California pension Death Star approaching

Death Star Darth Vader Star Wars - wikipediaJan. 18, 2013

By Chriss Street

When Moody’s Investors Services issued a “Request for Comment” last July about their plan to begin recalculating the effect of massive state and local unfunded pension liabilities on credit quality, I warned that this would eventually result in the across-the-board slashing of municipal bond credit ratings and numerous municipal bankruptcies in California.

It now appears that I may have understated the risk for California.  The California Public Policy Center released a report analyzing of the impact of the new Moody’s policy on six Northern California counties: Alameda, Contra Costa, Marin, Mendocino, San Mateo and Sonoma.  Their conclusion is that, when the new rules are applied, the annual cost of pensions will increase from the equivalent of about 50 percent to 100 percent of these counties’ net property tax income.

With the state is running new deficits after already raising state income taxes to the highest level in the nation, California homeowners should be prepared for their politicians to try to overturn Proposition 13, which for 35 years has limited California property tax rate increases to 2 percent per year of the assessed value, and reappraisals occurring only with the sale of the property.

Given that California has only 11 percent of the U.S. population, but issues 20 percent of all of the nationwide municipal bond volume, Moody’s warned it would be re-assessing the financial condition of all California counties and cities “to reflect the new fiscal realities and the governmental practices.”

More bankruptcies

Moody’s  said that a greater share of municipal bankruptcies are expected to come from California.  California Treasurer Bill Lockyer’s office tried to reassure the public by calling the Moody’s warning “a little hyperbolic” and stating, “No city’s going to blithely skip into bankruptcy court to avoid its obligations.”  But today, more than 50 of 482 California cities have declared a “Financial Crisis” and have considered filing for Chapter 9 municipal bankruptcy.

CPPC’s analysis used data from the most recent county Actuarial Valuations to produce four core restatements of solvency: total pension debt, unfunded pension debt, government normal yearly contributions and amortization payments of unfunded pension.  CPPC determined that, for the four adjustments Moody’s is expected to make, two would have very significant impact on county solvency:

* “First, pension debt would be adjusted using a high-grade long term corporate bond rate (5.5% for 2010-2011) instead of a Pension Fund’s target rate of return (7.75% more or less).

* “Second, government payments to Pension Funds would be adjusted to reflect the lower discount rate, the need to fully fund pensions by the time employees retire, and a 17 year level-dollar amortization of unfunded pensions.”

In their Actuarial Valuations, the counties claim they have conservatively banked 78 percent of their pension liabilities in cash and securities, leaving only $4 billion in under-funding.  But the Moody’s adjustments will increase the unfunded pension obligations by $6 billion, balloon the unfunded liability to $10.2 billion and the cash and securities funding down to a speculative level of 58 percent.

At a 78 percent funding level, the six counties are only required to contribute 29 percent of their payroll, or about $640 million, to fund their pension plans each year.  But under the new Moody’s formula that will drive down their funding level to 58 percent, the counties’ required annual pension cost will skyrocket to 63 percent of payroll, or $1.4 billion per year!

Deficits

California has run huge budget deficits for the last decade.  Recently voters passed Proposition 30 as a $6 billion state income tax increase on top earners in hopes of rescuing schools by balancing the state budget.  But, according to the California State Controller’s just released December financial statement, state spending is $900 million over budget and state tax revenue is at least $360 million under budget.

For the last 35 years, California politicians have been forbidden from jacking up property taxes by the because of Prop. 13.  The initiative has been so popular with homeowners that it has been referred to as the third rail of California politics.

But as the CPPC study demonstrates, the annual cost of pensions will soon increase from the equivalent of about 50 percent to 100 percent of these counties’ net property tax income.  With the state already running new deficits on top of the highest income taxes in the nation, it is my belief that California politicians will soon try to overturn Prop 13. 

CHRISS STREET & PAUL PRESTON
Present “The American Exceptionalism Radio Talk Show”
Streaming Live Monday through Friday at 7-10 PM
Click here to listen:  http://www.mysytv.net/kmyclive.html
Go to Our Website:  www.edtalkradio.com

43 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 January, 2013, 02:54

    All 6 counties are cash flow BK. Game over.

    The pensions have t bve cut, ad they can start with THE SAN RAMON VALLEY FIRE DISRICT.

    Reply this comment
  2. eyeamok
    eyeamok 18 January, 2013, 05:03

    All Taxpayer Funded Pensions should and need to be Abolished, They are Not Special, they can survive on Social Security, Just like EVERYBODY ELSE. All Public Employee and Public Servant Pay should NEVER EXCEED the Median Income level of the Citizens of that State.

    Reply this comment
  3. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 18 January, 2013, 06:49

    LOL— They are reviewing 32 bonds– I think only 9 are pensions the balance general obligation bonds. 2 (LA and Frisco are being reviewed for possible upgrade.) If San Bernardino has taught you gloomers anything it should show you that there are many more reasons for bad finance planning then pension obligations to the help! But I doubt you’re paying attention.

