Former LAUSD Superintendent draws $238k pension

Retired LA schools chief Ramon Cortines received pension benefits totaling a remarkable $238,383.67 last year, possibly through a controversial pension-spiking practice known as “air time” – the purchase of credit for time not worked.

25 UC Retirees Receive Annual Pensions Exceeding $300,000

Twenty-five University of California retirees receive more than $300,000 annually in retirement,  the California Policy Center has learned. The information, contained in documents released to CPC through a public records request, comes amidst controversy over excessive compensation at the UC system and revelations of a secret slush fund at the system’s headquarters. CPC’s findings were broadcast by KPIX San Francisco and other CBS affiliates on May 5.

The highest paid pensioner is Professor Lewis L. Judd, a UC San Diego Psychiatry professor. He receives an annual pension of $385,765.

Lewis surpasses previous pension champion, Dr. Fawzy I. Fawzy, a UCLA Psychiatry Professor who retired in 2014 on a $354,469 annual pension. Assuming annual cost of living increases of 2%, Dr. Fawzy is now estimated to be receiving around $369,000 annually. But Fawzy also draws a UC salary, one of several hundred UC retirees brought back to teach after retiring. “Recalled” retirees, such as Fawzy, are eligible to draw both a salary and a pension. Fawzy’s total university income exceeded $650,000 in 2015.

Behind the shocking numbers is a six-month battle with university administrators who tried to block release of compensation. CPC Director of Policy Research Marc Joffe originally sent the UC president’s office a Public Records Act request for pension data in December 2016. After numerous delays and negotiations with CPC General Counsel Craig Alexander, the university released a limited amount of data to Joffe today. CPC made the request in connection with its 100k Pension Club project, a website database that contains a list of 50,000 retired California public sector employees who receive annual pensions greater than $100,000. That website is at http://www.100kclub.com.

Ultimately, UC provided a list of 2015 and 2016 retirees, eight of whom are receiving $300,000 or more. The remaining 17 names were included in UC’s previous pension disclosures, last updated for 2014. UC did not provide precise cost of living adjustments for each retiree. CPC estimated their current pensions by adding 2% per year since their date of retirement.

The complete list appears below:

 

Retiree Name Appointment Type Last Employer Annual Pension Benefit Date of Retirement
JUDD, LEWIS L Teaching Faculty San Diego $ 385,765 Jul 1, 2016
MATTHEWS, DENNIS L Non-Teaching Faculty Davis 370,880 2012
FAWZY, FAWZY I Teaching Faculty Los Angeles 368,790 2014
DE PAOLO, DONALD J Non-Teaching Faculty Lawrence Berkeley 359,922 Jul 1, 2016
HOLST, JAMES E. Staff Los Angeles 358,428 2006
RUDNICK, JOSEPH A Non-Teaching Faculty Los Angeles 344,925 Jul 1, 2016
VAZIRI, NOSRATOLA D Teaching Faculty Irvine 340,410 2011
GREENSPAN, JOHN S Teaching Faculty San Francisco 339,243 2014
GRAY, JOE W Non-Teaching Faculty Lawrence Berkeley 335,482 2011
SCHELBERT, HEINRICH R Teaching Faculty Los Angeles 333,247 2013
BRESLAUER, GEORGE W Non-Teaching Faculty Berkeley 328,476 2014
MARSHALL, LAWRENCE F Teaching Faculty San Diego 324,067 2010
KRUPNICK, JAMES T Non-Teaching Faculty Lawrence Berkeley 323,957 2012
DISAIA, PHILIP J Teaching Faculty Irvine 323,839 2010
GRUNSTEIN, MICHAEL Teaching Faculty Los Angeles 322,150 Jul 1, 2016
SIEFKIN, ALLAN D Non-Teaching Faculty Davis 322,101 2014
KENNEY, ERNEST B Teaching Faculty Los Angeles 320,608 2012
DARLING, BRUCE B. Non-Teaching Faculty Los Angeles 320,403 2012
DONALD, PAUL J. Teaching Faculty Davis 317,156 2011
CHERRY, JAMES D Non-Teaching Faculty Los Angeles 315,449 2013
ROLL, RICHARD W Non-Teaching Faculty Los Angeles 315,418 2014
TILLISCH, JAN H Non-Teaching Faculty Los Angeles 311,732 Aug 1, 2016
CYGAN, RALPH W Teaching Faculty Irvine 306,734 Jul 1, 2015
BRAFF, DAVID L Teaching Faculty San Diego 306,407 Feb 1, 2015
EISENBERG, MELVIN A Teaching Faculty Berkeley 305,012 Jan 1, 2015

$100k Pension Club

While Retired City Manager Golfs, New Americans in El Monte Struggle to Make Ends Meet

Over a fourth of El Monte’s residents live in poverty, but, among public-sector workers poverty is unlikely. Retired City Manager James Mundessen told the LA Times that he personally receives $216,000 a year in retirement – an amount that finances a lavish lifestyle that includes golfing trips in Scotland. Mundessen is one of eight city officials collecting over $200,000 per year.

Questions for Someone Who Supports Superior Benefits for Government Workers

Convicted or Not, L.A. Sheriff Baca Will Collect a Big Pension

Leroy “Lee” Baca, the man served for 16 years as L.A. County’s top cop, has admitted to charges of lying to the FBI in a coverup of inmate abuse at the county jail. But even if convicted, the retired Los Angeles County Sheriff will continue to receive retirement benefits – today valued at more than $342,000 annually. A conviction would put him in a unique position to corner the prison commissary.

