Brown, Legislature advance phony pension ‘reform’

Aug. 29, 2012

By Wayne Lusvardi

There are many books that have sprung up with titles such as “The 2 Percent Solution,” “The Four Percent Solution,” “The Five Percent” solution,  “The One Percent Solution,” the 999 Plan, all offering simplistic solutions to stubborn problems.

California Gov. Jerry Brown and the Democrat-run California Legislature could have added their own jingoistic book title on Tuesday Aug. 18, titled, “California’s Four Percent Solution to its Pension Crisis (or: Everything the State Legislature and Unions Selectively Want You to Know About the California Pension Crisis”).

What Brown and the Legislature didn’t say is that their compromise plan would provide about $20 billion in cost savings out of $500 billion in unfunded pension liabilities, according to Scott Shackford of the Reason Public Policy Institute.  That is a cost savings of about 4 percent of unfunded pension fund liabilities starting maybe in 2030 to 2050.   Daniel Borenstein calls it “pension reform lite.” Although specifics have been intentionally left murky by the Legislature, this does not appear to include retiree medical benefits.

In other words, the joint plan plan does nothing to address the pension cost shock that is already forcing many California cities into bankruptcy courts or compelling them to seek other desperate solutions.

Risky solutions

One other solution has been for communities to mortgage their future with deferred interest “capital appreciation bonds.”  Another has been to explore the risky use of eminent domain to spread the overmortgaged portion of home loans to all property owners in San Bernardino County.  Another potential solution is municipal disincorporation.

Most of the specifics of Brown’s and the Legislature’s pension reform plan have not been revealed to the public.  But one component of the plan is to limit pensions to $110,000 per year for those public retirees who are not police or firefighters.  Coincidentally, that is the same estimated pension benefit level that Brown would be eligible for when he retires.

Gov. Brown is desperate.  He needs to show some symbolic pension reform for his tax proposal, Proposition 30 on the November ballot, to gain acceptance with the voters.   It should be made clear, however, that the current pension reform being negotiated by Brown with the Legislature is not the same Twelve Point Plan he proposed in 2011.  He has apparently abandoned that plan due to push back by the Legislature and unions.

One of the more aggressive parts of Brown’s earlier pension reform plan was to ask public employees to pay for half of the cost of their pensions.  But as Joshua Rauh of the Hoover Institution at Stanford University points out, this “would only be asking public employees to pay one-quarter of the cost of their pensions.” This is because the estimated cost of pensions is about half of the true cost due to using overly optimistic investment interest rate assumptions.  One half of 50 percent is 25 percent.

Without proper use of conservative interest rate returns on pension fund investments, that will result in only cosmetic reforms. Newspaper headlines based on union press releases are declaring: “Brown Gets Partial Win in Pension Reform.”  The part they left out is that the proposed reforms don’t kick in until maybe 2030 and are only half of what they are stated to be.

As Rauh sums it up: “While politicians in Sacramento will doubtless use this as an opportunity to declare victory, in truth they will only slightly reduce the breakneck speed at which the state of California is hurtling towards an all-out fiscal crisis.”

 

 

35 comments

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  1. Soquel Creek
    Soquel Creek 29 August, 2012, 08:20

    Let’s face it, this “effort” on pension reform is merely political kabuki theater. Jerry Brown and the Democrat-controlled Legislature know that Proposition 30 tax hikes will fail at the ballot box this November. The Democrat’s sham “balanced” budget requires a $40-50 BILLION tax hike called Proposition 30, which is heavily funded by the public-sector employees unions and other major contributors to the Democrats.

    After passing the California not-so-high-speed rail project, giving raises to legislative staff, giving Hollywood a $100 million tax cut, and giving non-US citizens educational benefits above US citizens, the Legislature needs to show it has some fiscal restraint by passing pension reform. This ain’t it.

    NOBODY is falling for it.

    VOTE NO on PROPOSITION 30.
    http://soquelbythecreek.blogspot.com/2012/07/california-proposition-30-governor.html

    Reply this comment
  2. Queeg
    Queeg 29 August, 2012, 08:23

    Looks like some notable back biter CWD posters lost a RAGWUS issue.

    Democrats govern while Republicans count their upcoming country club dates with their globalist masters!

