State’s Retired Public Workers Earn 26% More than Private-Sector Workers Still on the Job

For Immediate Release
March 13, 2017
California Policy Center
Ed Ring, ed@calpolicycenter.org
(916) 524-7534

California’s retired government workers earn 26% more in retirement than private-sector workers earn while still on the job.

That’s the finding of an in-depth analysis released this week by the California Policy Center.

“This is an absolutely upside-down system,” said California Policy Center CEO Mark Bucher. “In the Golden State, it truly pays not to work.”

The new study found that the average pension for a retired public employee in California was $68,673 in 2015, before benefits. By contrast, active private-sector workers earned on average just $54,326.

That same year, the maximum Social Security benefit for a high-wage earner retiring at age 66 was just $32,244 – less than half the benefit of a retired government worker.

Study author Ed Ring analyzed 23 of the largest pension systems in California, representing 95 percent of all state and local government retirees – over 1 million retirees.

State officials at CalPERS claim that benefits to retirees average about $31,500 per year.

But that’s misleading, says Ring, who is vice president of research at CPC.

“They’re not taking into account the average retiree’s length of service. Someone who works half of a normal career should not expect a pension equal to someone who has worked a full career,” Ring says.

Read the full study here: What is the Average Pension for a Retired Government Worker in California?

Other key findings of the study:

  • For all systems evaluated, representing over 1.0 million records of California’s retired state and local government workers, in 2015 the average pension for a post-2000 retiree with between 29.5 and 30.5 years of work was $68,673. This does not include benefits.
  • Using the same criteria – the average full-career pension for a CalPERS retiree was $71,402, for a CalSTRS retiree it was $57,715, and for a University of California retiree it was $61,752.
  • There was a great deal of variation in the major independent county pension systems, with the highest full-career average in 2015 going Contra Costa County, at $85,091, and the lowest going to Tulare County, at $51,932.
  • To compare public safety pensions to pensions for all other employees, we evaluated data from three cities where each city has two independent pension systems, one for public safety, and another for all other employees. The 2015 results summarize as follows:
    Los Angeles – public safety $89,183, all other retirees $54,782,
    San Jose – public safety $130,439, all other retirees $74,649,
    Fresno – public safety $54,860, all other retirees $40,927
  • Another way to compare public safety pensions to pensions for all other employees was to evaluate data from pension systems that reported, for each record, the former employing agency. Los Angeles County provided data that included this information. Los Angeles County was also the only major pension system to provide benefits data, yielding the following summary:
    Sheriffs – pension $88,144, benefits $18,395, total $106,539
    Firefighters – pension $104,905, benefits $20,350, total $125,256
    All other retirees – pension $50,484, benefits $10,581, total $61,065
  • Data on disability pensions was available from two major pensions systems: In Los Angeles County in 2015, disability pensions were reported for 6.5% of former miscellaneous employees, for 40.5% of all retired former sheriffs, and 65.7% of all retired former firefighters; in San Jose’s retirement system exclusively for former public safety employees, 50.0% of the retirees were receiving disability pensions.

“California’s state and local governments face serious financial challenges, including $1.3 trillion in debt and underfunded pensions, plus neglected infrastructure,” says Ring. “State and local elected officials ought to be coming up with policies designed to lower the cost of living for everyone, instead of paying pensions to their government workforce that actually exceed the average of what active private sector citizens earn while still working.”

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center produces policy solutions to unleash California’s legendary talent and entrepreneurial spirit. Learn more at CaliforniaPolicyCenter.org.

California’s State and Local Workers Average Pay and Benefits Twice the Average for Private Sector Workers

For Immediate Release
January 26, 2017
California Policy Center
Ed Ring, ed@calpolicycenter.org
(916) 524-7534

A in-depth analysis released this week by the California Policy Center finds that the average pay and benefits for California’s full-time state and local public employees in 2015 was $121,843. This is nearly twice what the average full-time private sector worker made in pay and benefits during 2015, $62,475.