Environmentalism Provides Moral Cover for New Taxes to Fund Pensions

Put Public Employees on Secure Choice and Social Security

“The state shall not have any liability for the payment of the retirement savings benefit earned by program participants pursuant to this title.” – California State Senator Kevin De Leon, August 7, 2016, Sacramento Bee

This quote from Senator De Leon, one of the main proponents of California’s new “Secure Choice” retirement program for private sector workers, says it all. Because De Leon’s comment reveals the breathtaking hypocrisy and stupefying innumeracy of California’s legislature.

Let’s start with hypocrisy.

De Leon is careful to protect private sector taxpayers from having to bail out their new state administered “secure choice” retirement plan, but no such safeguard has ever been seriously contemplated for the state administered pension plans for state and local government workers. These plans, using official numbers, are underfunded by about $250 billion. If you don’t assume California’s 92 state and local government worker pension systems can earn 7.5% per year, they are underfunded by much more – at least a half trillion.

Underfunded government worker pensions are the real reason why Prop. 55 is offered to voters to extend the “temporary” “millionaires tax” till 2030. That will raise about $6 billion per year. Underfunded local government worker pensions are also the reason for 224 local tax increases proposed on this November’s ballot, which if passed will collect another $3.0 billion per year. And it isn’t nearly enough.

The following table, excerpted from a recent California Policy Center study, shows how much California’s state and local government pensions systems have to collect per year based on various rates of return. At the time of the study, the most recent consolidated data available was for 2014. As can be seen – at a rate of return of 7.5% per year, state and local agencies have to put $38.1 billion into the pension funds. And at a rate of return of 6.5% per year, which CalPERS has already announced as their new “risk free” target rate, they have to turn over $52.3 billion per year. How much was actually paid in 2014? Only $30.1 billion.

20160516-cpc-ring-pension-liabilities

To summarize, in 2014 the pension funds collected $8.0 billion less than they needed if they think they can earn 7.5% per year. But following CalPERS lead, they’re lowering their projected rate of earnings to 6.5%, which means they were $22.2 billion short. There are 12.8 million households in California. That equates to at least $1,734 in additional taxes per household per year just to keep state and local pensions solvent.

And it gets worse. Because in order to ensure this new “Secure Choice” program doesn’t get into the same financial predicament that California’s government pension systems confront, the “risk free” rate of return they intend to project is not 7.5%, or 6.5%, or even 5.5%. No, they intend to initially invest the funds in Treasury Bills, which currently pay at most 2.5%. In an analysis of Secure Choice’s proposed costs and benefits performed last April, we express what using a truly “risk free” rate of return portends for California’s private sector workers vs. public sector workers. These estimates are based on all participants, public and private, contributing 10% to the fund via withholding.

Public sector:  Teachers/Bureaucrats, 30 years work  –  pension is 75% of final salary.

Public sector:  Public Safety, 30 years work – pension is 90% of final salary.

Private sector:  “Secure Choice,” 30 years work – pension is 27.6% of final salary.

There are two reasons for this gigantic disparity. First, public pension funds collect far more than 10% of salary. While the employee rarely pays more than 10% via withholding, the employer – that’s YOU, the taxpayer – typically kicks in another 20% to 40% or more, that is, a two-to-one up to a four-to-one employer matching contribution. Second, to justify the optimistic projections that make such generous pensions appear feasible, public pension funds have assumed a “risk free” rate of return of 7.5% per year.

Which brings us to innumeracy.

During the fiscal year ended 6/30/2015, CalPERS earned a whopping 2.4%. That stellar performance was followed in fiscal year ended 6/30/2016 by a return of 0.6%. It doesn’t take a Ph.D economist to know that California’s pension funds are going to need to greatly increase their annual collections. It only takes horse sense. But even horse sense eludes California’s innumerate lawmakers.

So here’s a modest proposal. Why not freeze the employer contributions into California’s state and local employee pension funds at 20% of salary (that’s a two-to-one match on a 10% contribution via withholding), and then, constrained by those fixed percentages, lower all benefits, for all participants, on a pro-rata basis to restore solvency. Better yet, why not enroll every state and local government employee in the Secure Choice program? Either way, “the state shall not have any liability for the payment of the retirement savings benefit earned by program participants.”

Along with this modest step towards dismantling the excessive privileges of these unionized Nomenklatura who masquerade as California’s public “servants,” why not enroll all state and local government employees in Social Security? Because California’s public servants make far more, on average, than private sector workers, and because Social Security benefits are calibrated to pay relatively less to high income participants, this step will financially stabilize the program.

Senator De Leon, are you listening? When it comes to state administered programs, all of California’s workers, public and private, should get the same deal.

 *   *   *

Ed Ring is the president of the California Policy Center.

“Unsustainable” Pension Costs Are The Driving Force Behind Local Tax Increases

It is no secret that there are a record number of local tax increases on the November 2016 ballot, but the dirty little secret is that the strongest driving force behind these measures is “unsustainable” skyrocketing pension costs.

The specifics of each case need to be evaluated on a case by case basis, which I have done, but the simple conclusion remains a vote for local tax increases is essentially a vote for more government revenue to pay for an explosion in pension costs for public employees.

Each local story is different, and there maybe a few outliers that I have not found thus far, but if you examine the data closely the evidence is there to prove this assertion.

Most of these tax increases are sold as essential to provide some “essential” government function that polls well, such as roads, schools, or public safety, but the real effect is to allow the public agency to free up more funds to pay for the “crowding out effect” that pension costs are having on local budgets at all levels of government in California.

