State treasurer seeks probe of CalPERS CEO

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 rowdy, muckraking financial blog that has repeatedly raised later-corroborated concerns about how the California Public Employees’ Retirement System operates has gotten traction with one of its new allegations.

The Naked Capitalism blog’s report that CalPERS CEO Marcie Frost had misled the giant pension fund about her education prompted state Treasurer John Chiang to seek an independent investigation.

Naked Capitalism blogger Susan Webber offered evidence that Frost – who does not have a college degree – allegedly told a consultant who evaluated her job application before her hiring in 2016 that she was enrolled in a degree program at Evergreen State College in Olympia, Washington. The Sacramento Bee reported that she hadn’t taken any classes at the college since 2010. Before coming to CalPERS, Frost led Washington’s Department of Retirement Services, which oversees more than a dozen defined-benefit state pension funds.

In May, Webber’s reporting led CalPERS to oust Chief Financial Officer Charles Asubonten for making misleading claims about his employment history before he was hired.

With CalPERS’ new mess, a potentially big problem for Frost is that while she might be able to dismiss questions about whether she was honest over her education as the result of a misunderstanding, Naked Capitalism’s recent reports actually raise bigger concerns.

Accuracy of death-benefits claim questioned

For one example, Naked Capitalism writer Yves Smith last week wrote a persuasive analysis that argued that CalPERS had cherry-picked among data in claiming it was doing a better job processing death benefits in 45 days or less.

“CalPERS used an obviously cooked-up basis of comparison. Rather than take the same time period in successive years, CalPERS instead chose a set number of cases to examine (300 each) before and after a suspiciously arbitrary-looking cutoff date, February 12. Under questioning, the presenters admitted the ‘before’ cases included ones submitted in November and December,” Smith wrote.

“Why does this matter? The beginning of November through end of January is certain to be the worst time of year in terms of efficiency for a government agency. First, you have a high density of holidays compared to the rest of the year (Veterans’ Day, Thanksgiving, Christmas, Martin Luther King Day). Output suffers due to distractions like holiday shopping, more interaction with family members, and even getting out of the mood to work. Second, many employees also take vacation days around these holidays (and recall that CalPERS employees have generous vacation allowances). So there was also almost certainly reduced manpower to process claims during this period.”

There is no sign that Chiang or others with oversight authority are looking at this allegation. Last week, the CalPERS board made its feelings known about Frost, voting to raise her pay by 4 percent to $330,720 and to give her an $84,873 bonus.

Board officials suspicious of blog’s motives

A Sacramento Bee story last week about Naked Capitalism’s critiques of CalPERS gave space to CalPERS’ officials’ claims that there is something suspicious or perhaps partisan about an East Coast-based blog paying so much attention to a pension system across the nation.

In comments that the Bee reported were intended for Webber, CalPERS Vice President Rob Feckner said, “You’re not from California. Why would you be involved in a California election for that board? Why is it so important to you to get someone elected in that board?” Webber has been sharply critical of Feckner and other board members who have close relationships with Frost.

Naked Capitalism’s tart response: “CalPERS likes to relish its status as the biggest, highest profile public pension fund, but when it gets bad press, its stance is that it’s a parochial organization and why isn’t it left alone?” wrote Yves Smith.

No one familiar with the blog would consider it obsessed with CalPERS. The website’s roster of authors with Wall Street or banking backgrounds is long and their targets are widely varied. The site’s index cites nearly 5,000 stories about the global finance industry versus 98 about CalPERS.

This article was originally published by CalWatchdog.com

Why Is Public Employee Disability Claim Data Being Kept Secret?

TransparencyIn the preamble to California’s Ralph M. Brown Act, the state’s 1953 law governing the public’s access to government meetings, the Legislature noted, “The people of this State do not yield their sovereignty to the agencies which serve them.” Likewise, the people “do not give their public servants the right to decide what is good for the people to know and what is not good for them to know.” The public insists “on remaining informed so that they may retain control over the instruments they have created.”

The same noble sentiment forms the foundation of California’s public-records laws, which govern the release of government documents. Yet a new lawsuit alleges that the California Public Employees’ Retirement System, which operates the largest state pension fund in the country, has been withholding some information that’s necessary to help the public to oversee the system and protect it from waste, fraud and abuse. It deals with disability benefits paid to pensioners.