Read full study: California’s Public Sector Compensation Trends

The California State Controller provides public pay averages but these are weighed down by part time and part year workers as well as interns and temporary employees. Relying instead on raw data downloaded from the State Controller’s website, CPC researchers combed through 881,021 individual 2015 pay records for California’s city, county and state agency employees to isolate the full-time employees in order to calculate accurate averages. Using data from the U.S. Census Bureau and the California Employment Development Department, the researchers were also able to estimate the average pay and benefits for private sector workers in California.

“If anything we have understated the public sector averages, and overstated the private sector averages,” said Ed Ring, CPC VP of policy research and author of the study. “For example, we calculated the public sector averages would have risen to $139,691 in 2015 if the pension systems had been more adequately funded. We also made, in the absence of better available data, very generous assumptions regarding private sector employer-paid benefits, which meant our $62,475 average total pay and benefits estimate for private sector workers, if anything, is overstated.”

Other key findings of the study:

  • Average 2015 total compensation for full-time state/local workers by category:
    – Cities: public safety $171,450, miscellaneous (all other employees) $121,431.
    – Counties: public safety $170,728, miscellaneous $108,857.
    – State Agencies: public safety $137,531, miscellaneous $104,867.
  • Between 2012 and 2015 there was a strong correlation between growth in employer costs for overtime and growth in employer costs for pension contributions. Overtime pay was up in 2015 compared to three years ago by 35% for cities, 60% for counties, and 32% for state agencies. Similarly, pension contributions were up in 2015 compared to three years ago by 14% for cities, 26% for counties, and 42% for state agencies.
  • In 2015, the pay (not including benefits) for California’s city and county employees exceeded pay for workers in cities and counties in the rest of the U.S. by 39%; California’s average public safety worker pay exceeded that of their counterparts across the U.S. by 78%; miscellaneous worker pay in California was 16% greater than in the rest of the U.S.
  • Between 2000 and 2015, average private sector pay for full-time workers in California (not including benefits) increased 47%, from $37,012 in 2000 to $54,326 in 2015. During that same period, average pay for public employees in California increased by 59%, from $51,271 in 2000 to $81,549 in 2015.
  • In 2015, the “benefits overhead” for the average private sector full-time worker in California is estimated at 15%; for state, city and county public employees, even when including overtime in the denominator, it is 40%.

“California’s state and local governments face serious financial challenges, including $1.3 trillion in debt and underfunded pensions, plus neglected infrastructure,” said Ring. “State and local elected officials ought to be coming up with policies designed to lower the cost of living for everyone, instead of paying their government workforce twice what ordinary citizens can earn.”

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of shaping more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Friedrichs v. 2.0? U.S. Supreme Court May Get a Second Chance to Free Teachers from Forced Unionism

For Immediate Release
January 19, 2017
California Policy Center
Will Swaim, will@calpolicycenter.org
(949) 274-1911

In a case that will cheer education reformers, four Pennsylvania teachers today sued their unions, school districts and district officials for making union membership a condition of their employment.

The suit – and the likely appointment of a reform-friendly Supreme Court justice under the incoming Trump Administration – immediately raised expectations that Hartnett v. Pennsylvania State Education Association will do for public education what last year’s Friedrichs case could not.

Plaintiffs in Friedrichs persuaded district and circuit courts in California to move that case quickly to the Supreme Court.

“If the Hartnett plaintiffs can do the same, it’s possible Hartnett could become the vehicle for the Supreme Court finally to rule in favor of worker freedom,” said Robert W. Loewen, a retired attorney, court watcher and board chairman of the California Policy Center. “That would give the new court the opportunity to overturn its ill-advised decision in Abood, which has prevailed since the 1970s.”

The Hartnett plaintiffs “do not want the state deciding for them which private organizations they must support and specifically do not want to be compelled by state actors to support labor organizations they have not voluntarily chosen to support and that they may, in fact, oppose,” the teachers assert in their filing.

Hartnett comes just months after the U.S. Supreme Court deadlocked over Friedrichs v. California Teachers Association. Following a January 2016 Supreme Court hearing, Friedrichs appeared certain to unwind mandatory union membership for teachers on First Amendment grounds.

But Friedrichs was derailed by the death of Judge Antonin Scalia just weeks after that hearing. Scalia’s absence left the justices tied 4-4 on Friedrichs. That left standing a lower court’s ruling in favor of the California Teachers Association.

