“Critics of public employee retirement benefits are engaging in hyperbole and pointing to potholes as evidence that millions of elderly Californians should be stripped of their retirement savings.”
Brian Rice, president, Sacramento Area Fire Fighters, Sacramento Bee, June 2, 2015
Notwithstanding the possibility that saying pension reformers want to see “millions of elderly Californians stripped of their retirement savings” is itself “hyperbole,” Brian Rice’s recent Sacramento Bee submission requires a detailed rebuttal. Rice’s piece, entitled “Pensions aren’t being paid at expense of filling potholes,” was in response to a study written by Stephen Eide and released by the Manhattan Institute entitled “California Crowd-Out, How Rising Retirement Benefit Costs Threaten Municipal Services,” published in April 2015.
Rice leads off by attempting to link the Manhattan Institute to the supposedly infamous Koch Bros., despite offering zero evidence that the Koch Brothers contribute to that organization. And, of course, he is relying on this unsubstantiated link to discredit Eide’s work, apparently because if the Koch’s funded the work, then the author had to come up with data and conclusions that fit their agenda, instead of the facts and logic.
We’ll get to facts and logic in a moment, but first it is necessary to consider Brian Rice’s agenda. Because there is virtually no comparison between California’s urban firefighters and the “working class,” “minority, low-income and rural communities,” to whom Rice makes reference in his article, and for whom unions are more legitimately challenged to represent. Brian Rice, who retired in 2011 after 28 years of service, collected a pension in 2013 of $183,690, NOT including other benefits which probably add at least another $10,000 to his total retirement package.
Here’s pension data for Brian Rice. Notice how during retirement his pension still increases each year.
Here’s pension data for Rice and his fellow retirees from Sac Metro Fire – and Rice isn’t even in the top ten. The top spot is held by James Eastman, who collected a modest pension of $231,428 in 2013.
Rice writes: “Public employees have traded off other compensation in order to have a secure retirement.”
Really? Here’s payroll and benefits data for Sac Metro Fire’s active employees. Eleven employees made over $300,000 in 2013, 195 made over $200,000 in 2013, and 408 made over $150,000 in 2013. The Sacramento Bee recently published an analysis of average pay, not including benefits, for Sacramento firefighters. The data shows the average firefighter makes $122,677 per year, NOT including current benefits such as health insurance, and not including the employer’s pension contribution. Add those and the average goes up to $194,083. And no, that average does NOT include captains, who average $163,040 before benefits.
Quite a trade off. Modest pay in return for a secure pension. No hidden agenda there, right? No motive to engage in “hyperbole” when you encounter critics?
Back to potholes. A California Policy Center study published in February 2015, “California City Pension Burdens,” documents the average employer pension contribution for California cities in 2013 at 7% of total revenue. CalPERS is increasing their required pension contribution by 50%, meaning the average will become over 10% of total revenue. And that assumes the markets don’t correct downwards. Many cities are in far worse shape. Is it really necessary for 10% of every dollar in local tax revenue go to pay pensions that average over $100,000 per year for public safety employees who retire early and whose pensions get annual cost-of-living increases?
The “crowding out” effect is real, and it affects more than potholes. Rice is perhaps at his most hyperbolic when he writes “each year, the $13 billion that much-maligned CalPERS pays Californians in pension payments creates $30.4 billion in economic activity. The California Public Employees’ Retirement System also invests in big infrastructure projects for the state, and makes capital available to minority, low-income and rural communities.”
Bull. Bull. And Bull. To wit:
(1) The $13 billion creating $30.4 billion in economic activity is known as a “multiplier.” As Rice puts it, “They spend it on housing, food, gasoline, other necessities, gifts for the grandkids and more – which drives economic activity, creates jobs and increases tax revenues.” We hate to break it to you, Mr. Rice, but if we had been able to keep that money, instead of paying higher taxes so you can have your $183,690 per year pension, we would have also been able to “spend it on housing, food, gasoline,” etc. No net benefit there.
(2) Rice claims $13 billion is paid out annually by CalPERS to pensioners. Actually last year it was $17.7 billion (ref. CalPERS CAFR 6-30-2014, page 24). But Rice neglects to mention that 15% of those pensioners have moved out of California. And Rice ignores the other side of the equation, which is that based on their asset allocation to-date, 91% of the $12.6 billion paid into CalPERS last year was invested out-of-state. CalPERS has $301 billion in assets, and ninety-one percent of that money is invested out-of-state. As it stands today, California’s citizens, their cities, and the overall economy would be a lot better off if CalPERS, and every other pension system in California, did not exist.
(3) When it comes to infrastructure, not only is CalPERS investing a ridiculously minute portion of their portfolio, but the primary reason there isn’t money for infrastructure is because cities, counties, and the state are too busy allocating all of their financial resources to overcompensated public employees. And if CalPERS and the other pension systems were willing to invest for reasonable rates of return, instead of speculating on global markets, they could take their roughly $700 billion in assets and finance revenue producing civil infrastructure such as dams, upgraded water treatment to allow reuse of waste water, desalination plants, aqueduct upgrades, port expansions, road and freeway upgrades, bridge repair – the list is endless.
Despite Mr. Rice’s hyperbole, most pension reformers do not want to abolish defined benefit pensions for public employees, if these pensions could be made fair and financially sustainable. That would require returning to the conservative investment guidelines in place until Prop. 21 was passed in 1984, and it would require returning to the modest and fair benefit formulas that were in place until SB 400 was passed in 1999. Taking these steps would not only save defined benefit pensions, but enable massive investment by the pension systems in revenue producing civil infrastructure.
There’s a lot of middle ground between someone collecting a pension of $183,690 per year, and being “stripped of their retirement savings,” Mr. Rice.
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