Specifically, the Nevada Policy Research Institute, which cofounded with California Policy Center Transparent California (the website that publicizes the pay and benefit packages received by California employees), argues that CalPERS has denied its “request for records which would document the type (service, disability or industrial disability) of benefit received,” despite many requests. This information is so important because of the many news reports about the questionable workers’ compensation claims, the lawsuit argues. CalPERS itself recognizes the problem—”it has established a disability fraud tip hotline where it encourages the public to call in and report cases of suspected disability fraud.”

If CalPERS expects the public to help root out bogus disability claims by public employees, then why shouldn’t it provide the public with information that helps it do so? The research institute is merely seeking a one-word designation of the type of pensions that California retirees are receiving. Such information has not been specifically exempted from the California Public Records Act. Anything not exempted is, according to the lawsuit, fair game for public disclosure.

“CalPERS’ claimed sensitivity of information pertaining to the benefit ‘type’ (disability or service) is untenable because hearings related to appeals of denial of disability pensions are public hearings and recorded for broadcast,” according to NPRI’s court filings. Furthermore, the lawsuit argues that CalPERS “has consistently indicated” that it would not release that information. The lawsuit includes correspondence between NPRI and CalPERS backing that claim. CalPERS has yet to respond to the lawsuit and has declined comment to the media, but it has indicated that it believes such information to be an invasion of the recipient’s privacy. …

Click here to read the full article from Reason.com

The California Legislature passes the pension buck – again

PensionsIn truth, Sacramento politicians are very dependable. You can depend on them to raise your taxes, pass meaningless resolutions attacking President Trump and hurt the private sector by eliminating workplace arbitration and enacting even more burdensome regulations. And finally, they are very dependable in avoiding the most important threats to California’s financial solvency, especially dealing with unfunded pension liabilities.

Much has been written about California’s unfunded pension crisis. By 2024, normal contribution payments by cities and counties to CalPERS are estimated to total nearly $3 billion, and the unfunded contribution payments are estimated to total $5.5 billion. That shortfall of nearly $3 billion a year will continue to increase unless reforms are enacted – soon.

California’s pension crisis exists in large part due to the very nature of defined-benefit plans. Unlike defined-contribution plans, where the taxpayers’ obligation to each public employee ends with every pay period, defined-benefit plans depend on a projection of future investment returns. And therein lies the problem. California has been horribly wrong in its application of assumed rates of return, leading to hundreds of billions in unfunded liabilities.

And this shortfall is occurring in good economic times when the state of California is relatively flush. A recession will quickly expose this short-sighted thinking, yet the Legislature continues to believe that local municipalities will continue to pass regressive sales tax increases to bail themselves out. Already, 24 cities have sales tax rates at or over 9.5 percent, and more cities are destined to join them.

To read the entire column, please click here.

The 100 highest pensions in the CalPERS and CalSTRS systems

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)

How much does it take to make it into the 100 top-earning CalPERS or CalSTRS retirees? A pension of more than $219,000.

CalPERS is the retirement system for most state employees. CalSTRS is the retirement system for most certificated school district employees.

Both systems have faced scrutiny for years due to large unfunded liabilities — they don’t have enough money at the moment to pay all the benefits they have promised. In response, both systems have increased the required contributions for local governments that are part of the system.

Most CalPERS and CalSTRS retirees will never make anywhere near the pensions earned by the top-earning 100 retirees. The 100 top-earning CalPERS employees, for instance, make up about one-hundreth of 1 percent of CalPERS beneficiaries. The pensions paid to them in 2016 were equivalent to about one-tenth of 1 percent of all benefits paid to CalPERS beneficiaries. …

Click here to see the 100 highest pensions in the CalPERS and CalSTRS systems as reported by the Sacramento Bee

Local Officials Avoid Pension Discussion as They Push New Taxes

TaxesWhile public and media attention to this week’s primary election focused – understandably so – on contests for governor, U.S. senator and a handful of congressional seats, there were other important issues on Californians’ ballots.

One, which received scant attention at best, was another flurry of local government and school tax and bond proposals.

The California Taxpayers Association counted 98 proposals to raise local taxes directly, or indirectly through issuance of bonds that would require higher property taxes to repay.