“There are more local revenue measures on California ballots this November than any of the five prior gubernatorial or presidential elections,” stated Michael Coleman, an expert in local government finance, who found that there are 427 measures proposed for the November 2016 ballot.  This number is 40-60% higher than any other election going back to November 2006.

A review of the measures reveals that the proposed local tax increases are concentrated in the parts of the state that also have the biggest pension problems, based on my research.

Moreover, a significant number of measures are even proposed in areas such as the Bay Area which have significant economic growth, and therefore growth in tax revenues, but these localities still say they need more money to cover large baseline increases in the cost of government, mostly due to pension and benefit costs.

If you examine local agency annual budgets, more than 80% of their cost increases are driven by pension costs, and other employee compensation benefits costs, particularly health care.

In the Bay Area alone, there are a record number of measures, despite rapid tax revenue growth of 4-10% over the past several years.  The growth in real gross domestic product has averaged just over 4% for the San Francisco—Oakland—Hayward metropolitan areas for 2014 and 2015, according to the U.S. Department of Commerce.

The biggest of these measures is the proposed $3.5 billion bond for the Bay Area Rapid Transit District (BART) which is paid for by parcel tax increases on homeowners in Alameda, Contra Costa and San Francisco Counties.

But a close analysis of the measure shows that $1.2 billion of the bond can actually go to pay for labor costs which are driving big budget deficits at BART, along with generous contract extensions approved in 2013 and 2016 that boost salaries by more than 30% for workers that were already the best paid transit workers in the nation.

Taxpayers in all three Bay Area counties taxed under the propose BART bond, also face a proposed 0.5%-0.75% sales tax increase for “transportation” and “general city services.”

There are a variety of other parcel taxes on the ballots in Alameda, Contra Costa and San Francisco Counties to pay for schools and school construction.  Voters in Alameda County face a hike in the utility users tax to “modernize” the tax at a cost of $9.6 million.

Voters in San Francisco face a proposed increase in the real property transfer tax on homes sold to raise $45 million and another “grocery tax” to raise another $7.5 million.

Why are all these taxes necessary?  Primarily to fund unsustainable benefit costs, not improvements in government services provided.

The City and County of San Francisco faces $16 billion in unfunded pension debt for all its public plans based on a “market rate” evaluation by Stanford University, and another $2 billion in debt for retiree health care.

Depite being one of the wealthiest cities in the state, San Francisco’s total net value (assets minus liabilities) is only $6.5 billion as of 2015, which is eclipsed by its pension debt by nearly three times.  And this debt continues to grow.

Alameda County has several cities and the county itself, but pension debt continues to be a problem for most localities, particularly the City of Oakland.

The City of Oakland faces a $3.5 billion unfunded market rate pension liability, despite record revenue growth, according to Pensiontracker.org.  In 2015, the city’s balance sheet went negative to the tune of $86 billion due to the inclusion of pension costs, down from a positive $1.2 billion in 2014.

Voters in Oakland also face the “grocery tax” on sweetened beverages to raise $10 to $12 million that is sold as being for “health and education programs” but the revenue can in effect be used to help pay for pension cost overruns.

Contra Costa County is another wealthy Bay Area County with surging revenues, but on paper the county is dead broke due to huge pension liabilities.  The market value of the county’s pension debt is $6.5 billion, which helped sink the county’s balance sheet in 2015 to a negative $192 million net value, down from $852 million in 2014.

Contra Costa County’s balance sheet will take another $500 million hit in 2017 when its unfunded retiree health care liabilities come onto the books.

San Francisco, Alameda, and Contra Costa are some of the wealthiest and fasted growing in the state in terms of economic and revenue growth, yet they a seeing a continued decline in their balance sheets due to an unchecked explosion in the cost of government, particularly due to pension and other employee benefit costs such as health care.

Politicians who govern these counties and many others in the state, which are even in worse shape, are turning to voters to increase taxes for “essential” or popular government programs.

But the unspoken true is that the underlying cause of the record number of proposed tax increases is the inability of local governments to effectively manage their budgets, particularly with regard to “unsustainable” pension costs for public employees.

Don’t be fooled this November.  Every vote for a local tax increase is essentially a vote to reward bad behavior, poor fiscal management, mounting debt, and the state’s unsustainable system of public finance.

The whole system is propped up by powerful public employee union interests both in Sacramento and at the local level, so the only thing “essential” about these measures is that they are needed to continue to fund unaffordable benefit costs for a privileged class of public employees.

About the Author: David Kersten is an expert in public policy research and analysis, particularly budget, tax, labor, and fiscal issues. He currently serves as the president of the Kersten Institute for Governance and Public Policy – a moderate non-partisan policy think tank and public policy consulting organization. The institute specializes in providing knowledge, evidence, and training to public agencies, elected officials, policy advocates, organization, and citizens who desire to enact public policy change.

Unfunded Pension Costs Driving Huntington Beach to Become More Like Ferguson, MO

It’s been 19 months since the U.S. Department of Justice released its scathing report on the Ferguson Police Department. Chief among the DOJ’s findings: Ferguson’s law enforcement practices were “shaped by the city’s focus on revenue rather than public safety needs.” Nearly every policing activity – including tickets, misdemeanor fines and court fees – was seen as an income opportunity.

That model led to tension between police and citizens, disrupting families and the community. When a white police officer shot and killed Michael Brown, a black 18-year-old, on August 9, 2014, a city balancing on a knife’s edge toppled quickly into chaos.

Now what might be called Ferguson’s worst practices have been brought to Huntington Beach.

Last month, as the Orange County Register reported, the City Council approved a plan to hire a city prosecutor to handle misdemeanors.

