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Out of the pension thicket

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

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

Invest California’s Pension Funds in Water and Energy Infrastructure

“We wanted flying cars, instead we got 140 characters.”
–  Peter Thiel, in his 2011 manifesto “What Happened to the Future.”

Anyone living in California who’s paying attention knows what venture capitalist Thiel meant. While a handful of Silicon Valley social media entrepreneurs have amassed almost indescribable wealth, and fundamentally transformed how humanity communicates, investment in boring things like roads, bridges, tunnels, ports, aqueducts, reservoirs and railroads – the list is endless – has stagnated. Especially in California. Flying cars? Forget about it. Go tweet.

20161114-cpc-flyingcar

Why? Why the neglect?

(1) For starters, why invest in moving atoms around, which is messy and might incur the wrath of powerful climate change activists, when you can move electrons around in new and exciting ways and make billions? Silicon Valley entrepreneurs are making a rational choice to prefer manipulating characters to manufacturing cars.

(2) And when it comes to innovations that do involve atoms, that is, actual manufactured goods, Silicon Valley entrepreneurs are lobbying for mandates that force people to purchase internet enabled home appliances, connected to smart meters, that punitively bill consumers who, for example, operate their clothes dryer or dishwasher at the “wrong” times.

(3) Public money that might be used to backstop private investment in infrastructure is being used instead to pay over-market compensation to California’s state and local workers, who now receive pay and benefits that on average are twice what California’s private sector workers earn.

To justify this neglect, California’s governor Brown has been the cheerleader for a culture of austerity. But there is an alternative that would lower the cost of living for all Californians, and even make it possible to lower public sector compensation without lowering their living standards. That is a culture of abundance.

The culture of abundance used to be synonymous with the Silicon Valley. “Better, faster, cheaper” used to be the mantra that informed innovation in the Silicon Valley. And throughout history, the human condition has marched fitfully but inexorably upwards because human creativity and innovation made everything we needed better, faster, cheaper. So how can we invest public and private funds to create cheap and abundant water, energy, transportation and housing?

One untapped source of investment are California’s public employee pension funds, which collectively manage nearly $800 billion in assets. Investing just a fraction of these assets in revenue producing civil infrastructure could have a decisive positive impact. Using water as an example, along with a crumbling distribution infrastructure, there are well established water markets in California. Investing in sewage reuse, seawater desalination, and aquifer and reservoir storage for runoff could eliminate water scarcity in California.

There are several interlocking benefits to investing pension funds in California’s infrastructure. For the pension funds, these would be safe investments that over time would yield more than typical fixed income investments and in fact may exceed their target returns of 6.5% or more per year. For California’s workforce, building and operating these assets in water, energy, and transportation would create tens of thousands of high-paying jobs. For California residents, these assets would create abundance instead of scarcity, and lower the cost of living.

With respect to the environment, increasing the diversity and quantity of water and energy supplies would create climate resiliency, and in nearly all cases – since this factor is of great concern to many Californians – these operations would be either “carbon neutral” or very nearly so.

The challenge to rebuilding California’s infrastructure is not primarily financial. Attracting pension fund investment might be the centerpiece of finding the capital for these projects, but there are all the traditional sources of funds, namely bonds and private investment. The bigger challenge is cultural. Joel Kotkin, writing for the Orange County Register, vividly frames the cultural challenge we face:

“California is on the road to a bifurcated, almost feudal, society, divided by geography, race and class. As is clear from the most recent Internal Revenue Service data, it’s not just the poor and ill-educated, as Brown apologists suggest, but, rather, primarily young families and the middle-aged, who are leaving. What will be left is a state dominated by a growing, but relatively small, upper class, many of them boomers; young singles and a massive, growing, increasingly marginalized “precariat” of low wage, often occasional, workers.