The proposed taxes on legal marijuana sales and other retail sales and “parcel taxes” on pieces of real estate were particularly noteworthy for how they were presented to voters.

Most followed the playbook that highly paid strategists peddle to local officials, advising them to promise improvements in popular services, such as police and fire protection and parks, and avoid any mention of the most important factor in deteriorating fiscal circumstances – the soaring cost of public employee pensions.

City, county and school district officials howl constantly, albeit mostly in private, that ever-increasing, mandatory payments to the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) are driving some entities to the brink of insolvency.

However, those officials are just as consistently unwilling to tell their voters that pension costs are the basic underlying factor in their requests for tax increases.

Why?

Tying tax increases to pensions, rather than popular services, not only would make voters less likely to vote for them but make public employee unions less willing to pony up campaign funds to sell the tax increases to voters. It is, in effect, a conspiracy of silence.

This week’s local tax and bond measures are just a tuneup for what will likely be a much larger batch on the November ballot.

It’s a well-established axiom of California politics that low-turnout elections, such as a non-presidential primary in June, are not as friendly to tax proposals as higher-turnout general elections, such as the one in November. Primaries tend to draw more older white voters who often shun taxes, while general elections have younger and more ethnically diverse electorates more attuned to taxes.

As local officials make plans to place those proposals on the November ballot, a bill making its way through the Legislature could skew local tax politics even more.

Senate Bill 958 would allow one school district, Davis Unified, to exempt its own employees from paying the $620 per year parcel tax that its voters approved two years ago.

The Senate approved SB 958 on a 24-19 vote last month, sending it to the Assembly. It’s being carried by Sen. Bill Dodd, a Napa Democrat whose district includes Davis.

The bill’s rationale is that housing is so expensive in Davis that teachers and other school employees cannot afford to live there, and that exempting them from the parcel tax would, at least in theory, make housing more affordable.

However, if SB 958 becomes law, it would set a dangerous precedent. It doesn’t take much imagination to see local government and school unions throughout the state demanding similar exemptions from new taxes with the threat, explicit or implicit, that they would refuse to finance tax measure campaigns.

The very people who benefit most from additional taxes by receiving higher salaries and/or better fringe benefits thus would be able to avoid paying those taxes themselves.

Where would it end?

olumnist for CALmatters

California Can’t Afford to Play Politics with Pensions

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)

As a former mayor of the city of Newport Beach, I took very seriously the financial obligations related to our pension liabilities, the impact of pension costs on city services and the ability to keep our commitments to our employees, which is why recent developments in California concern me.

For years, a small group of voices nationwide has called for universities, pension funds, and other groups who hold investments in fossil fuels to abandon those investments. This movement, known as divestment, believes that abstaining from investment in fossil fuels is key to combating climate change. However, the divestment movement has found it difficult to gain traction, in large part because making political statements through public or institutional investments runs counter to the fiduciary responsibility of pension fund managers. Those who depend on pensions expect their fund managers to make decisions based off sound and profitable investment strategy, not political agendas. There is also no real evidence that walking away from fossil fuel stocks does anything to actually help the environment.

Frustrated by their failure to gain ground, divestment advocates have turned to new methods of create momentum. For example, state lawmakers in California have been asked to consider a rash of bills related to pension funds. In 2017, the legislature considered two bills related to this topic. Senate Bill 560, which ultimately died, would have required CalPERS and CalSTRS, pension funds that serve California’s teachers and public employees, to consider climate risk when managing their funds. Assembly Bill 20 forced these pension funds to examine their financial holdings related to the controversial Dakota Access Pipeline. This year, a third bill, Senate Bill 964, would require CalPERS and CalSTRS to report every three years on any investments related to climate change.  If these well-intentioned but misguided policies are enacted, the impacts will be felt by cities through rising pension liabilities and a reduction in funds available for basic city services like public safety and parks.

Rebranding their efforts to focus on climate risks, as opposed to directly calling for the abandonment of fossil fuel holdings, divestment advocates are taking new approaches toward the same goal. But while some might view these bills as well-intentioned measures to help the environment, the reality is quite different.