“A significant number of misdemeanors go unprosecuted,” City Attorney Michael Gates told the Register, adding that the prosecutor will “add a lot of teeth to our laws.”

“There will be a whole class of crimes that will now be prosecuted where the DA may not have gotten to them,” Gates said. “We will prosecute every one of them until conviction.”

This comes on the heels of a proposal pushed through the council last year to substantially raise city fees and fines. Confronting a rising price tag for compensation for police and firefighters, then councilman, now mayor, Jim Katapodis put forward the plan as a means to cover the cost, and additional police officers.

Parking in front of a handicapped ramp will now cost you $356, an incredible jump from its former cost of $55. A glass container on the beach? Skateboarding? They’ll cost you $175 each, up from $125. There are others.

It’s not entirely surprising that Katapodis’ main public policy objective has been to increase the number of law enforcement officers to pre-recession numbers. He has spent his professional career in and around law enforcement. Police and fire unions have been staunch supporters, first backing Katapodis in 2010, when he ran for City Council while still an LAPD sergeant. According to Katapodis, adding more sworn officers is essential to ensure a safe city and should come at whatever cost necessary.

But over the last few years violent crime has been falling. And suspending basic accounting – adding more officers at higher pay – has driven Huntington Beach’s finances into the red.

City Council member Erik Peterson, who voted against the fee increases, said he didn’t understand how the city can start paying salaries without knowing how much they’ll receive from the increased fees.

In fact, H.B. owes $300 million on pensions for its retired city workers. That number was high enough to warrant a 2013 Moody’s investigative review. That review didn’t lead to a downgrade, but it’s a red flag.

In H.B., the Police Department is being expanded literally at the expense of the public, setting police against residents in a struggle not for public safety but for revenue. Critics say the mayor and City Council majority don’t even know how much revenue that parasitic system will generate. It’s equally clear they haven’t considered its costs. It cost Ferguson almost everything.

Matt Smith is a graduate student at Princeton Seminary, and a Journalism Fellow at the California Policy Center in Tustin.

For Nov. 8th: $32B in Local Borrowing, $2.9B in Local Tax Increases

New local taxes and new local borrowing are a regular phenomenon in California elections, but this year our government union controlled politicians have outdone themselves. Let’s compare:

November 2014 – $11 billion in new borrowing proposed via 118 local bond measures, 81% passed. Of the 117 local proposals for new taxes, 68% passed.

June 2016 – $6.2 billion in new borrowing proposed via 48 local bond measures, an estimated 93% passed. Of the 42 local proposals for new taxes, an estimated 66% passed.

November 2016 – $32.2 billion in new borrowing via 193 local bond measures, and 224 local proposals for new taxes!

Not only do these general and primary and special election tax and bond measures accumulate year after year, but they nearly always pass! The primary source for this information is the California Tax Foundation, who have just produced another excellent guide “Local Tax and Bond Measures 2016.” This time, they have not only compiled a list of all of the proposed local taxes and bonds, but for each of the proposed new local taxes, they have compiled the projected annual collections. The result is stunning.

2016 California Local Tax and Bond Measures
20160927-uw-local-taxes

As this table reports, $32.2 billion in new borrowing is being proposed, nearly all of it for schools and colleges. At 5.0% annual interest with a 30 year repayment plan, this borrowing will cost property owners another $2.0 billion per year in increased property taxes. If over 90% of these bonds are approved by voters, as recent history indicates is likely, California’s taxpayers will suddenly have saddled themselves with nearly $30 billion in new government debt.

Also as reported on the above table, the 224 proposed tax increases are estimated to cost taxpayers at least $2.9 billion per year. “At least,” because CalTax was unable to find revenue projections for 29 of them. And while “sin taxes” on marijuana and soda promise to bring in $58 million and $18 million, respectively, it is sales tax, that everyone pays, that will bring in most of the revenue, over $2.3 billion.

Because local taxes are numerous and dispersed onto hundreds of differing ballots across the state, they don’t get the visibility that state tax increases generate. But collectively they are just as significant. California’s Prop. 30, passed by voters in 2012, generated about $6.0 billion per year. That same tax, which was supposed to be temporary, will be extended through 2030 if voters approve Prop. 55 this year. But if you compare this statewide tax to the proposed local taxes, $2.9 billion per year, along with required payments on the local bonds, $2.1 billion per year, you are adding another $5.0 billion annual burden to taxpayers.

Passing Prop. 30 was a major fight. Similarly, Prop. 55 has huge visibility with voters. But because nearly all of the local measures pass, and because dozens if not hundreds of them appear on the ballot every election, local taxes and bonds matter more. Invisible, ongoing, and ever expanding, they are silently elevating the cost-of-living for ordinary Californians as much or more than state taxes.

Where does this money really go? Why is there an insatiable thirst for more taxes and more borrowed funds?

One word:  Pensions. One cause:  Government unions and their allies in the financial community, who together comprise what is by far the most potent political lobby in California.

A May 2016 analysis by the California Policy Center, using the most recent data available from the U.S. Census Bureau, estimated that during 2014, California’s 80+ independent state/local government employee pension systems received $30.1 billion in contributions (ref. table 2-A). Later in that same report, on table 2-C which is displayed below, one can see how much these pension systems actually need to remain financially healthy. At a minimum, they are collecting $8.0 billion per year LESS than they need. And that is if the investments they’ve made yield an annual return of 7.5% per year for the next 30 years. At the modest reduction of that projection to 6.5% – which even CalPERS has announced they are going to phase in as their new projection for calculating required annual contributions, these pension systems are collecting $22.2 billion per year LESS than they need.