The failure of the Friedrichs case – and the apparently inevitable election of Hillary Clinton – seemed to kill hopes the Supreme Court would overturn Abood, and end union control of public education in the U.S.

Donald Trump’s November win, and the expectation that the new president will nominate a reform-minded Supreme Court appointment to replace Scalia, raised hopes for a new Friedrichs-style case.

Rebecca Friedrichs, the third-grade teacher from Orange County, California, was among the first to celebrate the announcement of Hartnett.

“I’m thrilled to hear school employees and teachers throughout the country are standing united for freedom from forced unionism,” she told the California Policy Center hours after the suit was filed. “Every American worker deserves to innovate and thrive on the job unencumbered by the politics and policies imposed upon them by union domination of our workplaces.

“It’s time for liberation,” she said. “Three cheers for the brave men and women bringing the issues to light.”

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of shaping more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

California debt now running closer to Italy and Portugal, new study finds

For Immediate Release
January 11, 2017
California Policy Center
Marc Joffe, marc@calpolicycenter.org
(415) 578-0558

A landmark study of California’s finances reveals the state’s debt burden is approaching the levels of Italy and Portugal, where debt crises in 2011 and 2012 drove the Eurozone countries to the brink of collapse. The findings come a day after Governor Jerry Brown predicted that the state would end the year with a sizable deficit.

California Policy Center researchers Marc Joffe and Bill Fletcher determined that California state and local governments owed $1.3 trillion as of June 30, 2015. Pensions and health benefits paid to retired state workers make up more than half of that debt.

CPC’s analysis is based on a review of federal, state and local financial disclosures. The total includes bonds, loans and other debt instruments as well as unfunded pension and other post-employment benefits promised to public sector employees.

“Our estimate of California government debt represents about 52% of California’s Gross State Product of $2.48 trillion. When added to the state’s share of the national debt, we find that California taxpayers are shouldering debt burdens on a par with residents of peripheral Eurozone states,” they write.

Read CPC’s full study here.

Other key points in the California Policy Center study:

  • Not included in the debt calculation: billions of dollars in deferred maintenance and upgrades to California’s infrastructure. “To the extent California’s government has not maintained investment in infrastructure maintenance and upgrades to keep up with normal wear and to keep pace with an expanding population, it has passed this cost on to future generations who will have to issue additional debt to pay for this expense.”
  • More debt has been added since the June 30, 2015 analysis date. Governments at all levels issued $72 billion in new debt last year.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of shaping more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Gov. Brown says yes to school finance reforms inspired by CPC study

For Immediate Release
August 18, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

SACRAMENTO — It’s rare that a think-tank study produces real reform, but it happened today when Gov. Jerry Brown signed into law a bill designed to stop school officials before they recklessly spend again.

Assembly Bill 2116 began one year ago with a July 2015 California Policy Center study.

For the Kids: California voters must become wary of borrowing billions from wealthy investors for educational construction,” by CPC researcher Kevin Dayton, tracked passage over 14 years of more than 900 California school bonds worth $146.1 billion.

Inspired by that CPC study, Rep. James Gallagher (R-Sacramento Valley) drafted a bill to limit the ability of school districts to take on debt through new bonds – even authorizing county auditors to stop spending if bond “funds are not being spent appropriately.”

“I am pleased that the governor saw the need to increase oversight of school bonds,” Gallagher said in a press release. “Borrowing for bonds has exploded in the last decade, and it is more important than ever that school construction bond funds be fiscally sound and their financing mechanisms transparent.”

In addition to waste and abuse in the management of those school bonds, Dayton found another problem: the surge in school bond debt has produced a massive “wealth shift” upward – from taxpayers of relatively modest means to “wealthy investors who buy state and local government bonds as a relatively safe investment that generates tax-exempt income through interest payments.”

Gallagher’s bill implements California Policy Center recommendations to kill one of the most pernicious municipal finance practices. The new law limits the ability of bond advisers to exaggerate property values when calculating the taxpayer burden.

