LAO’s cheerfully nutty budget report: Pension crisis? What pension crisis?

LAO’s cheerfully nutty budget report: Pension crisis? What pension crisis?

The Legislative Analyst’s Office has among the best reputations of any state agency. But after the release of Wednesday’s bizarre LAO budget analysis and accompanying press conference by Legislative Analyst Mac Taylor, I don’t know why.

LAOI groused about it in this U-T San Diego editorial:

“Imagine a family in which both parents work and make $100,000 a year between them but have $300,000 in steadily growing credit-card debt. If the parents got raises and their income increased to $110,000 a year, would you say the family is suddenly in good shape financially? Of course not.

“But that sort of happy talk is just what we’re hearing from state leaders after an upbeat report from the Legislative Analyst’s Office predicted a coming era of budget surpluses because of revenue from tax hikes and a surge in capital-gains tax receipts, thanks to Wall Street’s latest boom.

“The 62-page report mentions the state’s massive unfunded liabilities for the California Public Employees’ Retirement System and the California State Teachers’ Retirement System only briefly.”

Reporters don’t connect budget happy talk with pension gloom

pension-red-inkWhat’s amazing is that the same Sacramento reporters who have covered Gov. Jerry Brown’s efforts to win pension reform don’t connect the dots. If Brown says pension benefits are a toxic, long-term, unaffordable fiscal nightmare, how can that be squared with Mac Taylor’s fiscal happy talk? It can’t be.

Here’s Mac:

“We now find that California’s state budget situation is even more promising than we projected one year ago. The state’s budgetary condition is stronger than at any point in the past decade.”

Here’s me:

“As of September, CalPERS had about $260 billion in assets and about $340 billion in liabilities. Those numbers are based on CalPERS’ assumption that decades of investment returns will average 7.5 percent annual growth.

“But a comprehensive 2011 study overseen by Joe Nation, a professor at the Stanford Institute for Economic Policy Research and a former Democratic state lawmaker, concluded assumptions of 5 percent to 6 percent are more historically appropriate. In September, Nation said a more realistic assessment of CalPERS’ current unfunded liability is $170 billion — not $80 billion. …

“The Legislative Analyst’s Office’s report simply doesn’t contemplate what state budgets would look like in coming years if they addressed and paid down the state’s share of CalPERS’ unfunded liability. Instead, it only predicts a slow growth in annual contributions to $2.8 billion by 2019-20 — meaning the total unfunded liability will continue to grow by billions each year.”

In even worse shape than CalPERS: CalSTRS

“CalSTRS is in even worse shape than CalPERS. The state teachers’ pension system reports assets of $172 billion and an unfunded liability of $70 billion. But it too uses the 7.5 percent projection for investment returns. Even with that questionable assumption, CalSTRS is on track to run out of funds in 2043. If Nation’s more prudent model were followed, CalSTRS’ unfunded liability would double, and it would run out of funds long before 2043.

“Once again, the LAO report doesn’t contemplate what state budgets would look like in coming years if they addressed and paid down CalSTRS’ unfunded liability. Even if the optimistic 7.5 percent earnings estimate is used, it’s been estimated that CalSTRS needs $4.5 billion a year for 30 years to dig out of its financial hole. Yet the LAO only predicts a slow increase of state funding to $1.8 billion in 2019-2020.”

green.partyI have whined an awful lot about the state media in recent months. They keep giving me fresh fodder.

How can reporters covering Sacramento not realize that they can’t simultaneously believe that the state government is in good shape fiscally and that it faces an enormous long-term crisis in paying for unfunded retirement benefits?

It’s truly bizarre, because this isn’t a case like fracking or AB 32 where there’s a green agenda driving coverage. Instead, it’s just the laziest pack journalism imaginable.

