children’s economic futures without giving them the slightest say in the matter. We are doing this systematically and with malice aforethought. Worst of all, we are pretending not to notice. Shame on the unions and their crony toadie union politicians that have sacrificed our children’s future by consuming future budgets for the next 30 years. Los Angeles is predicted to be BANKRUPT by 2014, San Francisco by 2016….as entire budgets are swept to pay the new $100k – 300k for life for folks retiring in their 50’s and on the take for 20 – 35 years plus free medical (that does a millionaire make and does not represent “middle class”) these unions have created the new elite – the new bourgeois – by clearly gaming and bribing the system to enrich themselves over our children and future. Pathetic….and shame on the politicians for enabling them and accepting the bribes. Our poor children.
Well said Mark, you nailed it!
Most of these contracts were written in a VERY bias manner.
http://www.signonsandiego.com/uniontrib/20070529/news_mz1ed29middl.html
These contracts were built on nothing but LIES, LIES and MORE LIES….
I think these contracts with the unions should be overturned.
CALPERS has enough money to cover pensions so there is no problem. The problem is that the RICH want the pension funds and they have cranked up the media machine to brainwash the lemmings into believing that public employees are to blame.