“We dedicated tremendous resources to producing this study, and we were naturally pleased to see Rep. Gallagher act on it with such energy,” said Ed Ring, CPC’s president. “We’re especially delighted that the state’s school kids have been placed ahead of the interests of consultants, government unions, politicians and Wall Street banking interests.”

“It’s great to see intellectual research and analysis turn into practical improvements in law,” said Dayton.

ABOUT ANALYST KEVIN DAYTON
Kevin Dayton is a policy analyst for the California Policy Center, an influential writer, and the author of frequent postings about generally unreported California state and local policy issues on the California Policy Center’s Prosperity Forum and Union Watch, as well as on his own website LaborIssuesSolutions.com. Dayton is a 1992 graduate of Yale University. Follow him on Twitter at @DaytonPubPolicy.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

SUITABLE FOR QUOTING: Expert Responses to CalPERS’ Monday, July 18 Earnings Report

For Immediate Release
July 18, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

California Policy Center Responses to Monday, July 18, 2016 Earnings Report

For reporters and commentary writers, the California Policy Center can make available two public finance experts. We also offer for publication these immediate responses to the CalPERS report:

 

ED RING: is president of the California Policy Center. He directs the organization’s research projects and is also the editor of the email newsletters Prosperity Digest and UnionWatch Digest. His work has been cited in the Los Angeles Times, Sacramento Bee, Wall Street Journal, Forbes, and other national and regional publications.

“Current gains in the market are engineered by low interest rates and stock buy-backs. It is an unsustainable bubble.”

“CalPERS claims that infrastructure investments helped their portfolio returns, but they have less than 1% of their assets invested in infrastructure.

“CalPERS claims ‘fixed Income earned a 9.29 percent return’ in their most recent fiscal year. This is impossible to do without extremely high risk. Most fixed income investments today have returns of 3% or less.”

“If CalPERS is truly committed to transparency, they’ll stop investing in private equity, which by its very nature is not transparent.”

“If CalPERS truly believes they can earn 7.5%, or even 6.5%, then they should set a ceiling on the percent of payroll they demand from cities and counties, instead of perpetually increasing it.”

“If CalPERS truly believes they can earn 7.5%, then they’ll use that rate, instead of 3.8%, when calculating how much to charge a city or county that wants out of their system.”

“CalPERS depends on a Fed engineered asset bubble to remain solvent. As such, they are complicit with the Wall Street financial interests that control our national politicians and whom their union board members regularly decry.”

 

MARC JOFFE is a California Policy Center financial analyst and founder of Public Sector Credit Solutions in 2011. PSCS research has been published by the California State Treasurer’s Office, the Mercatus Center and the Macdonald-Laurier Institute among others. Before starting PSCS, Marc was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.

“This is the second year of returns well below 7.5%. In 2015, CalPERS returned only 2.4%. The cumulative impact will be greater stress on local budgets as cities, counties and special districts will have to increase their pension contributions to make up for the shortfall.”

 

ABOUT THE CALIFORNIA POLICY
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

FOR PUBLICATION: Ed Ring Response to CalPERS’ disastrous 2015-16 earnings report

For Immediate Publication
July 18, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

Latest earnings report is more evidence California retirement agency will reform or die

By Ed Ring | California Policy Center

The officials who run California’s public-employee retirement system should have released today’s earnings report with sound effects – a flugelhorn, maybe, or horror-movie screams.

Through the year ending June 30, the California Public Employee Retirement System earned just 0.61% on its investments – not even close to it 7.5% projection.

CalPERS is the nation’s largest public employee pension fund. Like all such funds, it relies on investment earnings to pay retired public employees far more in retirement benefits than those employees – along with their employers – deposited into those funds during their careers. The better the market, the less CalPERS has to lean on local government employers and employees for cash. But when the market goes south, as it has, CalPERs has to push its contributors for more cash.

Today’s report includes grim warnings about future earnings too. And that means everyday Californians should expect government service cuts, higher taxes, delayed maintenance of critical infrastructure, and a push to take on great government debt.

The earnings report directly contracts the system’s recent bullish assessments of fund performance. When the Orange County Register in January asked why CalPERS was still predicting a return of 7.5% when the stock market was producing more anemic results, fund officials offered a political rather than responsible financial response: even a modest downward estimate would force them to demand that local officials bail out the fund. That “would have caused financial strain on many of California’s local municipalities that are still recovering from the financial crisis,” CalPERS officials said in a press release.