    Oh Noooooooooooooooooooooo!

    Reply this comment
  4. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 18 January, 2013, 06:56

    Oh– you gloomers will hate this–

    Cal Pers posted 13.3 % gain in the last calendar year………sorry little buddies.

    Reply this comment
  5. CalWatchdog
    CalWatchdog Author 18 January, 2013, 07:39

    Sorry, Ted, that’s not enough to make up for past losses. For all state pension funds, Californians now pay an additional $6 billion a year. If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?

    — John Seiler

    Reply this comment
  6. eyeamok
    eyeamok 18 January, 2013, 07:56

    CalWatchdog says:
    January 18, 2013 at 7:39 am

    Sorry, Ted, that’s not enough to make up for past losses. For all state pension funds, Californians now pay an additional $6 billion a year. If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?

    – John Seiler

    How Dare you suggest we Outlaw SLAVERY.

    Reply this comment
  7. Ted Steele, Navigator
    Ted Steele, Navigator 18 January, 2013, 08:41

    Well of course it’s not John— But over 20-30 years the fund has beat the goals—-looking minute to minute is pointless….

    Reply this comment
  8. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 January, 2013, 08:57

    Calpers posted 13.3 % gain in the last calendar year………sorry little buddies.
    ==
    Do you know the difference between a calendar year and fiscal year, which ends June 30 for the state??????????????????????????

    Didn’t think so.

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 January, 2013, 08:58

    If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?

    – John Seiler
    ==
    Teddys ponzi jig would be up if that happened John 😉

    Reply this comment
  10. Ted Steele, Navigator
    Ted Steele, Navigator 18 January, 2013, 09:06

    Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.

    Sorry lads….

    Reply this comment
  11. Ted Steele, Navigator
    Ted Steele, Navigator 18 January, 2013, 09:08

    of course I know what a FY is Poodle and we all heard the bad FY year news— this CY year news is as Paul Harvy would say….”the rest of the story”!

    Can you say subsequent?

    0 for 14 ™ ! I love it!!!

    Reply this comment
  12. a frequent reader
    a frequent reader 18 January, 2013, 09:41

    Ted Steele, Navigator says:

    January 18, 2013 at 9:06 am

    Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.

    Sorry lads….
    ————-

    When did CA follow start following it’s laws for budgetary allocations? Oh yah when it passed prop 30 and promised to keep tuition down and no cuts to funding for schools and now that the prop has passed we have our “Pelosi version of pass it then find out” what’s in the bill and part of it’s going to the union trough.

    Sorry kids.

    http://www.utsandiego.com/news/2013/jan/12/state-workers-to-get-boost-from-budget/

    Reply this comment
  13. Ted Steele, Navigator
    Ted Steele, Navigator 18 January, 2013, 09:50

    LOL— You guys would complain if they hung ya with a new rope–

    State gov has not been leaner in a loooong time with the last 2 years of cuts, tuition isn’t going up, state workers comp is getting leaner, pension reform passed, the budget may well be balanced– or close to it…..drone on…

    Reply this comment
  14. NTHEOC
    NTHEOC 18 January, 2013, 12:24

    Hey Ted,
    Keep up the good work schooling these “chicken little” trolls!! LOL,THE SKY IS FALLING!!!!!!!! Funny they can’t stop talking about the 4 cities out of 245 plus in California that have filed for BK!! Hahahahahaha……..13.3% gain and only 3% of state funded for pensions….OHHHHHHHH MYYYYYYYYYY…

    Reply this comment
  15. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 January, 2013, 12:44

    Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.
    ==
    The pension costs for Education is in the K-12 budget Baby Einstein, that 41% you failed to count.

    Reply this comment
  16. Ted Steele, Navigator
    Ted Steele, Navigator 18 January, 2013, 13:39

    Thanks intheoc– I do what I can but there are a few slow learners ™ out here.

    Reply this comment
  17. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 January, 2013, 22:28

    Ted Steele, Navigator says:
    LOL— You guys would complain if they hung ya with a new rope–
    State gov has not been leaner in a loooong time with the last 2 years of cuts, tuition isn’t going up,
    ==
    UC likely to hike tuition for some grad programs
    Tuition for law, nursing and other professional studies could go higher

    http://www.latimes.com/news/local/la-me-0118-uc-budget-20130118,0,6004995.story
    OMG this is so easy….like taking candy ffrom a teddy…errr…baby 🙂

    Reply this comment
  18. TIMMAE
    TIMMAE" 19 January, 2013, 07:44

    I can clearly see the flamer here.
    Tuition HAS gone up in the past 2 years, or were those kids all protesting because they didn’t? Jerry LIED about the use of the funds for prop 30 just to get it to pass, now some of those “school funds” are going for property acquisition for the non-high speed “bull s__t train.
    How about the chancellors give up their $500,000 school supplied housing and take a 25% pay cut.