This social structure can only work as long as stock and asset prices continue to stay high, allowing the ultra-rich to remain beneficent. Once the inevitable corrections take place, the whole game will be exposed for what it is: a gigantic, phony system that benefits primarily the ruling oligarchs, along with their union and green allies. Only when this becomes clear to the voters, particularly the emerging Latino electorate, can things change. Only a dose of realism can restore competition, both between the parties and within them.”

Californians must be convinced that the “better, faster and cheaper” mantra that used to define the Silicon Valley, and the cost-cutting virtue of innovations that have uplifted humanity throughout history, can again be our cultural guiding principle. They must be convinced that good jobs and affordable abundance are possible without overly compromising our culture that cherishes the environment. They must be convinced that these “green” values have been taken too far; that they are a cover for condescending, statist oligarchs.

 *   *   *

Ed Ring is the vice president for policy research at the California Policy Center.

Will the BART Bond Fund Pensions?

This fall, voters in San Francisco, Alameda and Contra Costa counties will consider a $3.5 billion BART bond measure. Proponents argue that the measure is required to ensure the system’s safety and reliability. Critics are concerned that bond proceeds will be used to support excessive employee salaries and benefits.

BART management denies that claim. In an August 12 press release, BART management stated, “Not one penny, under any circumstance, can or will be used to pay for operating expenses, salaries, or benefits.” Indeed, using bond proceeds for such purposes would be illegal.

But there is an indirect way of using the bond to increase employee compensation. As Daniel Borenstein reports in The East Bay Times, BART currently devotes about 16% of its operating revenue to capital improvements. Once the bond measure passes, BART could reduce the amount of operating revenue it devotes to capital purposes, backfilling the shortfall with bond proceeds. BART management insists that it will not perform this sleight of hand, stating in its release:

To suggest we would use the money for salaries and benefits directly or “indirectly” is flat out wrong.  Cutting spending from the Capital Investment Plan in order to increase salaries would undo decades of financial projections and do immense damage to BART’s capacity to improve in the future.

Borenstein is unconvinced, noting that BART directors and staff have refused to make a commitment to continue the 16% annual operating revenue transfers. And the Times editorial board shares their columnist’s concern:  they have now advocated a no vote on the BART bond.

No one can be certain whether BART management or its critics will be correct, but it is useful to review the data on BART’s operating cost pressures. If BART management can’t restrain the growth in operating costs and are unwilling to offset these costs at the farebox, they will be obliged to skimp on capital investments.

As Chart 1 shows, BART labor expenses have risen sharply over the last five years. Budgeted labor costs have increased from $364.3 million to $499.6 million between FY 2012 and FY 2017, representing a constant annual growth rate of 6.52%. The amounts shown come from annual budget resolutions posted on BART’s web site.

Chart 1

Chart 1

Pension benefits are major sources of cost pressure. The system’s safety plan, administered by CalPERS, is only 63.3% funded. The employer contribution rate rose from 47.9% in Fiscal 2015 to 56.5% in the current fiscal year, and will rise again to 57.4% in Fiscal 2018. Most BART employees are in the system’s Miscellaneous employee plan. Contribution rates for this plan are lower but also escalating.

Chart 2 shows total BART employer pension contributions for the fiscal years ending June 30, 2014 through June 30, 2023 as projected in the most recent CalPERS actuarial reports. The projections beyond 2018 rely on optimist assumptions that CalPERS assets will return 7.5% and that BART’s covered payroll will rise by 3% annually. Still we see BART’s contributions rising from $35.7 million in Fiscal 2014 to $99 million in Fiscal 2023.

Chart 2

Chart 2

BART’s employer contributions are so high because benefits are generous and the retirement plan is carrying a lot of beneficiaries. BART police hired before December 30, 2014 are able to retire at age 50 with pensions of up to 90% of final salary. Newly hired PEPRA members must wait until age 57 and can only get up to 81% of final salary. PEPRA’s implementation for BART employees was delayed by the U.S. Department of Labor (DOL) because PEPRA interfered with collective bargaining. Citing Section 13c of the Urban Mass Transit Act, DOL refused to certify federal grants to BART if PEPRA was implemented. A Federal District Court overruled DOL, but the federal agency is continuing to challenge PEPRA on other grounds. (For more on this, see page 16 of BART’s 2017 Resource Manual).

