As part of an arrangement that includes four years of funding increases, a two-year tuition freeze and additional money for UC’s sizable pension debt, the university is undertaking a significant overhaul of its retirement system. Though details remain to be worked out, it will introduce a pension tier with a dramatically lower compensation cap, and could shift new hires from a guaranteed benefit to a 401(k)-style defined contribution plan. …

 

Under the deal, UC will adopt a state limit on the amount of employees’ salaries that are used to calculate their guaranteed pension. The limit, which would be adjusted for inflation, now stands at $117,000. The current cap for UC workers, based on a federal ceiling, is $265,000.

The seriousness of the UC pension problem has gotten relatively little attention until now, but as CalPensions’ Ed Mendel pointed out in May, UC has had to engage in risky borrowing to pay its bills:

Four years ago UC began borrowing to help close the pension funding gap. By last July UC had borrowed $1.8 billion from internal sources and $937 million more from external sources.

 

Borrowing to pay pension costs can pay off in another way, if money loaned at a low interest rate is invested and earns a higher rate. The UC pension fund, valued at $52.8 billion last June, is expected to earn 7.5 percent a year, which critics say is too optimistic.

 

The “arbitrage” looks good so far. Last fiscal year the UC pension fund returned earnings of 17.8 percent. The UC short term investment pool, the source of the internal borrowing, earned about 1.5 percent.

 

But borrowing to pay pension costs is a gamble. The city of Stockton sold $125 million worth of pension obligation bonds in 2007 and put the money in its CalPERS investment fund, just in time for big losses during the recession and stock market crash.

UC employees pay bigger share of pension costs than CA teachers

To help get UC pensions on firm ground, UC officials have agreed in recent years to an arrangement in which the university system pays 14 percent of its payroll toward pension costs and individual employees contribute 8 percent of their gross pay. This means taxpayers foot 64 percent of the costs.

This is in contrast with the new standards for state teacher pensions enacted in 2014 as part of a law to shore up the struggling California State Teachers’ Retirement System. The contribution changes are being phased in through the 2020-21 fiscal year. When they are complete, teachers will contribute 10.25 percent of their paychecks, school districts will contribute 19.1 percent and the state government will contribute 8.8 percent. This means taxpayers will pay for 73 percent of the costs of teacher pensions.

Under the old status quo, taxpayers paid for about 63 percent of total CalSTRS contributions. So while teachers will pay somewhat more toward their pensions because of the CalSTRS fix, taxpayers will pay a significantly bigger share.

This doesn’t reflect the broad pension reform goals that Gov. Brown announced in 2012. He proposed that the state and its employees split the “normal” cost of pensions. In pension-speak, that refers to the value of retiree health care earned during a year of working, as determined by actuarial standards. The “normal” cost doesn’t include the cost going forward of dealing with a pension system’s unfunded liabilities, only the cost per specific employee.

The UC pension deal seems likely to move UC toward that goal of splitting “normal” costs, especially if enough new hires accept a hybrid benefits plan. But at least until June 30, 2021, the state is legally committed to a deal with public school teachers that goes away from that goal.

A new look at how CalSTRS members changed during the last 15 years shows the average teacher working fewer years, retiring at an older age and collecting a pension that grew faster than pay or inflation.

Retirees grew much faster during the period than active workers, increasing from 27 percent to 36 percent of total membership and raising questions about the impact of longer life spans on projected pension costs.

The new CalSTRS demographic report issued last week, done in part to show differences among employer types, covers a period beginning in fiscal 1997-98 as a stock-market boom yielded big earnings for pension fund investments.

A brief pension fund surplus helped prompt legislation in the late 1990s and 2000 that increased pension benefits in several ways, while also cutting the annual employer and employee contributions to the pension fund.

According to the new report, the average final compensation of a K-12 teacher increased 54 percent during the 15-year period, growing from $52,200 in 1997-98 to $80,500 in 2012-13.

The average CalSTRS pension benefit for a K-12 teacher increased 70 percent during the same period, growing from $28,309 in 1997-98 to $48,094 in 2012-13. The California consumer price index grew 48 percent.

Some public employees are more equal than others

At least compared with public safety retirees’ pensions, those pensions look reasonable. But as with the oft-touted claim that the average CalPERS pension is under $30,000, the number needs context. It includes anyone who ever became eligible for a CalSTRS pension — $48,904 is the average for all teachers in the retirement system. But what about teachers who worked 30 years or 35 years, as is common? What is their average pension? That’s the number that’s more telling on the question of fairness.