In March, the agency was at it again, arguing that its projection of 7.5% returns was “not unrealistic” – is in fact historically reasonable because CalPERS has occasionally hit that number.

Then, reality began to set in. Last month, Ted Eliopoulos, the system’s Chief Investment Officer, warned the public that the next five years will be “a challenging market environment for us. It is going to test us.”

Our own recent analysis shows Eliopoulos is right.

Our analysis relies on three measures of stock-market health: ratios of price/earnings, price/sales, and price/GDP. They show the stock market is overvalued by about 50 percent, suggesting that pension funds are headed for a major correction.

At the moment, California’s state and local agencies contribute an average of about 33 percent of their payroll to CalPERS and other state/local pension funds. In the event of a market slide of 50 percent, followed by annual returns of 5 percent per year, with no changes to retirement benefits, we estimate the required annual contribution from local governments would rise to a crushing 80 percent of payroll. The total cost to California’s taxpayers of keeping CalPERS and the other state/local pension systems afloat: an additional $50 billion per year.

If market returns are just one point lower – 4 percent instead of 5 percent – we estimate local governments having to make annual payments equal to a staggering 113 percent of their payroll. That’s an additional $86 billion per year.

There are ways to preserve the retirement funds and protect taxpayers. But if investment performance falters, reducing the formulas used to calculate defined benefit pensions will have to be part of the solution. Lowering or even suspending cost-of-living increases for retirees and reducing the rate at which pension benefits are earned by new and existing employees would be a good start, as would capping pension benefits and raising the age of eligibility.

But implementing reforms is a political impossibility – unless the people running CalPERS and the other pension systems stop fighting to preserve the status quo. They need to work their client agencies and their union-dominated boards of directors to accept benefit reductions that will restore financial sustainability to these funds without crushing taxpayers. They might even exercise true creativity, and explore new portfolio strategies such as investing in California’s neglected infrastructure.

There’s little chance of that so long as denial characterizes the agency’s response. CalPERS officials accompanied today’s weak earnings report with cheery language. The near-zero return rate was a “positive net return” that the agency “achieved” “despite volatile financial markets and challenging global economic conditions.”

For his part, Eliopoulos, the fund’s top investment officer, expressed a kind of optimism about the future. So be it. But if he and his CalPERS colleagues truly want to prove their optimism – if they are so sure they can hit their numbers – they should freeze the amount they demand from cities and other agencies at a fixed percent of payroll.

That would mean putting an end to the blank checks Californians have sent to Sacramento. And that news could be heralded by something like a trumpet blast of angels or a marching band.

 

ABOUT THE AUTHOR
Ed Ring is president of the California Policy Center. He directs the organization’s research projects and is also the editor of the email newsletters Prosperity Digest and UnionWatch Digest. His work has been cited in the Los Angeles Times, Sacramento Bee, Wall Street Journal, Forbes, and other national and regional publications.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Red Flags: New Study Offers Grim Warning for California Pension Funds

For Immediate Release
July 12, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

Stock market overvaluation will lead to ‘major correction,’ trigger benefits cuts and tax hikes

SACRAMENTO, Calif. – There are more red flags for public-sector pension funds that rely on stock investments for most of their income, a new California Policy Center study finds.

Read the entire study here.

“Three key market indicators show that publicly traded U.S. stocks are overvalued by about 50 percent, suggesting that pension funds are headed for a tough correction,” says CPC President Ed Ring, author of “How a Major Market Correction Will Affect Pension Systems, and How to Cope.”

Ring says the likely downturn will have grave implications for all Californians – not just those who depend upon the pension funds for retirement income. Lower returns on their investments will force pension funds to cut payments to government retirees or require California governments to act dramatically to cover the revenue shortfall.