As of June 30, 2015, the BART Safety plan had 275 beneficiaries – almost half again the number of active members. Many of the beneficiaries are under age 50, having earned retirement benefits due to disability.

Many retired safety and management employees draw very generous pensions. According to Transparent California data, 112 BART beneficiaries received $100,000 or more in 2015. Like many public employees, BART staff members are not eligible for social security, but unlike most agencies, BART provides an offsetting benefit. Employees can contribute to a 401(a) Money Purchase Pension Plan and receive an employer match. BART employees thus have a plan similar to a 401(k) on top of their generous defined benefit pension.

In addition to pensions, BART offers Other Post-Employment Benefits (OPEBs) including medical benefits to retirees and surviving spouses, retiree life insurance and survivor dental and vision benefits.  According to its most recent audited financial statements, these benefits cost BART $26 million in Fiscal Year 2015. On the plus side, BART has pre-funded a large portion of its OPEB obligation. Further, BART’s actuary has found that an increasing proportion of eligible retirees and spouses are not participating in the OPEB plan, reducing the rate of cost growth. In fact, BART expects to pay less for OPEBs in Fiscal 2017 than it did in in Fiscal 2016. (For more on this, see page 19 of BART’s 2017 Resource Manual). But if medical cost inflation picks up in the years ahead and more beneficiaries take advantage of BART’s OPEB benefits, the system could experience rapid increases in its OPEB expenditures.

In summary, it is impossible to know whether BART will fulfill its stated intention of maintaining the current flow of operating revenues to capital needs, thereby avoiding a scenario under which bond proceeds are effectively diverted. We do know, however, that the system faces high and rising labor costs. Looking into the future, it is all but certain that pension costs will rise rapidly given current underfunding and the generosity of benefits. These escalating pension expenditures will be a source of pressure on the BART board to scale back much-needed maintenance expenditures.

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.

Average "Full Career" CalPERS Retirement Package Worth $70,000 Per Year

“‘What makes the ‘$100,000 Club’ some magic number denoting abuse other than the claims of anti-pension zealots?’ said Dave Low, chairman of Californians for Retirement Security, a coalition of 1.6 million public workers and retirees.”

This quote from a government union spokesperson, and others, were dutifully collected as part of Orange County Register reporter Teri Sforza’s eminently balanced reporting on the latest pension data, in her August 8th article entitled “The ‘100K Club’ – public retirees with pensions over $100,000 – are a growing group.”

In the article, Sforza’s team evaluated data released by Transparent California on 2015 CalPERS pensions, and reported the number of pensioners receiving $100,000 or more per year was 3.5% of total retirees, up from 2.9% in 2013. That truly does seem like a low percentage, but it ignores two key factors, (1) the total retiree pool includes people who only worked a few years and barely vested a pension, and (2) the total retiree pool includes people who worked many decades, sometimes 30 or 40 years or more, but they only worked part-time during their lengthy careers.

So if you restrict your pool of participants to those who worked a full career, and retired within the last 10 years, what percentage of those retirees would belong to the $100,000 club? As it turns out, there are 75,279 CalPERS retirees who worked more than 25 years and less than 35 years, retiring after 2006. And as it turns out, 9,763 of them, or 13%, are receiving pensions in excess of $100,000 per year.

Moreover, CalPERS doesn’t report the value of retirement health benefits and other retirement benefits, which almost certainly exceed $10,000 per year. If you make this reasonable assumption, you now have 14,901 CalPERS retirees, or 19% of our 75,279 pool of full career retirees, receiving a retirement package worth over $100,000 per year. Worth noting – we didn’t have the data necessary to screen the part-timers out of this pool. If we did, the numbers would be higher.