And the CTA and CFT are never going to convince other public employees that their pensions are fair. Under Gov. Jerry Brown’s initial 2011 pension reform proposal, the state would have been legally committed to having employees share an equal or much closer to equal share of total pension costs by the end of the decade. That got watered down. But what was adopted in 2012 still committed public employees to paying a great share of pension costs.

Except for teachers. The CalSTRS funding overhaul approved earlier this year actually reduced teachers’ relative share of their pension costs. I wrote about this for CalWatchdog here.

The theory was that if employees had to share equally in the huge cost of their pensions, they’d be more amenable to plans to reduce them going forward so as to increase their take-home pay.

But when it came to enforcing this provision — and triggering a fight with the CTA and the CFT — Brown sized up the Sacramento landscape and doesn’t appear to have even tried. The provision in his 2014-15 budget shoring up funding for the California State Teachers’ Retirement System requires that taxpayers foot 90 percent of the [new additional contributions to CalSTRS] and teachers just 10 percent.

It’s an “Animal Farm” thing, you see. Some public employees are more equal than others.

I’ve never seen this special treatment for teachers over public employees detailed in an MSM newspaper story. It’s one more juicy story that the Sacramento set chooses to ignore.

(Editor’s note: The description of the 2012 pension law was corrected after a reader pointed out problems with the original version.)

“For more than a decade, lawmakers have ignored the increasing shortfall. Consequently, the California State Teachers’ Retirement System is now $74 billion underfunded, holding only 67 percent of assets it should have.

“Brown now wants to start paying down the debt this year. But he would stretch the installments until 2046, meaning it would take 32 years to restore full funding and that the debt would continue growing for the first 12 years.

“That’s not fiscally responsible; it’s merely less irresponsible than what lawmakers do now.”

It’s not irresponsible enough for Dem majority

And guess what? In the least surprising development of all time, even the governor’s irresponsible plan is too responsible for the Legislature. This is from Dan Walters:

“State legislators heard a heavy litany of complaints from school officials this week about Gov. Jerry Brown’s plan to make the State Teachers Retirement System solvent and in response temporarily toned down the bite on their budgets.

“The Brown plan aims to close a $70-plus billion unfunded liability by eventually raising contributions to $5-plus billion a year, with the lion’s share coming from the budgets of local school districts.

“But school officials told a joint legislative hearing that the sharp increases would wipe out much of the gains in state aid they are scheduled to receive during the remainder of the decade.

“In response, the chairs of the two legislative committees involved asked for a modification and on Friday, the Legislative Analyst’s Office released a revised chart that would reach the same level of financing sought by Brown by 2020, but lower the increase in the early years and raise it later.”

Yeah, sure, they’ll “raise it later.” To paraphrase an old Baltimore Sun columnist, no one will ever go broke underestimating the people in charge of the California Legislature.

Since then, three cities in the Golden State have either entered bankruptcy or on the verge of it because of massive pension costs — Vallejo, Stockton and San Bernardino. I’m not aware of any other state with more than one such afflicted city, and most states don’t have any.

But are other states learning from California’s mistakes? Evidently not. On Monday, there were reports that New Jersey was copying the screw-up that San Diego elected officials made beginning in 1996:

“Gov. Chris Christie’s move to reduce New Jersey’s pension payment to help close a mid-year budget gap has Moody’s Investors Service concerned that the state is approaching the limit of steps to trim spending.

“The second-term Republican is cutting $694 million of spending to balance the budget for the year through June. That includes $94 million from recalculating the required pension contribution as a result of revised actuarial assumptions, Baye Larsen, a Moody’s analyst in New York, said in a report last week.

“While the fix will help balance budgets through fiscal 2018, pension costs will be higher in later years as a result, according to Moody’s.”

This is crazy. It’s especially crazy from a guy who likes to criticize President Obama for fiscal recklessness. But it’s also super-mega crazy for a politician who takes shots for his doughy appearance to be making like Wimpy of Popeye fame when it comes to indiscipline and the need for instant gratification.

The truth? It’s an assault on the middle class

Allowing BART employees higher salaries and benefits on their already-high compensation will only result in increasing costs and increased fares for the riders.

It’s too easy to negotiate with other people’s money, and even easier to end up giving it away.

By Chris Reed

It’s not just President Barack Obama and Gov. Jerry Brown who have drank the green Kool-Aid and bought into the idea that “green” jobs and energy can be America’s economic salvation.

It’s also that lumbering, bumbling, scandal-ridden monument to all that is bad about California known as CalPERS. Why do I have the feeling readers are utterly unsurprised?

This is from Friday’s Upstart Business Journal:

“One of the biggest players investing in cleantech has lost money on its gambles.

“The California Public Employees Retirement System has put $900 million to work in cleantech, $460 million of that with venture capitalists who invest in cleantech startups, and has had a negative return of 9.8 percent on that money.