    Reply this comment
  3. Hondo
    Hondo 29 August, 2012, 08:57

    The democrats in Kalifornia may have ‘governed’ Obama out of the White house. With an unemployment rate steady at 10.7 % in Kali when most other states are well out of the economic downturn, Kalifornia’s failure, because of its large size, has a much worse effect on the country as a whole.
    California has more ways to create economic growth and jobs than any other place on the planet. Yet, due to the democratic party ‘bozo explosion'(words of Steve Jobs), Kalifornia has become a drag, not only on the country, but on the worlds economy.
    Obama should be up by 5 or 10 points, that’s if Kalifornia had an unemployment rate the same as the rest of the country. Because of the democratic bozo explosion in Kali, Romney, a wimp, may win in November.
    Hondo………

    Reply this comment
  4. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 29 August, 2012, 08:57

    Well said Queeg—As the teabaggers whine about this it truly displays to the world how unreasonable they are. This appears to be MAJOR reform— they live in a dream world if they think it gets alot better than this!

    Go Gov Brown!!!!!!!!!!!!!!!!!!!!

    Reply this comment
  5. SeeSaw
    SeeSaw 29 August, 2012, 10:07

    Its not a cap of $110,000 on the pension amount. Its a cap on the amount of salary that could be used in the pension calculation. And, it applies to every future employee, involved in the plans to be covered by the reform. It had nothing to do with any correlation between these figures and Brown’s future pension. Brown is stable as far as his own finances are concerned–he doesn’t need to conjure up any scheme that coincides with his own future pension amount.

    Reply this comment
  6. Sean Morham
    Sean Morham 29 August, 2012, 10:32

    What is not disclosed to the public is a long term plan to tax 401k plan earnings from the private sector, before redemption. This seems bizarre, but the masses either don t have one-i,e. are dependent on gov t aid, are oblivious that they may have one, and in both cases will stand by idly when a future Democratic governor, and desparate corrupt legislature pass it to “even the playing field” between public and private sector employees. Does anyone doubt that much of the public sector i.e (police and fire chiefs) will jump on this to support?

    Reply this comment
  7. SeeSaw
    SeeSaw 29 August, 2012, 11:16

    401k rules are governed at the federal level. Deferred comp cannot be taxed until it is redeemed, unless the holder of the account fails to start taking payments after they turn 70 1/2, and then they are required to take certain mimimum amounts. I don’t know where you heard that rumor, but it is too bizarre to believe. Public employees are not plotting against the private sector.

    Reply this comment
  8. Hondo
    Hondo 29 August, 2012, 13:04

    I read the ‘pension reform’ bill. It only relates to new employees. Current workers still get to spike pensions. New employees have to pay a little more into the system. The savings won’t really add up to anything for another 20 or 30 years, when this group of workers start retiring in their 50’s (no reform there either. I gotta work till I’m 80 so public unions can retire in their early 50’s). And because the state governments are getting smaller because of the gigantic debt due NOW, they ain’t gonna be hiring many new employees to finance this fraud.
    The problem is is that Kalifornia doesn’t have that much time. They are out of money NOW. The wall of debt Moonbeam is talking about is looming in the next 1 to 5 years. This deal will only realize a small amount of savings 30 years from now. And for the next 40 years there will be pension spiking.
    This may get the tax increase passed but it doesn’t solve or even approach the problem.
    This deal amounts to the Democrats drop kicking the states kids in the nuts. They have no future, only a wall of debt.
    Hondo…..

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 13:29

    Honda the tax hikes are DOA, take that to the bank.

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 13:30

    SeeSaw says:
    Public employees are not plotting against the private sector.

    LOL…your noise jsut grew 40 feet with that whopper seesaw 🙂

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 13:32

    SeeSaw says:
    Its not a cap of $110,000 on the pension amount. Its a cap on the amount of salary that could be used in the pension calculation.

    The so called cap is actually $140K seesaw, Ohhhh…that is some cap 😉

    Reply this comment
  12. Sean Morham
    Sean Morham 29 August, 2012, 13:33

    Mark my words…there will be a proposal to tax 401k earnings(all to date) in the next several years. It has been discussed in Europe; California will jump on it when the moment is correct…nothing to do with public sector ambushing private sector…but noted obnoxious, money grabbing groups with perverse entitlement syndrome will be panting.

    Reply this comment
  13. doug
    doug 29 August, 2012, 13:47

    sean,
    there is a bill proposed for private sector employers to be required to offer a 401 type retirement program. the dems are looking to get their hands on more money.

    Reply this comment
  14. CalWatchdog
    CalWatchdog Author 29 August, 2012, 13:55

    The Calif Legislature has discussed in committee hearings how they can either tax 401k earnings or push to eliminate the tax benefits.

    Katy

    Reply this comment
  15. Queeg
    Queeg 29 August, 2012, 14:41

    Taxing unrealized gains for retirees….move outs from California.

    If they do it for younger people….where do they get the cash flow to pay for phantom gains?

    In bad years do you get tax credits for unrealized losses?