So if you use the appropriate denominator, the “$100 Club” isn’t 3.5% of the pie, it’s 19%, but so what? It’s still not a very big slice. Here’s where the flip-side of “full career pension” comes into play. Most people don’t work 25-35 years in public service. But most of them do vest their pension benefits, which can be vested in as little as five years. What happens when someone quits after five years, and only goes on to collect, say, a $20,000 per year pension? Someone else is hired, they work five years, and they also qualify to eventually collect a $20,000 per year pension. Then someone else, and then someone else – until you have three or four (or more) people who are all going to receive a $20,000 per year pension – for a job that one person could have performed if they’d stayed with the agency for a full career.

This is a critical point to understand. The significance of “full career” pensions is this: The taxpayer will fund pensions at that level of generosity, even if the benefit is split among multiple partial career participants – people who presumably worked elsewhere (where they also saved for retirement) during the majority of their careers. Should you expect a $100,000 per year pension if you only worked for five years? Of course not. But that’s what taxpayers are funding – whether it goes to one person, or to five people who worked a few years each to collectively fill one person’s full-career position in government.

This is why, when you are considering whether or not pensions are fair and affordable, the full career average pension is the only relevant measure. So what is the full career average?

For CalPERS in 2015, participants with between 25 and 34 years of work who retired in the last ten years, on average, received a pension of $60,277.  Add to that the value of their retirement health benefits and other retirement benefits and the average was probably closer to $70,000 per year.

Just for comparison, for Orange County (OCERS) retirees in 2015, participants with between 25 and 34 years of work who retired in the last ten years, on average, received a pension of $73,628.  Add to that the value of their retirement health benefits and other retirement benefits – information which OCERS also refuses to provide – and the average was probably over $80,000 per year. As for the OCERS “$100,000 Club”? Within the pool of full career retirees as described, and accounting for retirement health benefits, 31% of them were members. Nearly one in three.

Public sector spokespersons frequently point out that public employees don’t get Social Security. Actually, about half of them do get Social Security, but never mind that detail. Because the maximum Social Security benefit, which one must wait until they are 68 years old to receive, is a whopping $31,668 per year.

Calling critics of this double standard “anti-pension zealots” is lazy rhetoric. The problem with defined benefits is not that they exist. The problem is that we have set up a system where public employees operate under a set of retirement benefit formulas and incentives that are roughly four times better than what private sector workers can expect. Yet these private sector workers pay the taxes to fund these pensions and bail them out when the investment returns falter.

 *   *   *

Ed Ring is the president of the California Policy Center.

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.

 

Stanton officials launch propaganda war on tax-repeal effort

(Orange County Archives / Wikimedia Commons)

Downtown Stanton, 1913: More innocent times.

STANTON, Calif. – It was a Wednesday afternoon in early March, a more innocent time in Stanton, California. Gathered in the community center of the Plaza Pine Estates, we were like Adam and Eve in the Garden of Eden before they ate the apple that gave them a second-grader’s sense of good and evil.

Plaza Pine Estates is a well-manicured mobile home park so close to Beach Boulevard – the 26-mile state highway that functions as an asphalt riverbed moving automobiles between the foothills of inland Southern California and sprawling Huntington Beach State Park – that you can hear the dopplering traffic inside the community center.

That’s where Councilman David Shawver led a parade of public officials, including a county firefighter and two sheriff’s deputies, in a celebration of Stanton’s voter-approved hike in the city’s sales tax – from 8 to 9 percent, the highest in Orange County.

The so-called Talk with the Block series – there’ve been three-dozen so far, an official said – are supposed to be about community concerns. But at this one, at least, the communication was mostly one-way – what your computer scientists might describe as less input than output.

Speaker after speaker depicted that increase in the sales tax as the penny-thin line between civilization and chaos. And, in the end, the tax isn’t an ordinary tax, they said, but a “shared tax” – by which they apparently mean that the tax will hit residents as well as humans they called “outsiders.”

“The penny sales tax is a shared tax, a tax from people who drive through our community,” said Shawver. “They drive up and down Beach Boulevard, stop to get gas, and we get one penny. One penny! And thanks to that one little penny, we’ve been able to restore critical public safety assets.”