California State/Local Pension Funds Consolidated
2014 – Est. Funding Status and Required Contributions at Various ROI

20160516-CPC-Ring-pension-liabilities

If California’s state and local government workers participated in Social Security like the rest of California’s workers, instead of receiving guaranteed defined benefit pensions that on average pay FOUR TIMES what Social Security recipients can expect, there would be no insatiable need for more money for the pension systems. Even if California’s state and local government workers merely received defined benefits that paid, on average, TWICE what Social Security recipients can expect, these pension funds would currently have surpluses. Moreover, there would be money left over in local municipal and school district operating budgets to maintain facilities, instead of having to perpetually borrow.

Six billion per year ala Prop. 30 and Prop. 55. Another five billion per year thanks to new proposed local taxes and borrowing just this November. And it’s not even close to enough. California’s state and local government pension systems are going to need somewhere between $50 to $60 billion per year to stay afloat, and currently they’re collecting barely more than half that much.

No wonder there’s the perennial scramble for more. More. MORE.

 *   *   *

Ed Ring is the president of the California Policy Center.

The Case for Limited Government is Now Stronger Than Ever

I have studied U.S. and California politics in particular since the mid-1990s, and believe the case for limited government is stronger now, than at any other time in history.

A series of emerging trends have coalesced to produce a political environment that makes it very unwise to try to enact sweeping policy change in today’s political environment (with the exception of an outright repeal of failed government programs).

A major treatise could be written on the subject, but here are some of the key considerations that led me to this conclusion.

First, there has been a noticeable decline in the quality of our elected leaders. To put it bluntly, many politicians are just in it for themselves and purport to pursue the public’s interest only as a means to their own ends.

The ramifications of this trend are huge and have served to give public interests more power over the political process and make it impossible in many cases to enact legislation that is within the public’s interest.

Second, the country’s political economy has gotten increasingly complex which makes it more difficult than ever to craft responsible public policy that is capable of addressing a policy problem not only today, but over a significant time period.

Third, the increasing polarization in the electorate, and reflected in U.S. governing bodies, make it extremely difficult, and more commonly impossible, to substantially revise a public policy once it has been approved.

Many examples could be provided to prove the validity of these assertions, but let’s look at a few case studies.

At the federal level, there is no better recent example than Obamacare. The policy was sold as being the best of all worlds expanding coverage, reducing costs, and improving the business climate in the process.

The only thing Obamacare has done well is expand coverage, but this has come at a great cost in the form of double digit annual cost increases on individuals, business, and government itself.

Without question, the program needs some major fixes to restore at least short-term viability and there are no signs that the political consensus needed to bring such change could be achieved. The result is a government program that is completely unsustainable, but has nonetheless provided health coverage to tens of millions more Americans which makes it impossible for anyone to advocate an outright repeal without a replacement.

Obamacare is looking like another example of a major government program that was enacted with very good intentions, but cannot be made sustainable over the long-run due to the huge complexity of the issue and the inability of the U.S. Congress to come anywhere close to the consensus needed to reform it. Two other examples: Social Security and Medicare, both unsustainable, yet almost politically untouchable.

At the state level, the pension crisis is an excellent example which holds ramifications for the long-term health of state government that equal or exceed Obamacare, Social Security, and Medicare combined.

The Public Employee Pension Crisis has the potential to entirely bankrupt the State of California

The Public Employee Pension Crisis has the potential to entirely bankrupt the State of California and all of its public agencies. Stanford University had measured the unfunded pension liabilities at $950 billion in 2013, but more recent estimates peg the debt at around $1.5 trillion for 2016.

 

In California, the level of retirement benefits provided to public employees is unaffordable to most public agencies in California, and is not currently being covered through contributions raised from public employers, and to a far less extent public employees.

The result is a massive run up is debt for nearly all state and local public agencies in California. In 2013, the total debt for unfunded pension liabilities was estimated at $950 billion, according to Stanford University. But more recent calculations for 2016, peg the debt at $1.5 trillion 50% higher due to major investment losses and soaring benefit costs.

Public pension debt alone in California is currently estimated to equal $77,000 per household in 2013, according to Stanford University’s pension tracker.

Despite the magnitude of the current pension crisis, there are only a handful of California Legislators who will even publicly admit that the pension crisis is a major issue in California. This is due to the fact that the state’s public employee unions control the California Democratic Party, and the Democrats run the California State Legislature.

The state’s pension crisis has the potential to bankrupt the State of California and nearly all of its public agencies, but there is not the faintest sign of a political consensus that will even admit that there is a major problem here, let alone consider a solution.

Furthermore, absent changes to the state’s pension system it makes no sense to further increase state and local tax revenues (i.e. tax and fee increases) since these increased revenues will simply go to fund overly generous and unsustainable public employee benefit costs which are increasing at 10-25% per year on average.

Private conversations with Republican legislators, who are the minority, indicate that they understand the issue and the need for reform but there is nothing to be gained by them going out on the issue short of a critical mass for reform.

Democrat legislators, on the other hand, support the status quo because the public employee unions bankroll their campaigns and the Democratic Party, and most if not all have already signed pledges to the state’s public employee unions to only increase public employee compensation, regardless of the consequences for the state.

Although the necessity for Pension Reform in CA seems to be obvious, many legislators seem unwilling & therefore unable to address the issue, largely due to the strong influence of Public Employee Unions when it comes to campaign financing of many within the state legislature.

Although the necessity for Pension Reform in CA seems to be obvious, many legislators seem unwilling & therefore unable to address the issue, largely due to the strong influence Public Employee Unions possess when it comes to campaign financing of many within the state legislature.

