Gov. Brown’s pension non-reform

Aug. 30, 2012

By John Seiler

As the smoke and the rhetoric have settled, you know pension reform is weak when: a) It’s criticized by an analysis in the Los Angeles Times. c) Ridiculed by the paper’s liberal columnist George Skelton. And c) praised by the California Public Employees Pension System.

The plan was crafted by Gov. Jerry Brown and Democratic lawmakers in the state Legislature and announced Tuesday. The main aspect of it is that there’s no move — at all — toward 401(k)-style pensions for public employees. Brown’s original 12-point proposal, from October 2011, called for a “hybrid” plan for non-safety employees that would be half continuing the current system, called “defined benefit,” in which benefits are guaranteed by taxpayers; and half a 401(k)-style plan called “defined contribution,” because it would guarantee a certain payment into the plan, but payouts would depend on market performance.

Without such a reform — or, better yet, a 100 percent “defined contribution” plan — any reform is a Band-Aid on a knife wound through the heart.

The Brown-Legislature “reform” does contain some minor good elements, reported the Bee, including “higher contributions from existing employees and imposes pension caps and raises the retirement age for new workers.”

The main problem is that it would save, at most, $60 billion. Yet the state’s unfunded pension liability is $500 billion, according to a Stanford University study headed by Joe Nation, the former liberal Democratic assemblyman but an honest man good with numbers. So the “reform” would fill just 12 percent of the pension black hole, leaving 88 percent unfilled.

Reform 2043

“This should more accurately be called the ‘Public Employees Pension Reform Act of 2043,’ since it will be at least three decades before it even begins to have any effect on state or local finances,” Jack Dean told me; he publishes PensionTsunami.com, which reports on national public pension news.

“I printed out a hard copy of the first summary I received by email and then circled every instance of phrases like ‘for new employees’ and ‘going forward’ — because all of those items fail to address the huge unfunded liability that has already started to drown local governments. Unfortunately, one of those phrases appeared in just about every item on the list.

“Banning retroactive pension increases is a sound move but doesn’t help, either, since most unions have already gotten the maximum increases they sought — all of them retroactive.

“And finally, the University of California system with its huge unfunded liability isn’t even included in the legislation.

“If I were to grade this legislation I’d give it an A for creativity and a D for lack of substantive content.”

Times analysis

The Los Angeles Times’ sober analysis of the “reform” found:

“SACRAMENTO — Even by the most ambitious forecasts, the plan Gov. Jerry Brown and fellow Democrats are championing to contain government worker pensions in California could leave state taxpayers awash in debt to public employees.

“The governor’s plan, announced Tuesday, is unlikely to save cities on the brink of bankruptcy. The relief his proposal would provide to the strained state budget is modest.

“Analysts who study the issue say far more aggressive action — including reduction of benefits for hundreds of thousands of current employees left untouched by Brown’s proposal — will be needed to get runaway retirement costs under control.

“Taxpayers still face the prospect of major bailouts to cover retirement promises made to public employees whether lawmakers pass the plan as expected Friday or not.”

Skelton doesn’t like

Then there’s the political angle. The Legislature and Brown obviously are cooking up this reform, to be passed on the very last day of the Legislature’s session, as a talking point for their campaign to pass Proposition 30, his $8.5 billion tax increase on the November ballot. Here’s Skelton:

“SACRAMENTO — What Gov. Jerry Brown said recently about his proposed tax hike was complete balderdash. And I’m betting he was the first to know it….

“The wily old politician proved that his comment was hogwash Tuesday when he flew to Los Angeles, the state’s biggest media market, to trumpet a new legislative compromise aimed at controlling public pension costs.

“Brown had proclaimed that his soak-the-rich tax initiative on the November ballot was not about pensions or scandals or anything else except forcing the wealthy to pay more to avoid draconian cuts in education funding.”This is what the testy governor told pesky reporters Aug. 15 as he kicked off his campaign for Proposition 30, which would raise the sales tax slightly for everyone and the income tax sharply for individuals making more than $250,000 and couples earning over $500,000:

“This is not about any other issue. It’s not about the environment, it’s not about pensions, it’s not about parks. It’s about one simple question: Shall those who’ve been blessed beyond imagination give back 1 or 2 or 3 percent for the next seven years, or shall we take billions out of our schools and colleges to the detriment of the kids.”

“OK, technically, he’s correct. On paper. From a policy standpoint.

“But from a political perspective and looking into the minds of many voters, the question is about much more. It’s about whether they should send Sacramento more tax money.”

That’s exactly right. All government money is fungible. If Brown can get his tax increase passed and spends the money on education, then other money that would have gone to education can be spent on something else — like pensions.