It also hits anyone who shops in Stanton, of course, though not (the officials stayed carefully on message) grocery and pharmaceuticals shoppers.

But it’s all for a good cause, Shawver said: public safety.

Stanton has a well-earned reputation for violence – it’s among the toughest towns in a county more famous for cat-fights among wealthy housewives than gunfights, gangs and prostitution.

“I’m not going to fool you,” said Shawver, a council veteran. “Public safety is expensive, but I am concerned with maintaining the level of service that you demand.”

Public safety in Stanton is indeed expensive – and getting pricier. This year, the city will pay an additional $1.1 million for public-safety, most of that the escalating cost of pay and benefits for its $220,000-per-year cops and firefighters. Those pay packages were negotiated by the powerful sheriffs and firefighters unions – the same unions that backed Shawver’s 2014 sales tax hike.

If it weren’t for a few lousy public investments over the last several decades, the city might be able to pay its sheriffs and firefighters even at that stratospheric level. But Shawver was among those on the city council who approved Stanton’s play in Vegas-style redevelopment schemes until Gov. Jerry Brown killed them in 2011. Stanton, Orange County’s poorest city, now pays millions on bonds to hold property it purchased while betting on its steady appreciation. Interest payments this year alone: $2,323,887. Unless the city refinances that debt, it’ll pay $42 million in interest by 2040.

And there’s bad news just ahead for Shawver and other Stanton officials. Residents qualified a tax repeal for the November ballot; if successful, that’ll put a ding in the city’s income statement. So will the steady rise in the cost of cops and firefighters: Thanks to more rigorous accounting (and the reporting of the Orange County Register’s Teri Sforza), Orange Countians recently learned for the first time that the Fire Authority is actually running in the red, with deficits – especially for retirement pay and other health benefits – exceeding assets by $169 million for the fiscal year that ended in June.

That has other cities so enraged, they’re talking about leaving the authority and even privatizing firefighting.

But not Shawver. When it comes to the county’s sheriffs and firefighters, “There are no finer government agencies,” he asserted.

We might have believed that in a more innocent time, before the Talk With the Block. But later that night, we discovered that Shawver, a 28-year veteran of Stanton’s redevelopment fiascos, has served for 21 years as his city’s representative on the board of the Orange County Fire Authority.

Tax hike masks Stanton's public-safety pay problem

Stanton has become the stage for a political brawl: in one corner, city officials and the public employee union leaders who backed the measure to give Stanton – Orange County’s smallest city and one of its poorest – the county’s highest sales tax; in the other, residents and business owners working to repeal Measure GG, the city’s 2014 voter-approved sales tax hike.

Late last year, the City Council grudgingly voted to put that citizen-backed tax repeal on the November ballot.

Until then, outsiders might have reasonably believed the people of Stanton were united in their generous desire to pay more for goods and services than anyone else in Orange County – a full percent more than neighboring Anaheim, Cypress and Garden Grove.

The pro-tax propaganda began during the 2014 campaign, when the city spent residents’ money to make the case for taking more of it. There was city money for polling and “informational brochures” targeting voters, city money to research effective messaging and city money for a direct-mail campaign with photos depicting families and firefighters along with information about Measure GG.

Outgunned retail business owners who had the temerity to post signs saying “No on Measure GG” were visited by off-duty code enforcement officers and off-duty sheriffs, who asked innocuous questions about their businesses and city services. In some cases, these off-duty city employees reportedly suggested the business owners take down their “No on GG” signs because they might dissuade city workers from shopping or eating there.

After Election Day, some in the media congratulated Stanton voters for their wisdom. In April 2015, the Orange County Register airdropped David Whiting into post-election Stanton, a place the columnist declared “Orange County’s scrappiest city.”

What makes O.C.’s tiniest town so scrappy? According to Whiting, it’s the willingness of Stanton’s residents to raise their own taxes.