Using a long-range cash flow model that simulates pension fund performance, Ring calculated the impact on California’s state and local government employee pension funds based on a market slide of 50% in 2017, followed by annual returns of 5% per year. In this case, with no changes to retirement benefits, the required annual contribution from governments would rise to 80% of payroll, costing an additional $50 billion per year. In another case, with post-crash returns projected at only 4% per year, the model estimated annual payments to rise to a staggering 113% of payroll, costing an additional $86 billion per year. Currently, California’s pension funds collect from state and local agencies an amount equivalent to about 33% of their payroll.

The study also provides several specific estimates of how much pension benefits would have to be cut (retirement age, annual multiplier, and COLA) after a severe market correction in order to keep the annual contributions from state and local agencies level at 33% of payroll.

The CPC study includes a link to download Ring’s spreadsheet so that anyone can test a variety of pension-fund assumptions.

You can download the spreadsheet here.

Ring’s prediction of an impending correction cites three key stock market ratios:

  • Price/earnings, now at one of the market’s historic highs
  • Price/sales, now at a 50-year high
  • Stocks/GDP, now near its 60-year high

Ring predicts he’ll have many critics.

“It is easy enough to step back and claim that the rules have changed, that these unusually high stock-market multiples can be sustained for additional decades, and that productivity improvements will enable the U.S. economy to support both massive debt and an aging population,” Ring writes. “Those who argue this position are betting that the U.S. economy will remain a stable refuge for wealth fleeing far more tumultuous economies elsewhere in the world. Staking the future of pension fund systems on this argument is a dangerous gamble.”

Ring’s study appears even as officials at California Public Employees Retirement System, the nation’s largest retirement system, prepare Californians for a poor earnings report next week.

Analyst Ed Ring is available for media interviews. Direct press inquiries to:

Ed Ring
President, California Policy Center
Ed@CalPolicyCenter.org
(916) 524-7534

Or

Will Swaim
Vice President, California Policy Center
Will@CalPolicyCenter.org
(714) 573-2231

ABOUT THE AUTHOR
Ed Ring is president of the California Policy Center. He directs the organization’s research projects and is also the editor of the email newsletters Prosperity Digest and UnionWatch Digest. His work has been cited in the Los Angeles Times, Sacramento Bee, Wall Street Journal, Forbes, and other national and regional publications.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

 

UC Berkeley’s ‘income inequality’ critics earn in top 2%

For Immediate Release
June 23, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

 

Income inequality at UC Berkeley worse than world’s-worst Haiti

SACRAMENTO, Calif. – Scholars from the University of California at Berkeley have played a pivotal role in making income inequality a major issue in 2016 political campaigns. But while they decry the inequities of the American capitalist system, Berkeley professors are near the top of a very lopsided income distribution prevailing at the nation’s leading public university, according to a new study by the California Policy Center.

You can read the full study here.

Marc Joffe, the study’s author, examined state salary data to determine that inequality among the 35,000 UC Berkeley employees is worse than that of Haiti.

Ironically, income inequality at Cal shows up dramatically in its Center for Equitable Growth (CEG), the university’s home to critics of income inequality.

According to the most recent data:

  • Center Director Emmanuel Saez received total wages of $349,350.
  • Its three advisory board members are also highly compensated Cal professors: David Card (making $336,367 in 2014), Gerard Roland ($304,608) and Alan Auerbach ($291,782).
  • Aside from their high wages, all four professors are eligible for a defined-benefit pension equal to 2.5% times final average salary times number of years employed.

All four are in the top 2% of UC Berkeley’s salary distribution, and that Saez is in the top 1%.

Says Joffe: “It could be that an effective researcher has to know his or her subject: thus to the study the top 1%, we suppose one has to be in the top 1%.”

Among Berkeley’s most prominent critics of income inequality is former Clinton Labor Secretary Robert Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley. Reich receives somewhat lower compensation than the four CEG economists, collecting $263,592 in pay during 2014. But Reich’s salary was likely not his only source of income in 2014. Reich makes himself available to give paid speeches through a number of speaking bureaus, charging a fee estimated at $40,000 per talk.

“If UC Berkeley economists are really opposed to income inequality and are concerned about low-paid workers, they might consider sharing some of their compensation with the teaching assistants, graders, readers and administrative staff at the bottom of Cal’s income distribution,” Joffe concludes.