 

The state’s unsustainable public pension system is another example of a large government program gone bad, but nothing can be done to fix it given the circumstances of the state’s current political environment.

One last case study regarding the need for limited government is the state’s regulatory climate, which has an obvious parallel at the federal level but I will confine my discussion to the State of California.

The State of California’s regulatory climate is credited with being a key factor, along with high taxes, for encouraging more than 10,000 businesses to relocate out of state in recent years.

In a recent Inside Source interview with Stanford University Economics Professor Roger G. Noll, Noll states that California’s regulatory policies and practices are deeply flawed, but not necessarily enough to “drag Silicon Valley to Texas.”

Noll said most California legislators lack the capacity and inclination to craft responsible regulatory policy and that most regulation considered by the California Legislature is deeply flawed.

“We have pretty much a bankrupt system, it is rare to have a bill that is well crafted,” Noll stated.

Yet this does not stop the Democrat Legislature from developing bill after bill that seeks to regulate the California economy in almost every way imaginable. The sad truth is that the vast majority of this legislation is deeply flawed and will do more harm to the state’s business climate while providing little if any public benefit other than a political sound byte.

Moreover, most Democrats develop and pass regulatory legislation as a means to advance their careers and the policy agendas of their supporters, as opposed to advancing the public interest.

Thus, we have a Democrat majority whose primarily occupation is advancing their own agenda, as opposed to the public’s interest, without regard for the long-term consequences for the state’s business climate and economy.

If the Legislature cannot craft legislation in such as way that is beneficial and cost-effective it should just leave the issue alone, which brings us full circle to the need for limited government.

The increased complexity of the economy has dramatically increased the number of issues that can be regulated as well as the potential for harmful effects from poorly crafted legislation, which has become the rule in California, not the exception.

In other words, the best thing the California Legislature can do on most regulatory issues is do nothing. But political motivations necessitate the opposite due to a decline in the quality of our public leaders, primarily if not exclusively California Democrat politicians.

Then California Treasurer Bill Lockyer (D) saw this trend in 2010, noting that most of the legislation considered and passed in the California State Assembly is “junk” but lawmakers “move it along” to keep the special interests happy.

Lockyer also chastised the Democrat Legislature for its inability to address the state’s pension crisis because of who elected them (i.e. public employee unions) stating that it will “bankrupt the state” if nothing is done.

In short, government has reached a point in California, as well as at the federal level, where politicians cannot address the most important issues (i.e. failing government programs) due to political realities, but commonly do the wrong things in the areas where they can act.

The only solution is limited government. First, we must prevent more government programs from going on the books that will inevitably become unsustainable or unworkable, but impossible to fix. And second, we must limit politicians from advancing their own private agendas through legislation that actually does more harm than good.

About the Author: David Kersten is an expert in public policy research and analysis, particularly budget, tax, labor, and fiscal issues. He currently serves as the president of the Kersten Institute for Governance and Public Policy – a moderate non-partisan policy think tank and public policy consulting organization. The institute specializes in providing knowledge, evidence, and training to public agencies, elected officials, policy advocates, organization, and citizens who desire to enact public policy change.

Proposition 13 Is Safe — For Another Few Weeks

The Legislature is in adjournment, and with lawmakers at home campaigning for reelection, they are unable to engage in their favorite pastime of undermining Proposition 13 and its protections for California taxpayers.

However, this time out is only a brief respite from the Sacramento politicians’ inexorable pursuit of taxpayers’ wallets, the ferocity of which matches the dedication and intensity of a bear going after honey.

This December, after the election, lawmakers will reconvene to kick off the next two-year legislative session. During the just completed session, with great effort, taxpayer advocates were able to blunt a number of major efforts to modify or undermine Proposition 13, and, as surely as Angelina and Brad will be appearing on the covers of the supermarket tabloids, these attacks on taxpayers will begin anew when the Legislature is back in session.

Bills will be introduced to make it easier to raise taxes on property owners as well as to cut the Proposition 13 protections for commercial property, including small businesses. There may even be an effort to place a surcharge on all categories of property, an idea that was put forward by authors of an initiative that nearly collected enough signatures for placement on this year’s November ballot.

Accompanying the legislative fusillade will come the usual arguments that local government, or schools, or infrastructure, or the homeless, or the elderly, or (fill in the blank with the program or cause of your choice), or all of the preceding, need more money.

Government at all levels has become a militant special interest and its Prime Directive is to increase revenue – to take in more taxpayer dollars that is – and more is never enough.

California appears to have become a state constantly looking for new mechanisms of generating more revenue from its taxpayers in order to fund what is already the countries most compensated  public employees.

California appears to have become a state constantly looking for new mechanisms of generating more revenue from its taxpayers in order to fund what is already the countries most compensated public employees. If the Legislature ever successfully removes the protections associated with Proposition 13, Proposition 218, and the Right to Vote on Taxes Act, the fiscal burden upon CA taxpayers could be enormous.

 

The dirty little secret behind why government has changed from a service entity, dedicated to meeting the needs of its constituents, to a rapacious overlord, is that since being granted virtually unfettered collective bargaining rights in 1977, California’s state and local government workers have become the highest compensated public employees in all 50 states. With the high pay comes high union dues, collected by the employing entity and turned over to the government employee union leadership. These millions of dollars can then be used as a massive war chest to elect a pro-union majority in the Legislature and on the governing bodies of most local governments. And since these elected officials’ political futures are dependent on the goodwill of their union sponsors, there are almost no limits on what they will be willing to do to extract more money from taxpayers to be shoveled into ever increasing pay, benefits and pensions for government workers. (Government employee pension debt is several hundred billion dollars).