For starters, there is no evidence that these measures do anything to help the environment or combat climate change. Even Assembly Bill 20, with its targeted focus on a single pipeline, has had no impacts on the Dakota Access Pipeline’s investments or implementation. Rather, the value of passing such a measure lies mostly in its symbolism, a fact acknowledged by Bill McKibben, an environmental activist helping to drive the divestment agenda.

In practice, “climate risk” measures open the door for playing politics with retirement funds. This is especially dangerous for large funds tasked with protecting the future of Californians. Consider, for example, that the state’s public employees fund, CalPERS, manages the largest public pension fund in the United States, serving nearly 2 million people and holding around $300 billion in assets. CalSTRS, which serves education employees, is the world’s largest educator-only pension fund and the second largest pension fund in the U.S., managing a portfolio of more than $200 billion. Recent figures show that more than 200,000 retirees currently depend on CalSTRS for their pensions. Divestment from tobacco related stocks has already cost the CalPERS system more than $3 billion according to recent studies. We simply cannot afford more of this waste.

There is clearly an incredible amount at stake when it comes to managing these funds and others like them in California, with job number one being safeguarding the money that these employees worked so hard to earn. Both CalPERS and CalSTRS, California’s two largest pension funds, explicitly require fund managers to adhere to their fiduciary responsibilities. Misguided legislation requiring pension managers to follow political agendas when managing money only distracts from that duty, putting public funds and retirement nest eggs at great risk. Now more than ever, pension managers must focus on achieving returns that address the looming unfunded pension crisis, not on playing politics.

The truth is that divestment and related ideas like climate risk have always lived on shaky ground. Instead of walking away from investments in fossil fuels and losing a seat at the table, isn’t the better approach to affect change through active engagement? Instead of requiring pension fund managers to mitigate climate risks, shouldn’t we allow them to fulfill their fiduciary duty and leave climate discussions to policymakers? Hopefully retirees and their elected officials are paying attention to this dangerous rebrand of the divestment movement.  The consequences are higher unfunded pension liabilities and the crowding out of municipal services.  With today’s turbulent financial markets, it is more important than ever that we protect the hard-earned money of Californians.

Keith Curry is a former Mayor of Newport Beach and former financial advisor to state and local governments.

Who will end up paying CalPERS’ $168 billion in unfunded liabilities?

pension-2California’s public employee pension systems have immense gaps – called “unfunded liabilities” – between what they have in assets and what they will need to meet their obligations to retirees.

The California Public Employees Retirement System (CalPERS), the nation’s largest pension trust fund, and other state and local systems are desperately trying to close those shortfalls, or at least reduce them, mostly by ramping up mandatory “contributions” from public agencies.

Everyone is getting hit by those rapidly escalating demands and it’s no secret that they are pushing some school districts and cities to the brink of insolvency, forcing them to slash other spending, even vital police and fire services, and/or seek higher taxes from their voters to keep their heads above water.

Moreover, the squeeze is destined to get even tighter. For instance, cities that are now paying 50 cents into CalPERS for every dollar of police officers’ salaries are projecting that it could go to 75 or 80 cents within a few years.

School districts are feeling a double whammy – a more than doubling of their mandatory payments to the California State Teachers Retirement System (CalSTRS) for their professional staffs, plus increasing demands from CalPERS for their support staffs.

The state government itself is not immune. Last week, CalPERS told Gov. Jerry Brown and legislators that they must include $6.3 billion in the 2018-19 state budget to cover state employee pensions, making it one of the budget’s largest single items.

CalPERS officials send mixed messages to the public about the gap, on one hand saying that they must jack up contributions to avoid having it grow so large that the trust fund can never catch up, but on the other crowing about recent investment earnings and insisting that retirees and employees should feel confident that their money will be there when it’s needed.

This month, the Pew Charitable Trusts, which has followed the nationwide public pension issue closely, issued a report that examines the systems’ unfunded liabilities, and explains why some states have big gaps while others are fully funded, or nearly so.

Nationwide, Pew calculated, the total gap for all states grew by $215 billion between 2015 and 2016 to $1.4 trillion – and that assumes that the systems will meet their investment earnings assumptions of 7-plus percent a year.

Actual 2016 earnings, including those in California, fell extremely short of those assumptions, but even if they had been met, Pew says, unfunded liabilities would still have grown because most states, including California, also fell short on employer payments needed to cover ever-growing pension obligations.