30 comments

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  1. Ted Steele, CEO
    Ted Steele, CEO 22 November, 2013, 07:51

    LOL– Poor Chris– face it– you don’t want the good news! Budget surplus is good little buddy.This Gov has cut and planned and now here we are. Sorry. As for the pensions, I guess the LAO sees it as it is; like the mortgage on the house you want to payoff someday—-relax, keep chipping away and you will…….

    Reply this comment
  2. Ted Steele, CEO
    Ted Steele, CEO 22 November, 2013, 07:53

    Oh……Chris……..Calpers is almost 280 Billion today— sorry.

    Reply this comment
  3. Queeg
    Queeg 22 November, 2013, 09:57

    Doomers having a bad day….pity……zzzzzzzzzzzzzz

    Reply this comment
    • Dyspeptic
      Dyspeptic 22 November, 2013, 12:25

      Surprise us Queeg. Write something that resembles a complete sentence.

      Reply this comment
      • Ted Steele, CEO
        Ted Steele, CEO 24 November, 2013, 09:43

        Dysphoric— Queeg is a poet. Would you wan ee cummings to write in such a way?

        Relax little buddy!

        re
        lax
        as if you
        the Queeg

        Reply this comment
  4. LetitCollapse
    LetitCollapse 22 November, 2013, 10:47

    The pension debt/mortgage payment analogies just bring a smile to my face everytime I see them. The distortions and spin are hilarious.

    If you’re going to use that analogy – use it correctly. It would be like having paid only half your required montly mortgage payment for the last 20 years and being delinquent by 1x-10x your annual income (depending on the pension fund) then expecting future windfall gamblings to not only catch you up on your payments but to pay down your future debt. If pension funds were like a mortgage you would have been foreclosed on 20 years ago.

    Most mortgages offer fixed payments, while payments to fund pensions are expected to rise significantly over time, crowding out other government services. The pension fund/mortgage analogy would imply that your home mortgage payment increases to the point that you you can’t afford to pay your electric, water and gas bills any longer.

    Conventional mortgages are actuarilly sound. The pension system is operating off a subprime mortgage vis-a-vis 2007.

    There’s your difference.

    Reply this comment
  5. Dyspeptic
    Dyspeptic 22 November, 2013, 12:40

    What’s so amusing about the current budget/economic euphoria is that it is exactly what happened in 2006-2007. Only 6 years ago we went through the same phase of giddy reality denial and people have already forgotten it ever happened.

    The majority of the American public seems incapable of learning from even recent and very traumatic events. We live in a nation of gullible amnesiacs who obsess over bread and circuses while the Plutocrats turn their society into a Welfare/Warfare dystopia.

    Reply this comment
  6. Steve Mehlman
    Steve Mehlman 22 November, 2013, 13:01

    So much for the myth that public employee pensions are responsible for Detroit’s bankruptcy.

    Report: Detroit bankruptcy caused by state cuts, shrinking tax base, not long-term debt: http://www.freep.com/article/20131120/NEWS01/311200115/detroit-bankruptcy-debt-revenue-sharing-cuts?fb_action_ids=10151783111467966&fb_action_types=og.recommends&fb_ref=artsharetop&fb_source=aggregation&fb_aggregation_id=288381481237582

    Reply this comment
    • John Seiler
      John Seiler 22 November, 2013, 15:06

      Steve: The article actually has a caveat, that the study is “from an organization which describes itself as nonpartisan, but has been identified as a liberal think tank in the past….”

      We’ll see what the BK court finds.

      Reply this comment
    • LetitCollapse
      LetitCollapse 22 November, 2013, 15:49

      But why were there budget cuts in Detroit and why are the producers who pay the taxes fleeing Detroit?

      Budget cuts were necessary in large part to stop the bleeding from the the increasing pension liabilities. When legally protected government program expense goes substantially higher funds from other non-legally protected programs must be siphoned off to compensate for the guaranteed one. This means cuts in programs that are not legally protected. When routine government services are either severely cut back or eliminated – and the producers are disproportionately forced, by law, to fund exhorbitant pension benefits for government workers – those producers flee the area. Heck, even after the government workers retire with massive pensions many, if not most, flee to areas with low income tax rates.