“The revelation came from CalPERS chief investment officer Joseph Dear during the Wall Street Journal’s Eco:comics conference Wednesday night. ‘Just because it’s a good idea doesn’t make it a good investment,’ he said. ‘This has been a noble way to lose money.'”

If you’re a California taxpayer, you should be screaming and pulling out your hair. No, big deal, all you suckers who are going to have to bail out CalPERS: The pension giant has figured out “a noble way to lose money.” Aaaaauuuggghhh! Aaaauuuggghh! Aaauugggghhhh!

Here’s another account of CalPERS’ green folly.

Here’s CalPERS’ official page on its noble fiasco.

Thanks to Jack Dean of the awesome PensionTsunami.com site for drawing this to my attention.

By Brian Calle

Californians know a thing or two about recalls.

Only two state governors in U.S. history have been removed from office via recall; the first was North Dakota Gov. Lynn J. Frazier in 1921. Of course, the second was California’s Democratic Gov. Gray Davis in 2003.

Public-sector unions in Wisconsin — with their national counterparts cheering them on — hope Tuesday to make Gov. Scott Walker the third governor recalled from office because he dared to challenge union power and influence in state governance.

But compare Walker with California Gov. Jerry Brown — and contrast Wisconsin’s progress since Walker enacted his union-bucking policies with California’s continued decline under Brown’s union-friendly leadership, and you see two different outcomes.

Walker and Brown, who both took office on the same day, Jan. 3, 2011, faced tremendous budget deficits and squawking public employee unions demanding higher taxes. Brown obliged; Walker would not.

Faced with a $3.6 billion deficit, Walker lowered taxes — freezing property taxes and bringing down school property taxes. He also painted a realistic and honest budget picture for his constituents and pushed for painful but necessary reforms that cut collective bargaining rights for government unions and created more competition, like allowing private vendors to bid on health insurance contracts for school districts, which reduced costs.

Seventeen months later, Wisconsin is projected to have a $154 million surplus by the summer of 2013. And, the Wisconsin-based MacIver Institute reported that Walker’s reforms have saved taxpayers $1 billion.

In California, Gov. Brown, returning to the post he left in 1983, sided with unions from day one. Early on, he appointed a California Teachers Association lobbyist, Patricia Rucker, to the state Board of Education. He also presented Californians with an unrealistic budget that projected far more state revenue than what eventually came in.

Partially as a result of such budgeting gimmickry, the state’s projected $9 billion budget shortfall has ballooned to $17 billion.

Brown’s plan to close the gap is to convince voters in November to inflict higher taxes on themselves, an approach blessed by unions. Should his tax increases pass, they would raise only about $8.5 billion, a far cry from the $17 billion needed to close the budget hole. And that means California will continue on the path of dysfunctional budgeting and sidestepping meaningful reform.

Unlike Walker, Brown has yet to challenge the stranglehold that public employee unions have in the state — if anything, he has emboldened them. That is one of the reasons he prefers seeking new taxes to making deeper spending cuts or expending political capital on reforming unsustainable public-employee pensions.

Also, unions had been a pillar of Brown’s political career for decades. They helped get him elected again to the governorship in 2010. Early in his first administration, Brown signed the Rodda Act in 1975, which bestowed collective bargaining rights on California public school teachers.

Walker in many ways is the antithesis of Brown.

As Douglas Belkin and Kris Maher wrote for the Wall Street Journal: “Public-employee unions in Wisconsin have experienced a dramatic drop in membership – by more than half for the second-biggest union — since a law championed by Republican Gov. Scott Walker sharply curtailed their ability to bargain over wages and working conditions.” Specifically, Walker stopped the practice of automatically withholding union dues from the paychecks of employees — the main source of funds for union political operations.

“Wisconsin membership in the American Federation of State, County and Municipal Employees — the state’s second-largest public-sector union after the National Education Association, which represents teachers — fell to 28,745 in February from 62,818 in March 2011,” Belkin and Maher reported.

Examining Brown and Walker’s records, one might argue the recall efforts ought to focus on the former, rather than the latter, as the California governor continues to preside and perhaps enable the Golden State’s fiscal calamity.

Walker’s day of reckoning comes Tuesday, and, fortunately, the latest-available polling data, including a poll from Marquette University, indicated he would prevail, with about 52 percent support.

Brown’s day of reckoning will come in November, when votes are cast on his tax increase ballot measure.

What happens in Wisconsin in a couple days will have significant repercussions for those hoping, eventually, for similar reforms in the Golden State. If Walker keeps his job, other governors, like Brown, well could find themselves with more leverage with their unions. If Walker is recalled, unions nationwide will be emboldened.