That’s an important point. Even though CalPERS and other systems have sharply accelerated payments from employers, they still fell short in 2016 of what was needed to keep the gap from growing. California’s contribution shortfall, in fact, was the nation’s sixth highest in relative terms.

Pew agrees with the official CalPERS calculation that it was 69 percent funded in 2016, which is slightly higher than the 66 percent level for state pension systems nationwide. That’s a $168 billion unfunded liability – again assuming that it will meet its earnings goals, which is dropping slowly to 7 percent.

In contrast, New York’s system is 91 percent funded because it steadily dealt with earnings downturns and funded benefit increases, rather than allow shortfalls to accumulate, as California and many other states did, until they reached the crisis point.

CalPERS says that an uptick in 2017 earnings, to more than 11 percent, has raised its funding level to 71 percent. That’s obviously good news, but CalPERS’ own staff estimates that earnings over the next decade should barely average 6 percent a year, which, if true, would mean the system would either have to allow its funding level to decline or hit state and local government employers – and, of course, their taxpayers – even harder.

It’s a balancing act. CalPERS and the other systems are trying to avoid insolvency without driving their members over the fiscal cliff. Rising pension costs are driving many cities to ask voters for sales tax increases this year, but they won’t be telling those voters the truth about why new revenue is needed, fearing candor would spark a backlash.

This article was originally published by CalMatters.org

The Underrecognized, Undervalued, Underpaid, Unfunded Pension Liabilities

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)

“It’s the economy, stupid.”
–  Campaign slogan, Clinton campaign, 1992

To paraphrase America’s 42nd president, when it comes to public sector pensions – their financial health and the policies that govern them – it’s the unfunded liability, stupid.

The misunderstood, obfuscated, unaccountable, underrecognized, undervalued, underpaid, unfunded pension liabilities.

According to CalPERS own data, California’s cities that are part of the CalPERS system will make “normal” contributions this year totaling $1.3 billion. Their “unfunded” contributions will be 41% greater, $1.8 billion. As for counties that participate in CalPERS, this year their “normal” contributions will total $586 million, and their “unfunded” contributions will be 36% greater at $607 million.

That’s nothing, however. Again using CalPERS own estimates, in just six years the unfunded contribution for cities will more than double, from $1.8 billion today, to $3.9 billion in 2024. The unfunded contribution for counties will nearly triple, from $607 million today to $1.5 billion in 2024 (download spreadsheet summary for all CalPERS cities and counties).

Put another way, by 2024, “normal contribution” payments by cities and counties to CalPERS are estimated to total $2.8 billion, and the “unfunded contribution” payments are estimated to total almost exactly twice as much, $5.5 billion.

So what?

For starters, every pension reform that has ever made it through the state legislature, including the Public Employee Pension Reform Act of 2013(PEPRA), does NOT require public employees to share in the cost to pay the unfunded liability. The implications are profound. As public agency press releases crow over the phasing in of a “50% employee share” of the costs of pensions, not mentioned is the fact that this 50% only applies to 1/3 of what’s being paid. Public employees are only required to share, via payroll withholding, in the “normal cost” of the pension.

Now if the “normal cost” were ever estimated at anywhere near the actual cost to fund a pension, this wouldn’t matter. But CalPERS, according to their own most recent financial report, is only 68% funded. That is, they have investments totaling $326 billion, and liabilities totaling $477 billion. This gap, $151 billion, is how much more CalPERS needs to have invested in order for their pension system to be fully funded.

A pension system’s “liability” refers to the present value of every future pension payment that every current participant – active or retired – has earned so far. In a 100% funded system, if every active employee retired tomorrowand no more payments ever went into the system, if the invested assets were equal to that liability, those assets plus the estimated future earnings on those invested assets would be enough to pay 100% of the estimated pension payments in the future, until every individual beneficiary died.

A pension system’s “normal payment” refers to the amount of money that has to be paid into a fully funded system each year to fund the present value of additional pension benefits earned by active employees in that year. When the normal payment isn’t enough, the unfunded liability grows.

And wow, has it grown.

CalPERS is $151 billion in the hole. All of California’s state and local pension systems combined, CalPERS, CalSTRS, and the many city and county independent systems, are estimated to be $326 billion in the hole. And that’s extrapolated from estimates recognized by the pension funds themselves. Scenarios that employ more conservative earnings assumptions calculate total unfunded liabilities that are easily double that amount.