    Reply this comment
  19. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 January, 2013, 09:58

    Too bad the Poodle didn’t read the whole article! LOL Oh My

    0 for 14 ™!

    Reply this comment
  20. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 January, 2013, 09:58

    Will it be 15 when the SB BK thing is over?????

    Reply this comment
  21. Hondo
    Hondo 19 January, 2013, 10:05

    To all you liberals. Stanford, a liberal institution, has said that Kali’s pensions are unfunded to the amount of 500 billion. Another study has it at closer to 800 billion. None of these budgets reflect or take into account this huge wall of debt.
    Hondo….

    Reply this comment
  22. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 January, 2013, 13:02

    Teddy, I own you (and your pea sized brain) lil buddy 🙂

    Reply this comment
  23. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 January, 2013, 16:31

    LOL u certainly spend alot of time thinking about me!

    lol 0 for 14 ™ !!

    Reply this comment
  24. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 January, 2013, 19:55

    Own lil Teddy 😉

    Reply this comment
  25. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 January, 2013, 20:05

    LOL

    I owe you rent for camping in your head this weekend!!!!!!!!!!

    Hurry!!! Type RIGHT NOW little troll!!!! Quick!

    0 for 14 ™!

    Reply this comment
  26. Marten Purdy
    Marten Purdy 20 January, 2013, 11:23

    More bankruptcies:
    In Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. Article I. Section 1 All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. Section 2 The House of Representatives shall be composed of Members chosen every second Year by the People of the several States, and the Electors in each State shall have the Qualifications requisite for Electors of the most numerous Branch of the State Legislature.

    Reply this comment
  27. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 20 January, 2013, 11:56

    Yes Martin. And your point? The Article 1 and bk connection?

    And….Please leave out Article 3. Since CJ Roberts ruled on Obamacare (he does care!) The CWD posters and psuedo journos hate it!

    thanks amigo!

    Reply this comment
  28. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 January, 2013, 12:15

    Teddy, you wouldn’t the difference between Article 3 and an article in Mad Magazine 😉

    Reply this comment
  29. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 20 January, 2013, 15:49

    zzzzzzzzzzzz………..quick——-go Google Art 3 little buddy!

    Reply this comment
  30. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 January, 2013, 22:20

    LOL…… you have no idea what ARTICLE 3 is you mental midget 😉

    Reply this comment
  31. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 21 January, 2013, 07:43

    Did you Google it yet little fella?

    LOL (it’s so easy to put the Poodle in his place!)

    Reply this comment
  32. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 21 January, 2013, 07:48

    Oh——– I forgot—–any comments yet on your pension roll back lawsuit or props 30 or 32 prediction failures yet??

    I would love to read that while I eat breakfast and enjoy my man’s 2nd inaug,,,,,,,,,,,lol

    0 for 14 ™ !

    Reply this comment
  33. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 January, 2013, 10:50

    Did you copy n paste it??
    So easy to put the trougher in his place- I have him spun up so tight he is making multiple posts about me. Within minutes of each other 😉

    Reply this comment
  34. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 21 January, 2013, 20:05

    Still no comment on your prediction failures? How could you have missed so badly on, for instance–

    prop 30?
    prop 32?
    Cops pension rollback cases?

    mmmmmmm 0 for 14 ™! You have to agree that’s a poor record……

    Reply this comment
  35. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 January, 2013, 21:43

    Teddy, the sky fall in San Bernardino, didnt it???

    Reply this comment
  36. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 22 January, 2013, 06:45

    LOL— That reminds me— I think that when the San Bdo bk case is over and the pensions are still intact, like they are now of course, you’ll be 0 for 15 ™! Sorry little buddy!!!!

    Hurry!!! Type!!!!!

    Reply this comment
  37. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 22 January, 2013, 06:46

    So there’s a good comment on your predictions! Good doggie!

    Now—- how about a comment on how you could’ve been so wrong on the OC cops cases????

    and prop 30

    and prop 32!

    Reply this comment
  38. PJ
    PJ 22 January, 2013, 11:49

    I’m sure Calpers will return to high revenue levels once they “invest” $800 million of their fund in “infrastructure” projects.

    I would guess the politicians are going to grab the rest of the dough in Calpers and give it to all the New Solyndras and the Van Jones’s of the state.

    What could go wrong?

    Reply this comment
  39. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 January, 2013, 19:14

    Teddy, when the SB BK case is over the GED cops will be taking 50% pension haircuts.

    Reply this comment
  40. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 22 January, 2013, 19:53

    lol—- yet another famous Poodle prediction! 0 for 14 ™! so far for those out here on CWD tracking the little guy’s predictions!

    Mark another date in the archives! It’s this easy!!

    post now !!!

    Reply this comment
  41. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 22 January, 2013, 19:55

    I do like that your making more predictions! It keeps me in business!

    But still no comment on your last three losses?

    Prop 30, 32, pension rollback lawsuits????

    Reply this comment

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