ABOUT THE AUTHOR
Study author Marc Joffe is the founder of Public Sector Credit Solutions and a policy analyst with the California Policy Center. Joffe founded Public Sector Credit Solutions in 2011 to educate policymakers, investors and citizens about government credit risk. PSCS research has been published by the California State Treasurer’s Office, the Mercatus Center and the Macdonald-Laurier Institute among others. Before starting PSCS, Marc was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Major-party presidential candidates offer no solutions on federal retirement crises

For Immediate Release

June 2, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(714) 573-2231

SACRAMENTO — Californians may be accustomed to living with the specter of a public pension crisis. But the federal government’s problem with its retirement systems – including Social Security – is far worse, and yet none of the three remaining major-party candidates for president has a plan to do anything about it.

The California Policy Center offers “Comparing Federal and California State Retirement Exposures,” a comparison of California and federal exposure to pension liability. You can read Marc Joffe’s full study here.

Key findings include:

On Social Security
DEBT VS. ASSETS: “Although discussion of Social Security often revolves around the trust fund, this emphasis is misplaced. Unlike CalPERS or CalSTRS, the Social Security trust fund does not contain real assets. Instead, it holds special-issue U.S. Treasury bonds. Total federal assets of $3.2 trillion are easily exceeded by $13.2 trillion of federal debt securities held by the public and $8.2 trillion of other liabilities. So the IOUs held by the Social Security trust fund compete with claims held by many external parties for a relatively small pool of federal assets.”

IMPACT ON FEDERAL DEFICIT: Using projections from the Social Security Actuaries, Joffe reports that the Social Security program is expected to add $371 billion to the annual federal budget deficit (in constant 2015 dollars) by 2040. The Social Security Actuaries say that projecting higher costs (for example, an increase in life expectancy), adds $640 billion (again, in constant dollars) to the annual deficit.

On Federal Employee Retirement Programs
UNFUNDED LIABILITIES: “The Civil Service Retirement and Disability Fund, paid $81 billion of retirement benefits in fiscal year 2015, or 2.49% of federal revenues. The system reported an Unfunded Actuarial Liability of $804.3 billion and Assets of $858.6 billion, implying a funded ratio of only 51.6%.” The Defense Department also offers pensions, and its system is worse than the Civil Service program with a funded ratio of just 35%.

Washington has Bigger Problems – and More Powerful Financial Tools
Joffe concludes that the federal government has tools to deal with a public pension crisis that the states do not:

Constitutional: “In an emergency, Congress and the president can cut or even terminate benefits to Social Security recipients, federal civilian retirees or veterans. This is not the case for the state of California.”

Currency control: “A central government controlling an international reserve currency does have more fiscal flexibility than a state which is legally obligated to balance its budget each year. So the federal government’s ability to absorb pension obligations is greater than California’s. This is fortunate, because the federal governments exposure is so much greater.”

The complete California Policy Center study is available here.

ABOUT THE AUTHOR
Study author Marc Joffe is the founder of Public Sector Credit Solutions and a policy analyst with the California Policy Center. Joffe founded Public Sector Credit Solutions in 2011 to educate policymakers, investors and citizens about government credit risk. PSCS research has been published by the California State Treasurer’s Office, the Mercatus Center and the Macdonald-Laurier Institute among others. Before starting PSCS, Marc was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

 

Citing CPC study, new Assembly bill seeks to stop runaway school bond debt

For Immediate Release
March 24, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(949) 274-1911

SACRAMENTO — A California Assemblyman hopes to stop school officials before they recklessly spend again.

AB 2116 author Rep. James Gallagher (R-Sacramento Valley) says his bill would limit the ability of school districts to take on debt through new bonds – even authorizing county auditors to stop spending if bond “funds are not being spent appropriately.”

“Borrowing for school construction has exploded in the last decade,” Gallagher said.“As borrowing hits record highs, it is more important than ever that school construction bond funds be fiscally sound, and their financing mechanisms transparent.

“AB 2116 ensures that future school construction bonds are subject to stricter scrutiny and transparency.”

Gallagher said his Assembly bill is built on research and recommendations in a July 2015 California Policy Center study.