Literally, the only protections that average folks have from a total mugging by state and local governments are Proposition 13 and Proposition 218, the Right to Vote on Taxes Act. These popular propositions put limits on how much can be extracted from taxpayers by capping annual increases in property taxes, requiring a two-thirds vote of the Legislature to raise state taxes and guaranteeing the right of voters to have the final say on local tax increases.

It is easy to see why these taxpayer protections are despised by the grasping political class and their government employee union allies. This is also why taxpayers will have to work hard to preserve them.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization, dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Average Costa Mesa Firefighter Makes Nearly $250,000 Per Year. Why? Pensions.

Does that fact have your attention? Because media consultants insist we preface anything of substance with a hook like this. It even has the virtue of being true! And now, for those with the stomach for it, let’s descend into the weeds.

According to payroll and benefit data reported by the City of Costa Mesa to the California State Controller, during 2015 the average full-time firefighter made $240,886. During the same period, the average full-time police officer in Costa Mesa made $201,330. In both cases, that includes the cost, on average, for their regular pay, overtime, “other pay,” the city’s payment to CalPERS for the city’s share, the city’s payment to CalPERS of a portion of the employee’s share, and the city’s payments for the employee’s health and dental insurance benefits.

And if you think that’s a lot, just wait. Because the payments CalPERS is demanding from Costa Mesa – and presumably every other agency that participates in their pension system – are about to go way up.

We have obtained two innocuous documents recently delivered to the City of Costa Mesa from CalPERS. They are entitled “SAFETY FIRE PLAN OF THE CITY OF COSTA MESA (CalPERS ID: 5937664258), Annual Valuation Report as of June 30, 2015,” (click to download) and a similar document “SAFETY POLICE PLAN OF THE CITY OF COSTA MESA (CalPERS ID 5937664258), Annual Valuation Report as of June 30, 2015,” (click to download). Buried in the bureaucratic jargon are notices of significant increases to how much Costa Mesa is going to have to pay CalPERS each year. In particular, behold the following two tables that appear on page five of each letter:

Projected Employer Contributions to CalPERS  –  Costa Mesa Police

20160920-uw-calpers-fire

Projected Employer Contributions to CalPERS  –  Costa Mesa Firefighters

20160920-uw-calpers-fire

In the rarefied air of pension arcana, pension systems can get away with a lot. If you’re a glutton for punishment, read these notices from CalPERS in their entirety and see if, anywhere, they bother to explain the big picture. They don’t. The big picture is this:  For years CalPERS has underestimated how much they are going to pay in pensions and they have overestimated how much their investments will earn, and as a result they are continuously increasing how much cities have to pay them. This notice is just the latest in a predictable cascade of bad news from pension systems to cities and other agencies.

Coming down to earth just a bit, consider the two terms on the above charts, “Normal Cost %” and “UAL $.” It would be proper to wonder why they represent one with a percentage and one with actual dollars, but rather than indulge in futile speculation, here are some definitions. “Normal Cost” is how much the city pays (never mind that the city also pays a portion of the employee shares – we’ll get to that) into the pension system if it is fully funded. The reason pension systems are NOT fully funded is because, again, year after year, CalPERS underestimated how much they would pay out in pensions to retirees and overestimated how much they would earn. Read this disclaimer that appears on page five of the letters: “The table below shows projected employer contributions…assuming CalPERS earns 7.5 percent every fiscal year thereafter, and assuming that all other actuarial assumptions will be realized….”

And when the “Normal Cost” payments aren’t enough, and the system is underfunded, voila, along comes the “UAL $,” that bigger catch-up payment that is necessary to restore financial health to the fund. “UAL” refers to “unfunded actuarial liability,” the present value of all eventual payments to retirees, and “UAL $” refers to the payments necessary to reduce it to a healthy level. Notice that for firefighters this catch-up payment is set to increase from $4.2M in 2017 to $6.8M in 2022, and for police it is set to increase from $5.8M in 2017 to $10.1M in 2022. This is in a small city that in 2015 employed an estimated 125 full-time police officers and 75 full-time firefighters.

As always, it must be emphasized that the point of all this is not to disparage police or firefighters. No reasonable person fails to appreciate the work they do, or the fact that they stand between us and violence, mayhem, catastrophe and chaos. And it is particularly difficult for those of us who are part of the overwhelming majority of citizens who appreciate and respect members of public safety to have to disclose and publicize the facts of their unaffordable pensions.

The following charts, using data downloaded from the CA State Controller, put these costs into perspective:

Average and Median Employee Compensation by Department
Costa Mesa – Full time employees – 2015

20160920-uw-costamesa-ftcomp2015bydept

In the above chart, before sorting by department and calculating averages and medians, we eliminated employees who worked as temps or only worked for part of the year. This provides a more accurate estimate of how much full-time workers really make in Costa Mesa. Bear in mind that most part-time employees still receive pension benefits, as will be shown on a subsequent chart. As it is, during 2015 the average full-time police officer in Costa Mesa was paid total wages of $121,636, about 15% of that in overtime. But they then collected another $79,694 in city paid benefits, including $59,337 paid by the city towards their pension, AND another $11,562 that the city paid towards their pension that the State Controller vaguely describes as “Defined Benefit Paid by Employer.” Total 2015 police pay:  $201,330.

Also on the above chart, one can see that during 2015 the average full-time firefighter in Costa Mesa was paid total wages of $150,227, about 32% of that in overtime. They then collected another $90,659 in city paid benefits, including $72,202 paid by the city toward their pension, and as already noted, another $10,440 that the city paid toward the employee’s share of their pension. Total 2015 firefighter pay: $240,886.

