Colman: A TRILLION HERE, A TRILLION THERE

How do you stop an addiction?  You first must admit the problem.  At this point Sacramento Democrats are refusing to admit the truth about the status of California government pensions.

“California has racked up approximately $1 trillion in state and municipal unfunded pension liabilities,” according to Patrick M. Gleason, director of state affairs at Americans for Tax Reform.  Gleason’s comments appeared in an April 6, 2018, column in the Orange County (California) Register. 

Expressed another way, California, with nearly 40 million inhabitants, has a public-employee pension obligation of $25,000 per person. 

If a California city owes more than it has in public-employee pension reserves, there are three choices:  (1) raise taxes; (2) cut benefits; or (3) declare bankruptcy. 

Excessive pension obligations help deplete a city’s funds that could be available for schools, police services, fire services, street cleaning, and road repair. 

At what point will the system collapse?  Before or after the people revolt against the conflicted leadership in Sacramento?

SACRAMENTO, CA - JULY 21:   A sign stands in front of California Public Employees' Retirement System building July 21, 2009 in Sacramento, California. CalPERS, the state's public employees retirement fund, reported a loss of 23.4%, its largest annual loss. (Photo by Max Whittaker/Getty Images)

A TRILLION HERE, A TRILLION THERE

By Richard Colman, California Political News and Views,  10/30/18

 

 

To paraphrase the late U.S. Senate minority leader, Everett Dirksen (R-Illinois), “A trillion here, a trillion there and pretty soon it adds up to real money.” 

Dirksen, who was the U.S. Senate’s minority leader from 1959 to 1969, actually said, “A million here, a million there, and pretty soon it adds up to real money.”  If Dirksen were alive today, he would need to practice writing more zeroes. 

And who owes a trillion dollars?  Why it’s only the largest state in the union: California. 

“California has racked up approximately $1 trillion in state and municipal unfunded pension liabilities,” according to Patrick M. Gleason, director of state affairs at Americans for Tax Reform.  Gleason’s comments appeared in an April 6, 2018, column in the Orange County (California) Register. 

Expressed another way, California, with nearly 40 million inhabitants, has a public-employee pension obligation of $25,000 per person. 

If a California city owes more than it has in public-employee pension reserves, there are three choices:  (1) raise taxes; (2) cut benefits; or (3) declare bankruptcy. 

Excessive pension obligations help deplete a city’s funds that could be available for schools, police services, fire services, street cleaning, and road repair. 

Over the last eight years, the California legislature and Gov. Jerry Brown have banned plastic grocery bags and required a ten-cent fee on grocery paper bags.  Also, the legislature and the governor have had time to ban plastic drinking straws and mandate the gender composition of boards of directors of businesses. 

Why didn’t the legislature and the governor do something about pensions?  Could it be that California’s elected officials are cowards or are controlled by special interests like public-employee unions (or both)? 

The California Public Employees Retirement System (Calpers) is the nation’s largest pension fund.  Calpers makes investments in stocks, bonds, and other financial instruments. 

A few years ago, Calpers was required to generate an investment return of 7.5 percent.  Then, a few years ago, the figure was reduced to 7.0 percent.  According to Dan Borenstein, the editorial page editor of the East Bay Times, a publication that serves the San Francisco Bay Area, a typical investor can usually earn 5.0 percent annually.  Borenstein, frequently writes columns about California pensions.

 

If an individual had invested his own money with Vanguard, a low-cost mutual fund company, he could have done better than putting his money with Calpers.  Vanguard’s VFIAX fund, the 500 Index Admiral Shares Fund, had, on Septmber 30, 2018, a 10.53 percent return from Jan. 1, 2018, to Sept. 30, 2018.  Over the last 10 years, VFIAX has had a rate of return of 11.95 percent per year.  Since its inception on Nov. 13, 2000, VFIAX has returned 6.45 percent per year. 

According to the Calpers website, senior portfolio managers are paid salaries of $252,898 a year.  If public-employees in California could do their own investing, there would be no need for these expensive portfolio managers. 

Public employees do not need special treatment.  Some of these employees are not part of Social Security and Medicare. 

It’s time that California’s public employees were treated like employees of private businesses.  Let the public employees handle their own retirements and let them be part of Social Security and Medicare.

 

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.