With respect to CalPERS, how did this unfunded liability get so big?

An earlier CPC analysis released earlier this year attempts to answer this. Theories include the following: (1) Letting the agencies decide which type of asset smoothing they’d like to employ, (2) permitting the agencies to make minimal payments on the unfunded liability so the liability would actually increase despite the payments, (3) making overly optimistic actuarial assumptions, (4) not taking action sooner so the unfunded payment wouldn’t end up being more than twice as much as the normal payment.

One final alarming point.

CalPERS recently announced that for any future increases to the unfunded liability, the unfunded payment will have to be calculated based on a 20 year, straight-line amortization. This is a positive development, since the more aggressively participants pay down the unfunded liability, the less likely it is that these pension systems will experience a financial collapse if there is a sustained downturn in investment performance. But it begs the question – why, if only increases to the unfunded liability have to be paid down more aggressively, is the unfunded payment nonetheless predicted to double within the next six years?

CalPERS information officer Tara Gallegos, when presented with this question, offered the following answers:

(1) The discount rate (equal to the projected rate-of-return on invested assets) is being lowered from 7.5% to 7.0% per year. But this lowering is being phased in over five years, so it will not impact the 2018 unfunded contribution. Whenever the return-on-investment assumption is lowered, the amount of the unfunded liability goes up. By 2024, the full impact of the lowered discount rate will have been applied, significantly increasing the required unfunded contribution.

(2) Investment returns were lower than the projected rate of return for the years ending 6/30/2015 (2.4%) and 6/30/2016 (0.6%). Lower than projected actual returns also increases the unfunded liability, and hence the amount of the unfunded payment, but this too is being phased-in over five years. Therefore it will not impact the unfunded payment in 2018, but will be fully impacting the unfunded payment by 2024.

(3) The unfunded payment automatically increases by 3% per year to reflect the payroll growth assumption of 3% per year. This alone accounts, over six years, for 20% of the increase to the unfunded payment. The reason for this is because most current unfunded payments are calculated by cities and counties using the so-called “percent of payroll” method, where payments are structured to increase each year. CalPERS is going to require new unfunded payments to not only be on a 20 year payback schedule, but to use a “level payment” structure which prevents negative amortization in the early years of the term. Unfortunately, up to now, cities and counties were permitted to backload their payments on the unfunded liability, and hence each year have built in increases to their unfunded payments.

The real reason the unfunded liability has gotten so big is because nobody wanted to make conservative estimates. Everybody wanted the normal payments to be as small as possible. The public sector unions wanted to minimize how much their members would have to contribute via withholding. CalPERS and the politicians – both heavily influenced by the public sector unions – wanted to sell generous new pension enhancements to voters, and to do that they needed to make the costs appear minimal.

As a result, taxpayers are now paying 100% of an “unfunded contribution” that is already a bigger payment than the normal contribution, and within a few years is destined, best case, to be twice as much as the normal contribution.

Camouflaged by its conceptual intricacy, the cleverly obfuscated, deliberately underrecognized, creatively undervalued, chronically underpaid, belatedly rising unfunded pension liabilities payments are poised to gobble up every extra dime of California’s tax revenue. And that’s not all…

Sitting on the blistering thin skin of a debt bubble, a housing bubble, and a stock market bubble, amid rising global economic uncertainty, just one bursting jiggle will cause pension fund assets to plummet as unfunded liabilities soar.

And when that happens, cities and counties have to pay these new unfunded balances down on honest, 20 year straight-line terms. They’ll be selling the parks and libraries, starving the seniors, releasing the criminals, firing cops and firefighters, and enacting emergency, confiscatory new taxes.

Whatever it takes to feed additional billions into the maw of the pension systems.

Budget surplus? Dream on.

*   *   *

Edward Ring co-founded the California Policy Center in 2010 and served as its president through 2016. He is a prolific writer on the topics of political reform and sustainable economic development.