      So the budget cuts and the exodus of producers (taxpayers) are directly related to higher pension costs.

      Reply this comment
  7. Queeg
    Queeg 22 November, 2013, 22:59

    Dys…..CWD is happiness for some Doomer Utopians. You know it….Your too smart to be dragged down under the troll bridge. A few of us like levity in our lives..join us.

    Reply this comment
    • Ted Steele, CEO
      Ted Steele, CEO 24 November, 2013, 09:55

      Queegism— Dysphoric by definition abhors all humor and happiness. Its ok. Its just how the truly Dysphoric roll.

      Reply this comment
  8. JS
    JS 23 November, 2013, 10:40

    Read the LAO report, not just the press coverage. It specifically expresses concern about the CalPERS and CalSTRS deficits, and criticizes the governor for not including them in the wall of debt.

    Reply this comment
  9. NTHEOC
    NTHEOC 24 November, 2013, 02:10

    JPMorgan Settles with CalPERS
    CalPERS to recover approximately $261 million in damages from JPMorgan in a federal investigation.
    ————————-
    Nice to get some money back from these corporate pigs!!!!!!

    Reply this comment
  10. Tough Love
    Tough Love 24 November, 2013, 09:34

    Yes NTHEOC,

    Now if only Taxpayers could get back what they deserve (massive reductions in your retroactively-increased pensions) from [people] such as yourself.

    Reply this comment
  11. ricky65
    ricky65 24 November, 2013, 09:36

    The LAO’s office used to be an office where the public could get a non- partisan assessment of financial condition of the state. A. Alan Post set a high standard for no nonsense analysis without partisan spin. We could count on hearing the good, the bad and the ugly no matter what party was in control.
    Things started going downhill when Post retired and Elizibeth Hill took over the office. It wasn’t long before things started taking a Deomcrat spin.
    Now with Mac Taylor in the office, his fictional assessments are worthless and should be taken lightly. The big gloss over of the pension debt problem is proof of that.
    Just another loyal soldier in the Demo-Droid army.

    Reply this comment
    • Tough Love
      Tough Love 25 November, 2013, 10:31

      Taxpayers need to keep in mind that the LAO staff are state employees and participate in these same grossly excessive pension & benefit Plans.

      It’s takes a person of rare (VERY high) ethical standards to accept that the APPROPRIATE results of their work might support a material reduction in their own retirement benefits …. and then publish it without toning-down the conclusions.

      Reply this comment
  12. The Ted Steele Conceptual Abstraction Unit
    The Ted Steele Conceptual Abstraction Unit 26 November, 2013, 14:47

    Gee thanks toughlovey—- we never knew that the LAO folks were gov workers, wow, ah, thanks. You’re so brainy! Please keep the pithy comments flowing!

    Wow!

    Reply this comment
    • Tough Love
      Tough Love 28 November, 2013, 12:10

      TED,

      Hopefully you never had children. The world would be so better off if your gene-pool ended ASAP.

      Reply this comment
      • Ted Steele, CEO
        Ted Steele, CEO 30 November, 2013, 11:16

        LOL—- Lovey— Kids and Grandkids here little buddy— a bunch of them! They’re wonderful!! I hope you’re kids are not quite as cranky as you are !

        Reply this comment
  13. Ted Steele, CEO
    Ted Steele, CEO 27 November, 2013, 07:55

    I guess this huge surplus is a bad thingy?

    Reply this comment
  14. jennifer hu
    jennifer hu 9 December, 2013, 17:11

    grossly high pension and exorbitant benefits? 1200.00/mo for 30 yrs of being bitten kicked, spat apone and had feces thrown at me, hum ya grossly high . you dumb ass. you do it.

    Reply this comment

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