    Sounds sorta like cap and trade…psuedo-ness!!!!

    Reply this comment
  16. us citizen
    us citizen 29 August, 2012, 15:40

    Time to move is coming sooner than I thought. And I will take my 401 with me in tact.

    Reply this comment
  17. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 29 August, 2012, 16:10

    taxing paper gains in a 401k will not happen…

    Reply this comment
  18. Queeg
    Queeg 29 August, 2012, 17:25

    Teddy they are coming for you and me!!!!

    I’m so scared.
    .

    Reply this comment
  19. Soquel Creek
    Soquel Creek 29 August, 2012, 17:43

    Queeg writes:

    “Democrats govern …”

    I know, as a California voter, I’m just too stupid to understand the real world. Sure, I have multiple patents and run a successful technology company, but government operation just eludes me.

    I’m sure there was a reason, other than appeasing political cronies, that the Legislature committed taxpayers to a multi-billion-dollar, not-so-high-speed rail plan that not even high-speed rail advocates like?
    http://youtu.be/SS0RD6dqpKY
    Or, how about …
    http://youtu.be/NajQSD_Pscs

    Also, I’m sure that there’s a good reason why–despite having some of the nation’s highest income taxes, the highest state sales tax, the highest diesel tax, among the nation’s highest gas tax–California seemingly cannot match revenues with spending? Do we have a tax RATE issue or do we have a tax REVENUE and SPENDING issue?

    How will Proposition 30 make California more competitive with the other 49 states? Are our tax rates really just too low?

    CHART: California State Income Tax Rates and Proposition 30 Increases Compared to the MAXIMUM Tax Rate in 49 Other States
    http://www.twitpic.com/a68drw/full

    CHART: California State Sales Tax Rate and Proposition 30 Increases Compared to the State Sales Tax Rate in 49 Other States
    http://www.twitpic.com/a68e2d/full

    How will raising taxes with Proposition 30 fix our bottom-scraping business environment?

    CHART: California ranks ‘F’, primarily for “Tax Code” on United States Small Business Friendliness survey
    http://www.twitpic.com/9ivi6g/full

    CHART: California has the has the nation’s 3rd worst business tax climate
    http://www.twitpic.com/8ntrwn/full

    CHART: California was ranked #46 for small business survival
    http://www.twitpic.com/7mp1zu/full

    CHART: California was ranked DEAD LAST for seven consecutive years as the worst state for business by a nation-wide survey of CEOs
    http://www.twitpic.com/9iuzwq/full

    CHART: California was ranked DEAD LAST for eleven consecutive years as least favorable business climate by Development Counsellors International
    http://www.twitpic.com/7f05at/full

    If high taxes are indeed the solution, should California’s economy be booming? Why does California have the nation’s 3rd highest unemployment rate? Will raising taxes MORE fix our high unemployment rate?

    CHART: California Unemployment Rate Compared to 49 Other States
    http://www.twitpic.com/aepkk8/full

    I’m sorry, but I have a hard time seeing how Proposition 30 fixes ANY of the problems facing California. Sure, it helps the Legislature from having to make tough decisions or requiring them to actually lead, but not much else.

    I, and I suspect a majority of California voters, will vote NO on PROPOSITION 30 this November. It’s simply bad public policy and horrible tax policy.
    http://soquelbythecreek.blogspot.com/2012/07/california-proposition-30-governor.html

    Reply this comment
  20. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 20:26

    The sky fell on Teddy and the sock puppets!

    Reply this comment
  21. NTHEOC
    NTHEOC 29 August, 2012, 22:23

    Beyond its punitive nature, these pension changes could actually wind up imposing greater costs on public agencies, especially in the short term. According to a RAND study, firefighters over the age of 55 have a workplace injury rate that is more than a 60-percent greater than firefighters under the age of 45 years. That translates to higher workers’ comp and disability costs, as well as being bad for the safety of the citizens. But hey, the more and more you people keep taking from me, the less and less I will risk for you!!

    Reply this comment
  22. Ulysses Uhaul
    Ulysses Uhaul 29 August, 2012, 22:26

    Yawn on cut and paste talk points.

    Reply this comment
  23. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 22:50

    Nice smack down Creek!

    Reply this comment
  24. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 August, 2012, 22:51

    ?NTHEOC says:
    According to a RAND study, firefighters over the age of 55 have a workplace injury rate that is more than a 60-percent greater than firefighters under the age of 45 years.

    Is this the same study that claimed firewhiners die 4 days after they retire???????????