Yes, Whiting paused to spotlight “a former gangbanger, paralyzed from a .32-caliber bullet to the spine,” tractor-mowing a 10-acre park by himself – for free. That’s truly scrappy.

But Whiting was really enthusiastic about Stanton’s self-inflicted economic wound. Raising sales taxes from 8 percent to 9 percent is evidence, he reported, that this is “the littlest city that can.”

Among the post-taxation signs of renewal Whiting found, one was literal: “The placard on the visitor’s counter at Stanton City Hall captures this comeback story,” Whiting reported. “It says that by boosting (the) sales tax from 8 percent to 9 percent, the city has restored personnel to handle 911 calls.”

Whiting’s post-election claim – that the tax hike had improved public safety – mirrored the claim city officials used to sell the tax hike and avoid a confrontation with the firefighters and sheriffs who work in Stanton.

Real reporting might have revealed other ways to manage Stanton’s budget without pick-pocketing residents and wounding businesses surrounded by competitors in cities with lower sales taxes.

For instance, my colleague Ed Ring has found that Stanton could eliminate what it calls its “structural deficit” of $1.8 million through a 14 percent decrease to the average total pay and benefits earned by its 33 sheriffs and 15 firefighters. Even after that reduction, firefighters would earn average pay and benefits of $187,285 per year, and sheriffs would earn $160,412 per year.

To put these public safety rates of pay into perspective, the median earnings for full-time, year-round employed residents of Stanton is $35,769.

There’s another reform that could alleviate the structural budget deficit: sell off about five dozen private properties the city purchased with redevelopment funds. As reported by the Register, the “Stanton Redevelopment Agency had two bond issues: One for $15.3 million, on which it will pay investors a whopping 9.496 percent interest; and another for $12.5 million, on which it will be paying 9.346 percent interest.”

Translation: Stanton is paying $2.6 million per year – $800,000 per year more than its “structural deficit” – to own property that the city should never have bought. The city should sell that property immediately – not as part of a dystopian scheme to sell off libraries and parks, but as an attempt to fix its budget and put commercial real estate back into private hands.

Instead, city officials have taken the path of least resistance, avoiding a fight with the powerful public employee unions that help keep them in office by raising taxes.

The council wanted civic peace; now it will have the political version of war – acrimony, intimidation and threats of panic in the streets. As soon as it bowed to state law last year and placed the citizen-backed repeal on the November ballot, the City Council kick-started a new propaganda campaign, predicting that repeal of the 2014 tax will unleash on their benighted city the Four Horsemen of the Apocalypse.

Local Protestors show up to question Council Member David Shawver's support of an increase in Sales Tax for Stanton

Local Protestors show up to question Council Member David Shawver’s support of an increase in Sales Tax for Stanton.

“That one of the poorest cities in Orange County has to pay the highest tax is totally unbelievable,” former Stanton Mayor Sal Sapien told the Register. “I am very hopeful the residents will prevail over the council.”

In their fight, residents will need more than hope. But hope is a start. Really, scrappiness would be better.

Will Swaim is vice president of communications for the California Policy Center. This article first appeared in the Orange County Register.

 

Propaganda Every American Should Disregard

Randi Weingarten promotes her union agenda in the guise of “cultural literacy.”

Almost 30 years ago, education professor E.D. Hirsch wrote Cultural Literacy, in which he claimed that there are facts and cultural references that every American should know. His list was both celebrated and attacked, and is still controversial.

While many approve of a “core knowledge” curriculum, our polarized citizenry can’t seem to agree on its makeup. To get to some sort of consensus, the Aspen Institute has initiated a project that asks, “What do you think Americans should know to be civically and culturally literate? Give us your top ten!”

While the responses clearly give a clue as to the politics of the responder, the choices tend to be, at least, mostly factual. However, American Federation of Teachers president Randi Weingarten’s contribution is devoid of facts and, consisting instead of her leftist, pro-union agenda.