To distill this further, the following chart shows, per full-time employee, just how much pensions cost Costa Mesa in 2015 as a percent of regular pay.

Average Employer Pension Payment as % of Regular Pay
Costa Mesa – Full-time employees – 2015
20160920-uw-costamesa-pension-as-percent-of-reg-pay

As the above chart demonstrates, employer payments for full-time employee pensions during 2015 already consumed a staggering amount of budget. For police, every dollar of regular pay was matched by 80.5 cents of payments by the city to CalPERS. For firefighters, every dollar of regular pay was matched by a staggering 94.4 cents of payments by the city to CalPERS.

The next chart shows the impact this has on the City of Costa Mesa budget. Depicting total payroll amounts by department, it compares the same variables, total employer pension payments as a percent of total regular pay. As can be seen, the percentages are nearly the same, despite this being for the entire workforce including temporary and part-time employees, some who may not have pension benefits (most do), and many who do not receive top tier pension formulas which the overwhelming majority of full-time public safety employees still receive. As can be seen, for every dollar of regular police pay, CalPERS gets 75 cents from the city, and for every dollar of firefighter pay, CalPERS gets 92 cents from the city.

Total Employer Pension Payment as % of Regular Pay
Costa Mesa – All active employees; full, part-time and temp – 2015
20160920-uw-costamesa-empl-pension-pmt-as-percent-of-reg-pay

At this point, the impact of CalPERS stated rate increases can be fully appreciated. And because this article, already at nearly 1,000 words, has violated every rule of 21st century social media engagement protocols – keep it short, shallow, simple, and sensational – perhaps the next paragraph should be entirely written in bold so it is less likely to be lost in the haze of verbosity. Perhaps a meme is in here somewhere. Perhaps an inflammatory graphic that shall animate the populace. Meanwhile, here goes:

Once CalPERS’s announced increases to the “unfunded payment” are fully implemented, instead of paying $10.9M per year for police pensions, Costa Mesa will pay $15.2M per year, i.e., for every dollar in regular police pay, they will pay $1.04 toward police pensions. Similarly, instead of paying CalPERS $6.4M per year for firefighter pensions, Costa Mesa will pay $9.1M per year, i.e., for every dollar in regular firefighter pay, they will pay $1.30 towards firefighter pensions.

Wow.

So just how much do Costa Mesa’s retired police and firefighters collect in pensions? Repeatedly characterized by government union officials as “modest,” shall we report and you decide? The following table, using data originally sourced from CalPERS and downloaded from Transparent California, are the pensions earned by Costa Mesa retirees in 2015. Excluded from this list in order to present a more representative profile are all pre-2000 retirees, since retirement pensions were greatly enhanced after the turn of the century, and it is those more recent pensions, not the earlier ones, that are causing the financial havoc. Also excluded because the benefit amounts are not representative and the retirement years are not disclosed, are all “beneficiary” pensions, which survivors receive.

Average Pensions by Years of Service
Costa Mesa retirees – 2015

20160920-uw-costamesa-pensions

While these averages are impressive – work 30 years and you get a six-figure pension – they grossly understate what Costa Mesa public safety retirees actually get. There are at least four reasons for this: (1) The data provided doesn’t screen for part-time workers. Many retirees may have put in decades of service with the city, but only worked, for example, 20-hour weeks. They would still accrue a pension, but it would not be nearly as much as it would be if they’d worked full time. (2) Nearly all full-time employees are also granted “other post-employment benefits,” primarily health insurance. It is reasonable to assume that for public safety retirees, the value of these other post employment benefits is at least $10,000 per year. (3) Because CalPERS did not disclose what department retirees worked in during their active careers, this data set is for all of Costa Mesa’s retirees. That means it includes miscellaneous employees who receive pensions that are, while very generous, are not nearly as good as the pensions that public safety retirees receive. (4) While recent reforms have begun to curb this practice, it has been common at least through 2014 for retirees to purchase “air time,” wherein for a ridiculously low sum they are permitted to claim more years of service than they actually worked. It is common for retirees, for example, to purchase five years of air time, so when their pension benefit is initially calculated, instead of multiplying, for example, 20 years of service times a 3.0% multiplier times their final salary, they are permitted to claim 25 years of service.

All of this, of course, is dense gobbledygook to the average millennial Facebook denizen, or, for that matter, to the average politician. To be fair, it’s hard even for the financial professionals hired by the public employee unions to acknowledge that maybe 7.5% (or even 6.5%) annual investment returns will not continue for funds as big as CalPERS, or that history is no indicator of future performance. And even if they know this, they’re under tremendous pressure to keep silent. So the normal contribution remains too low, and the catch-up payments mushroom.

Finally, to be eminently fair, we must acknowledge that since modest bungalows on lots so small you have to choose between a swing set or a trampoline for the kids are now going for about a million bucks each in most of Orange County, making a quarter million per year ain’t what it used to be. But there’s the rub. Because until the people who work for the government are subject to the same economic challenges as the citizens they serve, it is very unlikely we’ll see any pressure to lower the cost of living. Everything – land, energy, transportation, water, materials, etc. – costs far more than it should, thanks to deliberate political policies and financial mismanagement that creates artificial scarcity. But hey – artificial scarcity inflates asset bubbles, which helps keep those pension funds marginally solvent.

Cost-of-living reform, if such a thing can be characterized, must accompany pension reform. What virulent meme might encapsulate all of this complexity?

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Ed Ring is the president of the California Policy Center.