RELATED ARTICLES

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California Government Pension Contributions Required to Double by 2024 – Best Case, January 31, 2018

Did CalPERS Use Accounting “Gimmicks” to Enable Financially Unsustainable Pensions?, January 24, 2018

How Much More Will Cities and Counties Pay CalPERS?, January 10, 2018

If You Think the Bull Market Rescued Pensions, Think Again, December 7, 2017

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California Moves Hard Left

Gavin NewsomOur next election season is underway and unless something changes, Gavin Newsom will be our next governor. Even Gov. Jerry Brown is concerned about the “self labeled state of resistance” against Trump, Republicans and people of faith that is pushing California’s policies and political debate further left. Republicans, church pulpits that founded America or leading conservatives aren’t giving counterarguments or providing checks on unhinged spending and social policies that degrade families, single-family homes and middle class incomes. U.S. Senate races, statewide offices and Legislature races will be filled exclusively with Democrats – setting up races between the left and even harder left – foreshadowing the direction of the party in California and nationally. This younger generation of Godless, leftist Democrats who mock the values that built California will destroy our state the way Chavez ruined Venezuela.

Additionally, unhinged immigration that rewards chain migration, encourages a diversity visa lottery system and doesn’t deport every illegal alien in prison will turn this country deep blue the way California, New York, Illinois and increasingly former red state Virginia are now. Liberal magazine The Atlantic was prescient when it stated in early 2016 that America is moving left and unchecked immigration will destroy this country by importing people who bring leftist and communist values from China, Latin America and Islamic African nations.

To overly pious Christians, leading conservatives, #NeverTrumpers and the Republican establishment that hates Trump, his voters and what he stands for, let Joel Kotkin, a self-described Truman Democrat, be your guide on how he illustrates what the Democratic Party has become. Mr. Kotkin breaks down these “post-industrial information age Democrats” into three groups:

Corporate oligarchs exemplified by Google, Facebook, Silicon Valley, Causists obsessed with hot button issues (abortion on demand, gay marriage, global warming) the most critical to long-term Democratic ascendency, and Populists who bear much of the party’s ‘social democratic message and legacy’ (they are the least of the Democratic Party that gave America FDR, JFK, Pat Brown, Scoop Jackson).”

Each group exemplifies faux compassion while using the media, entertainment, education, government and the courts to intimidate and control any who oppose their policies to bow in serf-like fashion to their whims and desires. Foolish Republicans in California who believe that Democrats can be understood and worked with, instead of being fought against, don’t comprehend how systematically corrupt; evil and plain wrong are today’s Democratic Party.

Two examples illustrate this truth when leading Democrats attended a private dinner with the president of Iran and Louis Farrakhan in 2013 while former President Obama had a smiling picture taken in 2005 with the vile, anti-Semite Farrakhan when he was a Senator. The press, Congressional Black Caucus and Democratic leaders buried these secrets to further the cause of electing Democrats and warring against American values. Meanwhile, Trump has a better approval rating than Obama, despite the relentless attacks, at the same point in his presidency, which is simply amazing.

And what have decades of “phantasmagorical imbecility,” from feckless Republicans and leftist Democrats wrought California for my generation to clean up? The poorest business climate, some of the highest tax rates, and largest number of people living in poverty. Moreover, Los Angeles now ranks as having the worst traffic congestion in the world, California is possibly in another drought without any water capture infrastructure built in recent memory; and The Stanford Pension Institute says, “that CalPERS has a $1.4 trillion unfunded liability.” These could be some of the reasons why more people are migrating out of California. California could use economic growth since our GDP growth rate has slipped to 35th in the nation.

The irony is Trump’s economy has rescued California’s Unemployment Insurance Fund, which has been insolvent since 2009. It was bailed out by the federal government under the Obama administration but the “Trump bump” means California can pay back the $10.2 billion borrowed from the Treasury between 2008-2012. But California’s Democratic legislators never miss an opportunity to “trash President Trump.” Environmental policy and “settled science,” though, is where the Democratic Party isn’t willing to have a serious, reasoned debate to answer what if anything can be done; or if there even is man-made global warming since climates obviously change.

However, is that due to carbon emissions or the earth’s weather patterns that have taken place for millions of years? Two recent studies question the earth warming and the worst case scenarios touted by Al Gore and former President Obama being void of scientific validity. Billions keep flowing for Democratic politicians, interest groups and those vested financially to keep the science settled and the environmental shibboleth of global warming moving forward into the next election cycle while California will ban any crude oil coming from Trump’s offshore drilling plan that could provide billions in economic benefits.

