Categories: Budget, Finance, Pension
Another local city sees its staff make concessions on staff compensation (Read SolBeachSB).
Encinitas city staff were given a 15% raise over 4 years.
SacBEE Pension Fund Bombshell
The Governmental Accounting Standards Board has dropped a bombshell
with preliminary new rules that, if adopted, would force governments
to increase projections of pension liabilities by using tighter
"discount rates" – effectively, lower assumptions of pension fund
The huge California Public Employees' Retirement System, the
California State Teachers' Retirement System, the University of
California Retirement System and dozens of locally managed pension
funds would no longer be able to minimize unfunded liabilities by
adopting rosy scenarios of future earnings.
Gov. Arnold Schwarzenegger, through his financial aide, David Crane,
has waged a war of words with the union-controlled Cal- PERS, alleging
that the nation's largest public pension fund has been lowballing its
Schwarzenegger has said he won't sign a new state budget without
pension reforms of some kind. A few days ago, the administration
reached agreement with four state worker unions on some mild pension
changes mostly affecting new workers...
The governor and Crane have touted a Stanford University study
suggesting that, in calculating future pension obligations, the three
state retirement systems stop using a discount rate that's the same as
their assumed rates of annual earnings return, 7.5 percent or higher.
Taxpayers Going Postal Over Public Employee Pensions, Perks. Unions’ miscalculation: Opting for secrecy.
BY PETER SCHEER—For public employee unions–those representing police, firefighters, teachers, prison guards and agency workers of all kinds at the state and local level–these are the worst of times.
Despite record high membership and dues, and years of unparalleled clout in state capitols, public sector unions find themselves on the defensive, desperately trying to hold on to past gains in the face of a skeptical press and angry voters. So far has the zeitgeist shifted against them that, on one recent weekend, government employees were the butt of a Saturday Night Live skit, followed, the next day, by a New York Times magazine cover article proclaiming the “Teachers’ Unions’ Last Stand.”
Public unions’ traditional strength–the ability to finance their members’ rising pay and benefits through tax increases–has become a liability. Although private sector unions always have had to worry that consumers will resist rising prices for their goods, public sector unions have benefited from the fact that taxpayers can’t choose–they are, in effect, “captive consumers.”
At some point, however, voters turn resentful as they sense that: (1) they are underwriting, through their taxes, a level of salary and benefits for government employment that is better than what they and their families have; and (2) government services, from schools to the DMV, are not good enough—not for the citizen individually nor the public generally—to justify the high and escalating cost.
We are at that point.
In California, government sector unions, once among the most entrenched and powerful labor groups in the country, mainly have themselves to blame. For most of the post-war period, they were a force for progressive change, prospering by winning over public support for their agenda.
In the 1970s and 80s they backed laws like the Public Records Act and Brown Act to make state and local government more transparent. Because unions enjoyed broad-based political support, efforts to enhance government accountability and responsiveness to voters were seen–correctly–as benefiting the unions and their members.The public interest and public employees’ interests were aligned.
But the unions switched strategies. Although the change was gradual, by the 1990s California’s government unions had decided that, rather than cultivate voter support for their objectives, they could exert more influence in the Legislature, and in the political process generally, by lavishing campaign contributions on lawmakers. Adopting the tactics of other special interest groups, government unions paid lip service to democratic principles while excelling at the fundamentally anti-democratic strategy of writing checks to legislators, their election committees and PACs.
While not illegal (in fact, such contributions are constitutionally protected), the unions’ aggressive spending on candidates puts them on the same moral low ground as casino-owning tribes, insurance companies and other special interests that have concluded that the best way to influence the legislative process is to, well, buy it.
Public unions in California turned distrustful of voters and ambivalent about government transparency. In the mid-1990s unions backed improvements to the Brown Act, California’s open meeting law, but also inserted a provision assuring that the public would have no access to collective bargaining agreements negotiated by cities and counties—often representing 70% or more of their total operating budgets—until after the agreements are signed.
