A stunning once-secret investigation into the escapades of former Vernon exec Bruce Malkenhorst… alleges that Malkenhorst stealthily and systematically bled hundreds of thousands of dollars from the peculiar city’s coffers. 

I’m sure it all was done in the interest of the public he served. Here are some of the services paid by taxpayers that were essential to performing his duties:

• Groceries (top sirloin steak and fudge cake);
• Country club memberships;
• Christmas gifts for his family;
• Homeowners association dues;
• Massages;
• Haircuts;
• Property taxes;
• A multitude of other personal expenses.

Using tax money to pay property taxes was especially helpful to the California economy. This is what Keynesian economists call “priming the pump,” something you may remember from Econ. 101. According to Wise Geek:

“When the Great Depression hit, people’s natural reaction was to hoard their money. Under Keynes’ theory, this stopped the circular flow of money, keeping the economy at a standstill.

“Keynes’ solution to this poor economic state was to “prime the pump.” He argued that the government should step in to increase spending, either by increasing the money supply or by actually buying things itself.”

So Vernon paid for all those things for Malkenhorst. Commendably, money then was not “hoarded” by him, but recirculated back into the system. It went to grocery stores, golf courses, barbers, masseurs, the homeowners’ association, etc. These people and organizations then spent it on their own needs, thus increasing the “circular flow of money.”

Especially beneficial was using the money to pay local taxes. Malkenhorst thus, effectively, subsidized his own expenses. The money when to him, then to taxes, then back to him, then back out again to the barbers, golf courses, etc.; all of them paying taxes, which went back to Malkenhorst, who then spent it again in the community, and so circularly on.

The Keyensian circulatory system causes a “multiplier effect,” which is defined by Dictionary.com:

“An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. For example, if a corporation builds a factory, it will employ construction workers and their suppliers as well as those who work in the factory. Indirectly, the new factory will stimulate employment in laundries, restaurants, and service industries in the factory’s vicinity.”

Far from condemning Malkenhorst, we should commend him for contributing to prosperity. Indeed, all government workers — police, fire, teachers, nurses, guards, janitors, etc. — should be given salaries well into the six figures, with expense accounts for barbers, golf courses, etc., followed by pensions of more than $500,000.

Prosperity is guaranteed.

As we’ve been warning here on CalWatchDog.com for more than two years now, CalPERS’ funding is way too low. I’ve written before how CalPERS might only be funded at the 55 percent level.

It turns out that even that is too optimistic. The new level might be just 40 percent, according to CalPensions.com:

“As CalPERS puts a new focus on risk, a funding level that drops to 40 percent is emerging as the red line.

“The worry is that if the funding level of the big pension fund drops too far, it may not be practical to raise annual employer payments enough to regain proper funding.

“The rough estimate (final figures are not in yet) is that CalPERS funding as of last June averaged 74 percent, up from 65 percent the previous year. A spokesman said the average level has never fallen below 55 percent.

“But CalPERS wants some cushion in case the economy slides back into a major recession, punching another big hole in investment earnings expected to provide about two-thirds of pension revenue.”

New Recession?

That’s another thing I’ve been warning about: a new recession. Recessions or depressions strike about every five to seven years. The last one struck in December 2007, almost five years ago.

Moreover, recessions seldom occur in election years (the 1980 and 1992 recessions were exceptions) because the politicians goose the economy to get re-elected. That’s happening this year.

As Wayne Lusvardi has reported on this site, you can’t have long-term growth when interest rates are close to zero, as now. That means people can’t save and invest in new business and jobs creation. Something has to break. And it will — probably next year.

The problem for CalPERS is that its portfolio needs to use recovery periods to make up for what was lost in the previous recession. But that hasn’t happened during the current economic recovery.

On June 30, 2007, CalPERS’ all-time peak valuation was $247.7 billion. According to its Web site, as of March 21, 2012 its valuation was $237.3 billion. So, it’s down 4 percent in nearly five years.

However much you massage the numbers, down is never up, not even 0.000001 percent up.

Here we are, probably at the end of an economic recovery period, and CalPERS still hasn’t recovered from its losses during the Great Recession.

CalPERS recently reduced its expected annual discount rate to 7.5 percent from 7.75 percent. Starting July 1, that’s a new $167 million yearly hit on California taxpayers. And we don’t get anything for it: No new roads, no schools built, no new teachers hired, no parks kept from being shuttered.

The money just goes to the generous pensions of former workers who don’t even work for us anymore, and might not even live in the state. Such as the 9,000 members of the “$100K Club,” who make $100,000 or more in their pensions per year.

Such as retiree Bruce Malkenhorst, who pulls in an incredible $509,664.60 a year for his pension.

And it’s all guaranteed by the California Constitution.

Unless we reinterpret the constitution.

Or change it.

Or ignore it.

March 22, 2012