    Reply this comment
  25. NTHEOC
    NTHEOC 29 August, 2012, 23:23

    Rex the Wonder Dog! says:
    August 29, 2012 at 10:51 pm
    ?NTHEOC says:
    Is this the same study that claimed firewhiners die 4 days after they retire???????????
    —–———————————–
    Idk? This was a more recent study. Most of the studies done on ffs come from a variety of doctors including cardiologist,pulmonary specialist,nuero specialist,scientist and professors. If they claim certain things about us then it’s on them!!!

    Reply this comment
  26. Tough Love
    Tough Love 30 August, 2012, 09:30

    What a joke.

    The DB Plans need to be hard frozen (ZERO future growth) for CURRENT workers, and replaced with a DC Plan with a modest taxpayer “match” of 3% of pay (+ the 6.4% employer SS contribution if the worker is not in SS)… PERIOD.

    THIS is the retirement package of almost all Private Sector workers and their is ZERO justification for Taxpayers paying for greater pensions and better benefits than what THEY get from their employers.

    Reply this comment
  27. Tough Love
    Tough Love 30 August, 2012, 10:00

    Quoting NYHEOC …” But hey, the more and more you people keep taking from me, the less and less I will risk for you!!”

    I’d love to reduce your risk to zero ….. by having your (and all other Firefighter jobs) outsourced to the Private Sector.

    Reply this comment
  28. eatingdogfood
    eatingdogfood 30 August, 2012, 10:54

    Dear Public Sector Employee or Retire : I would like to meet up with you for some Companionship and maybe even some Romance! I need a little Support at this time in my life cause I worked in the Private Sector for a Major Corporation for 45 Years and my Pension is frankly, Pathetic. I guess I’m Lucky to even have a Pension as Pathetic as it is. And the Private Sector Pension that I have, has NO COLA Provisions. So the longer that I am retired, the Pension Check remains the Same. I don’t have any Medical either, Except paying through the nose for Medicare. I know that you Guys and Girls in the Public Sector don’t have those Problems. I helped you Guys and Girls out for 45 Years by again Paying through the Nose in Taxes which supported you Guys and Girls in the Public Sector so that you would be Comfortable. Even though I’m in my 70’s, I can still get it up, so don’t worry about that. And if need be; there are always Chemicals to take care of that kind of Problem. Hoping to hear from you soon.

    Reply this comment
  29. Rex the Wonder Dog!
    Rex the Wonder Dog! 30 August, 2012, 12:26

    LOL, I saw your same post in the LAT EDF! Funny 🙂

    Reply this comment
  30. Al Moncrief
    Al Moncrief 30 August, 2012, 14:13

    WHY ARE CALIFORNIA PUBLIC SECTOR UNIONS NOT SUPPORTING THE BREACH OF THEIR RETIRED MEMBER’S PENSION CONTRACTS LIKE PUBLIC SECTOR UNIONS IN COLORADO? (THE GREATEST ACT OF TREACHERY IN THE HISTORY OF THE U.S. UNION MOVEMENT.)

    PROOF THAT COLORADO’S GOVERNMENT LIES: COLORADO PERA’S ATTEMPT TO TAKE CONTRACTED RETIREE BENEFITS.

    When I was young I held the belief that public service in the United States is honorable, that the United States of America was exceptional in the world, that governments in the United States, while flawed, deserved the respect of citizens.

    Now that I am old, I see that I was naive . . . that governmental entities in the United States will intentionally deceive to achieve their goals, and that over two centuries our soldiers have died for a country that will countenance, and even celebrate, base behavior on the part of its public sector instrumentalities. It saddens me, but if this state of affairs persists in the United States . . . Honor is dead.

    Some background . . .

    You may know that an entity of Colorado state government, Colorado PERA, is attempting to breach its public pension contracts with its retirees. Colorado PERA is attempting a retroactive taking, a “clawback” of accrued, fully-vested pension benefits that were earned by retired PERA members over decades.

    Colorado PERA public pension benefits include a “base benefit” that is set at retirement and a “COLA benefit” that adjusts pensions annually to compensate for inflation. The “base benefit” and the “COLA benefit” are set forth in Colorado statutes with identical force of law and legal status.

    In its attempt to breach retiree contracts Colorado PERA has created a contrivance. The contrivance that Colorado PERA is using is that somehow the “base benefit” is a contractual obligation, but the “COLA benefit” is not a contractual obligation, in spite of the fact that both pension benefits are set forth in law in an identical manner. What this boils down to is attempted, unabashed, theft by government.

    Whether or not Colorado PERA’s attempt to take fully-vested public pension benefits from PERA retirees is ultimately successful in the courts, one fact has been incontrovertibly established . . . Colorado PERA, as an instrumentality of the State of Colorado, is an organization that will lie to achieve its policy goals.