What happens when voters and the press have no opportunity to question elected officials about how they propose to pay for a lower retirement age, healthcare for retirees’ dependents, richer pension formulas and the like? The officials make contractual promises that are unaffordable, unsustainable (and, in general, don’t come due until after those elected officials have left office). In the case of Vallejo, in northern California, this veil of secrecy, and the symbiotic relationship it fosters, has led to municipal bankruptcy.
The biggest blow to unions’ public support has come from revelations about jaw-dropping compensation and pension benefits. Police have received unwelcome attention for budget-busting overtime and the manipulation of eligibility rules for “disability pensions,” which provide higher benefits and tax advantages. Other government employees, particularly managers, have been called out for “pension-spiking:” Using vacation time, sick pay and the like to boost income in the last years of employment, which are the basis for calculating retirement benefits.
Such gaming of the system boosts starting pensions to levels that can approach, and even exceed, employees’ salaries. Some examples from the reporting of the Contra Costa Times’ Daniel Borenstein: A retired northern California fire chief whose $185,000 salary morphed into a $241,000 annual pension; a county administrator whose $240,000 starting pension was 98 per cent of final salary; and a sanitary district manager who qualified for a $217,000 pension on a salary of $234,000. At a time when most Californians anticipate an austere retirement (if they can afford to retire at all), government pensions are a source of real voter anger.
The harm to the credibility of public employee unions from these excesses is made far worse by the unions’ attempts to hide them. The revelations about pay and pension abuses have surfaced only as a result of lawsuits. (Disclosure: The First Amendment Coalition has been a plaintiff in several of these cases.) Public employee unions, rather than taking the lead to stop abusive compensation practices, have vigorously opposed disclosure of individual employees’ salaries and pension amounts.
Public employee unions need to reboot. The old strategy of cynically buying political influence and excluding the public from decision-making has run its course. Unions can rebuild public support by recommitting to an agenda of open government in the public interest. If they don’t, they will be further marginalized.
LATimes reports, Calpers is poised to ask cities and schools for more money to fill the pension hole.
One quote is revealing:
After weighing those factors, CalPERS actuaries concluded that it would be all right for the fund to go ahead with the hike because it wouldn't overly affect the state's general fund. The general fund, currently at $86 billion, pays for major state programs, including health and welfare, education and public safety.
A question California residents should be asking, why aren't Calper's financial gurus basing the contribution request on how much is needed to fund the pension pot, NOT how much can be squeezed out of state budget? If the budget were flush would they be admitting that the pension pot needs way more money in it to remain solvent?
This is from former newspaper man Ron Kaye about the LA city pensions:
The bill to taxpayers for city pensions is close to $1 billion this year and is expected to go far higher in coming years which is the No.1 reason services are being slashed, assets sold and bankruptcy looms as the only way out.
Among the many sweetheart deals over the years that have led unions to finance the campaigns of our elected officials is a little clause that LACERS uses to make sure retirees get 3 percent cost-of-living increases in their pensions even when there is no inflation.
This year, LACERS reports the increase in the consumer price index for 2010 "for the Los Angeles area is negative 0.8%. This is the first time in LACERS' history of COLA processing that a decrease in the CPI has occurred."
Not to worry, pensions are not being decreased.
"In spite of the negative change in CPI, none of LACERS Members and beneficiaries will experience a reduction of their retirement allowances," LACERS explains on its website.
Read more here.
California's $500-billion pension time bomb
The staggering amount of unfunded debt stands to crowd out funding for many popular programs. Reform will take something sadly lacking in the Legislature: political courage...
How did we get here? The answer is simple: For decades -- and without voter consent -- state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises.
As we saw during the recent financial crisis, hiding debt is not a new phenomenon. Indeed, General Motors did something similar to obscure the true cost of its retirement promises. Through aggressive accounting, for a while it, too, got away with making pension contributions that were a fraction of what it really needed to make, thereby reporting better earnings than was truly the case.