“For the Kids: California voters must become wary of borrowing billions from wealthy investors for educational construction,” by CPC researcher Kevin Dayton, tracked passage over 14 years of more than 900 California school bonds worth $146.1 billion.

In addition to waste and abuse in the management of those school bonds, Dayton found another problem: the surge in school bond debt has produced a massive wealth shift upward – from taxpayers of relatively modest means to “wealthy investors who buy state and local government bonds as a relatively safe investment that generates tax-exempt income through interest payments.”

Gallagher’s bill would implement three of the California Policy Center’s recommendations – requiring independent audits of a bond’s drain on local tax revenue; establishing annual reviews of bond issuing and repayment; and empowering auditors to halt spending that is inconsistent with the bond’s purpose.

The bill will be heard April 6 at 1:30 pm in the Assembly Education Committee of the California State Capitol, Room 2116.

ABOUT ANALYST KEVIN DAYTON
Kevin Dayton is a policy analyst for the California Policy Center, a prolific writer, and the author of frequent postings about generally unreported California state and local policy issues on the California Policy Center’s Prosperity Forum and Union Watch, as well as on his own website www.LaborIssuesSolutions.com. His other policy reports include Legacy Issues: The Citizens for California High-Speed Rail Accountability 2014 Business Plan for the California High-Speed Passenger Train System and four editions of Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? — a publication that sparked high-profile policy debates in cities throughout California and in the state legislature. His 2003 journal article “Labor History in Public Schools: Unions Get ’Em While They’re Young,” endures as the leading critical analysis of that movement. Dayton is a 1992 graduate of Yale University. Follow him on Twitter at @DaytonPubPolicy.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.

Annual ranking: California’s best and worst counties by pension burden

For Immediate Release
March 15, 2016
California Policy Center
Contact: Will Swaim
Will@CalPolicyCenter.org
(949) 274-1911

SACRAMENTO — Years after the Great Recession slammed their Wall Street investments, at least four California counties have broken through the 10 percent ceiling, spending one of out of every $10 to fund their government-employee retirement programs.

The resulting strain on local budgets, called the pension burden, is one of the revelations in California Policy Center’s latest analysis of county reports.

Study author Marc Joffe said county pension burdens may be worse than his analysis reveals.

“Because pension systems usually require their actuaries to assume high rates of return on their assets, it’s arguable that counties understate their actual pension burdens,” Joffe said. “The financial stress on local governments is likely more critical than even our numbers reveal.”

Four California counties reported their pension contributions now exceed 10 percent of total revenues: Santa Barbara County (13.1 percent), Kern County (11 percent), Fresno County (10.7 percent) and San Mateo County (10 percent).

A fifth county, Merced, is also expected to report that its required contributions topped 10 percent of 2015 revenue when it files its audit.

“For years, public employee union leaders denied the pension burden was even close to 10 percent,” California Policy Center president Ed Ring noted. “This study shows the burden in some places is now approaching 15 percent of total revenues.”

The surveyed counties, which account for more than 95 percent of California’s population, made over $5.4 billion in pension contributions during the fiscal year. These counties also made $660 million of debt service payments on pension obligation bonds, raising total pension costs to over $6 billion last year.

That figure accounts for about one sixth of all California state and local pension contributions (not including payments on pension obligation bonds), estimated at $30.1 billion in 2014.

As investment markets remain relatively flat, it seems likely that many California counties will bow to pressure to cut government services or to raise cash through debt instruments or taxes.

The complete California Policy Center study is available here.

ABOUT THE AUTHOR
Study author Marc Joffe is the founder of Public Sector Credit Solutions and a policy analyst with the California Policy Center. Joffe founded Public Sector Credit Solutions in 2011 to educate policymakers, investors and citizens about government credit risk. PSCS research has been published by the California State Treasurer’s Office, the Mercatus Center and the Macdonald-Laurier Institute among others. Before starting PSCS, Marc was a senior director at Moody’s Analytics. He earned his MBA from New York University and his MPA from San Francisco State University.

ABOUT THE CALIFORNIA POLICY CENTER
The California Policy Center is a non-partisan public policy think tank providing information that elevates the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at CaliforniaPolicyCenter.org.