    This is a sad fact for the many employees of Colorado PERA, for the trustees that have served on the Colorado PERA Board of Trustees over 80 years, and for the thousands of PERA members and retirees.
    And now, the proof of the deceit . . .

    Colorado PERA has told us, in writing, that the PERA COLA benefit IS a contractual obligation of PERA . . . and then, after initiating their attempt to breach contracts, Colorado PERA has told us, in writing, that the PERA COLA benefit IS NOT a contractual obligation of PERA. Both of these statements cannot be true.

    Colorado PERA in a written document, to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009 states that the PERA COLA benefit IS a contractual obligation of PERA:

    “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

    Link:

    http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf

    Colorado PERA on page 23 of its May 6, 2011 “Reply Brief” in the pension case Justus v. State states that the PERA COLA benefit IS NOT a contractual obligation of PERA:

    “Plaintiffs seek to create a contract right that has never existed—an unchangeable COLA for life triggered (inconsistently) by either the date of their retirement or ‘full vesting.’”

    Link:

    http://saveperacola.files.wordpress.com/2011/06/2011-05-06-pera-defendants_-reply-in-support-of-summary-judgment.pdf

    That is simply unbelievable.

    In one document PERA writes “the contract right has never existed.” In the other they write that the COLA benefit is a contractual obligation protected under the Colorado and US constitutions.

    When PERA writes that they need “actuarial necessity” to take the COLA benefit, they are not denying that it is a contractual obligation, in fact, it is an admission of the contractual nature of the COLA benefit.

    For further information regarding Colorado PERA’s attempt to take fully-vested pension benefits from retirees visit saveperacola.com or Friend Save Pera Cola on Facebook.

    Reply this comment
  31. eatingdogfood
    eatingdogfood 30 August, 2012, 15:20

    You really didn’t think that Gov. Moonbeam and his Double Dealing Democratic Cohorts would Stab their Union Bosses in the Back, Did Ya ??? Only one way out of this !!! Declare Martial Law and Nationalize the National Guard and Arrest All the Democrats and Union Bosses on RICO Conspiracy Charges !!!

    Reply this comment
  32. Michael G.
    Michael G. 31 August, 2012, 13:33

    Soquel’s High Speed Rail videos (comment 19) are amazing. Both Vranich’s testimony (6 minute video) and Simitian’s speech (17 minutes) are HSR advocates giving damning testimony as to how and why HSR failed in CA. I am very glad I followed those links. I’m copying them here:

    http://youtu.be/SS0RD6dqpKY

    http://youtu.be/NajQSD_Pscs

    Reply this comment
  33. Mikey
    Mikey 1 September, 2012, 18:18

    Al Moncrief,
    So let me get this straight: It’s not okay for the goverment to steal from it’s own employees, but it IS okay to steal more and more from the private sector employees?
    Now you overpaid gubmint retirees know how we feel all the time! I’m still working my tail off at 55. I can’t retire at 50 like you lazy gubmint folk can, I’m in it for another decade at least. And even though I’m working, I don’t get many COLA’s. I’ve had two in the last 6 years. One for 3 cents an hour, and one for 24 cents an hour. This amounts to about 1% of my wages, and my actual cost of living has gone up by better than 10%. Why should any of us in the private sector pay you better than we get paid?
    No wonder jobs are leaving California at such a rapid rate. I guess I should consider myself lucky to still be employed, (at least for the time being).

    Reply this comment
  34. Tough Love
    Tough Love 2 September, 2012, 16:01

    Mikey. Al doesn’t give a crap … just keeps harping on the “contract” issue trying to justify his (now GONE) COLA.

    Hey AL, answer this one directly …

    Why, when it is both legal to do so (and routinely done), is is OK to reduce FUTURE pensions accruals for CURRENT workers, but virtually all Public Sector Plan say you can’t do this. WHY are Public Sector deserving of a better deal than those that pay your way?

    Do you see the connection ? If Taxpayers’ hands where not tied and we COULD reduce future accruals for CURRENT workers, we wouldn’t have to take away your COLA.

    But then again, when virtually ZERO Private Sector Pension Plans include automatic annual COLA increases, WHY should Public Sector Plans … on OUR DIME ? Again, are you deserving of a better deal than those that pay your way?

    Reply this comment
  35. SeeSaw
    SeeSaw 3 September, 2012, 16:37

    CalPERS COLA’s are not automatic, TL. It depends on what the CPI figures are; most retirees get 2% or less, or nothing. I suggest you concentrate on what needs to be done in your state of NJ–I sure don’t put my nose in the affairs of that state.

    Reply this comment

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