Conversely, if Prop. 30 loses, then he has to cut more spending. Parents will holler about cuts in education, so those cuts won’t be as deep as advertised — and cuts then will be made in other areas, including perhaps pensions.

CalPERS likes

Finally, if CalPERS likes a reform, you know it didn’t go far enough. It said in a statement:

“CalPERS believes that the proposal includes significant changes that will help to protect and ensure the sustainability of the retirement fund, reduce abuse and add protections, ease administration, and moderate pension costs over time….

“It is important to note that public employees have already made significant concessions over the last few years.”

Well, isn’t that special.

CalPERS continued:

“Through collective bargaining agreements, most State employees are now paying 2 to 4 percent more from their paychecks toward pensions for a total of 8 to 11 percent of their compensation and thus saving the State nearly $400 million annually. The Committee’s proposals would return the benefit levels for all new public employees in California to pre-SB 400 levels from 1999.”

That’s doubtful. SB 400 was one of the pension-spiking bills that drove the state off the bankruptcy cliff. There’s no way the public-employee unions, which control the Democrats in the Legislature, would allow anything but cosmetic reforms. And, once the election passes in a little over two months, the next Legislature could reverse anything passed on Friday.

Now, with this week’s “reforms” so pathetic, there’s nothing to keep the state’s fiscal Cadillac from crashing on the rocks below.

12 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 30 August, 2012, 15:33

    $18-$20 billion saved over 30 years- all backloaded, $500 BILLION CURRENT deficit and growing……only 2000 years until we’re out of the hole 🙂

    Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 30 August, 2012, 15:57

    PACK AND SHIP; STAY AWAY FROM THE CLIFF!

    Reply this comment
  3. eatingdogfood
    eatingdogfood 31 August, 2012, 08:54

    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
  4. Al Moncrief
    Al Moncrief 31 August, 2012, 09:52

    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 o…n 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
  5. Hondo
    Hondo 31 August, 2012, 10:53

    Like Pension Tsunami says, there won’t really be any real dollar savings for 30 more years because most of these cuts are aimed a new employes, who won’t retire for 30 or 40 more years. Pension spiking will continue for 40 more years.
    The problem is that the wall of debt that Moonbeam talks about is coming due in 1 to 5 years. Not 30 years. The hockey stick graph climbs off the chart in 3 more years, not 30.
    This may get the tax increase passed but it won’t matter (most voters in Kali collect taxes, ie welfare, rather than pay them). Illinois passed a huge tax increase in 2011 and have huge budget deficits again this year. And they blew off pension reform on the 17th. Kali passed huge tax increases in 09 but still can’t balance their budget.
    The Dems won’t overturn this bill for it does nothing anyways, not for 30 more years anyways.
    Hondo……..

    Reply this comment
  6. SeeSaw
    SeeSaw 31 August, 2012, 11:07

    The tax increases passed in 09, expired in 2011, and the Republicans stonewalled any efforts to let the voters decide if they wanted them to continue. Could that by why the budget can’t be balanced?

    Reply this comment
  7. Tough Love
    Tough Love 31 August, 2012, 13:42

    So Seesaw, you think the problem is a lack of reasonable tax revenue (when Ca’s taxes are already the highest in the nation), not an excessive expenditure issue ?

    Reply this comment
  8. Ulysses Uhaul
    Ulysses Uhaul 31 August, 2012, 15:18

    It’s not enough!

    Reply this comment
  9. SeeSaw
    SeeSaw 31 August, 2012, 15:32

    The taxes passed in 2009 were a matter of necessity, after the 2008 global financial collapse. Whether any respective expenditure is going to be considered excessive, or not, is a matter of opinion. Where there are almost 39 million citizens, costs to serve those citizens are going to increase, therefore making increased revenue necessary. CA is not the highest in the nation for total taxation–it ranks somewhere in the teens.

    Reply this comment
  10. eatingdogfood
    eatingdogfood 1 September, 2012, 06:39

    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
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 1 September, 2012, 10:04

    The taxes passed in 2009 were a matter of necessity, after the 2008 global financial collapse

    The taxes passed were not out of necessity, they were for proping up multi million dollar pensions of GED and HS educated gov troughies. There was NO NEED to raise taxes when we could have cut the fraudulent pensions, and for that matter the excessive pay for the troughies. Where in the real world can you find $2350K jobs with a GED???

    Where in the real world can you even find a $25K job with a GED?? No where, that’s where.

    Seesaw, I love shooting down your whoppers, it “makes my day” 🙂

    Reply this comment
  12. SeeSaw
    SeeSaw 1 September, 2012, 11:34

    I don’t know Rex. My public sector job paid $1.85/hr. to start, and I worked for 40 years till I was making $50,000. That was my world. I like my state. Perhaps you should move to a place you would like.

    Reply this comment

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