#1 on Weingarten’s deeply flawed list informs us that “More than half of American public school students live in poverty.” What she doesn’t bother to mention is that what constitutes poverty these days is something of a joke. As Robert Rector wrote in 2011, “The following are facts about persons defined as ‘poor’ by the Census Bureau as taken from various government reports:”

  • 80 percent of poor households have air conditioning. In 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
  • 92 percent of poor households have a microwave.
  • Nearly three-fourths have a car or truck, and 31 percent have two or more cars or trucks.
  • Nearly two-thirds have cable or satellite TV.
  • Two-thirds have at least one DVD player, and 70 percent have a VCR.
  • Half have a personal computer, and one in seven have two or more computers.
  • More than half of poor families with children have a video game system, such as an Xbox or PlayStation.
  • 43 percent have Internet access.
  • One-third have a wide-screen plasma or LCD TV.
  • One-fourth have a digital video recorder system, such as a TiVo.

The Okies would have killed to live in such “poverty.”

#2 – Weingarten’s next core knowledge “fact” is that “Thirty-one states are spending less per pupil on public education than they were in 2007.” Because spending on education varies from state to state and from year to year, it’s much more instructive to look at the big picture. As a nation, we are first in the world in spending, investing over $600 billion dollars on public education every year. Also, as the late Andrew Coulson wrote in 2012, “Since 1970, the public school workforce has roughly doubled—to 6.4 million from 3.3 million—and two-thirds of those new hires are teachers or teachers’ aides. Over the same period, enrollment rose by a tepid 8.5%. Employment has thus grown 11 times faster than enrollment.” Hence, we spend a fortune on education and the unionized workforce has been growing precipitously. So Weingarten’s “fact” is ultimately meaningless.

#3 – “High school graduation rates, National Assessment of Educational Progress (NAEP) scores and college entrance are all at record highs.” Well sorta. NAEP scores have been rising in elementary and middle schools but not high schools. Regarding high school grad rates, it depends who is doing the counting and how the rates are measured. But even if the NAEP scores are rising and high school grad rates are up and college entrance rates are at an all-time high – more importantly, what happens when students get to college? Are they prepared? The answer is a resounding “No!”

Despite our misguided insistence that every student go to college, we’ve done little to ensure their readiness to do so. Via Joanne Jacobs, we see that while 66 percent of our students do apply to college, only 38 percent are ready for the experience. (Note to Randi – regarding your #2 and #3 points: you claim that spending is down throughout much of the country, yet students are flourishing. Maybe we should cut spending to further improve performance?)

Numbers 4 through 8 are equally lame, but let’s skip them and go directly to #9. “Twenty-eight percent of the public workforce will be eligible to retire by 2018, and many state and local governments are not prepared, especially in areas like public safety and corrections.” Not prepared? As the need arises, more will be hired. But if she is referring to pensions, of course they are not prepared! That’s because public employee unions and their hand-picked cronies in local government have already mortgaged all of our futures and built mountains of debt which will be shouldered by generations to come. Many big cities are on the verge of bankruptcy. In fact, Chicago now has “more retired police and firefighters than working.” New York City is in the same boat. In New York State, it is not uncommon for cops and firefighters to pull in six-figure retirement checks.

And then there is #10 – “Every dollar paid out in pension benefits puts $2.37 back into the economy.” This one is an Oscar winner for its audacity and mendacity – a canard perpetuated by the National Institute on Retirement Security, a public pension advocacy group. As researcher Jason Richwine points out, “The stimulus effects are based on the uncontroversial notion that economic activity (such as paying pension benefits) begets further economic activity. The fallacy is in ignoring what economic activity would be generated by taxpayer money if it were not diverted to pensions in the first place.”

So if you steal a dollar from Joe but assure him that the money will be put to good use, the crime is then justified, right, Randi?

Had Weingarten’s fact-free twaddle appeared a few weeks later, I would have assumed it was an April Fool’s joke. But no, sadly, her pro-union propaganda is deadly serious and should be scorned by anyone who truly cares about cultural literacy.

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.