So what can be done against this type of incompetent rule? Fight back. For starters here’s how to approach environmentalists with this statement and then question by Dr. Walter Williams:

“Sixty-Five million (65) years ago the Earth experienced one of the most rapid and extreme global climate changes recorded in geological history named the ‘Paleocene-Eocene Thermal Maximum,’ when oceans were 18 to 27 degrees hotter than today and Antarctica was home to temperate forests, beech trees and ferns. The earth also had no permanent polar ice caps. In the past 65 million years, the Earth’s temperature has increased and decreased with no help from mankind. Therefore, can mankind really stop climate change and what is the correct earth temperature?”

Make no mistake we are in a fight the way the Marines were in an inch-by-inch fight for territory in the Pacific during World War II. Walk precincts, support candidates with your money and realize it will take numerous election cycles, but voters are realizing Trump’s economic strategies are working. It really is the economy stupid. Most importantly, WALK PRECINCTS and get the message to voters about Trump’s economy that is helping Republicans, why single-family homes aren’t being built causing prices to skyrocket (appointed agencies like the Southern California Association of Governments that has counterparts in San Diego and Northern California are the reasons) and why we are terribly vulnerable to the next recession due to some of the above-mentioned reasons.

Inform voters about unfunded pension obligations in the trillions, horrible inequality, sensible ways to protect children in our schools and Democratic leaders that don’t reflect their communities; but most of all, fight back. Run for office locally, regionally, statewide and federal offices but have your facts down, platform legitimized and reasons for running, because Democrats are on the hegemonic march to crush your lives, kill off families and destroy anything that gets in their path by any means possible.

Todd Royal is a geopolitical risk and energy consultant based in Los Angeles.

California Government Pension Contributions Required to Double by 2024 – Best Case

Pension moneyThe employer contribution to California’s state and local government pension systems will double, from $31 billion in 2018 to $59 billion by 2024. This estimate is based on aggregating official projections of cost increases issued by CalPERS to their participating agencies, and extrapolating those projections show the overall impact on all of California’s 87 government pension systems.

As reported in the CPC analysis “How Much More Will Cities and Counties Pay CalPERS?,” each of their participating agencies can now view detailed information on the financial status for each of their local pension plans by accessing the “Public Agency Actuarial Valuation Reports” issued by CalPERS actuaries.

The table below shows, in column one, the sum total of the projections prepared by CalPERS for each of their participating local agencies. As can be seen, local government employers in the CalPERS system are required to contribute $5.3 billion this year. By 2024, that required employer contribution will nearly double, to $10.1 billion.

The middle column in the table extrapolates these projections to the entire CalPERS system, incorporating the state agencies they serve. This is a reasonable extrapolation, since – using data from CalPERS 2016-17 Annual Financial Report – the entire CalPERS system is actually slightly less funded, at 68%, than their local agency plans, at 69%. As can be seen, the entire CalPERS system is estimated to require employer contributions to rise from $13.3 billion this year to $25.3 billion in 2024.

Column three in the table extrapolates this data to incorporate all of California’s state and local government pension systems. Using Census Bureau data, these systems are estimated to have $761 billion in assets. Based on that total, and assuming similar financial profiles for all California’s pension systems – i.e., about 70% funded in aggregate – California’s state and local government employers will pay $31 billion into the 87 various pension systems this year, and by 2024 this payment will rise to $59.1 billion.

Estimated Increase to Employer Pension Contribution
2017-18 compared to 2014-25 ($=B)

Employer Pension Contribution

When assessing the impact of a nearly $30 billion hike in pension contributions between now and 2024, it’s important to note that these projected payments do not include contributions collected from state and local government employees via payroll withholding. Last year, for example, CalPERS collected $12.3 billion from employers – i.e., taxpayers – and supplemented that with $4.2 billion in employee contributions via payroll withholding (ref. CalPERS CAFR, page 31). Why are the employees only paying 25% of the cost for their benefit? Didn’t the PEPRA reform of 2012 put them on track to pay 50% of the cost of their pensions?

To properly answer this, it is necessary to view the projected changes to the employer “normal contribution,” vs. their “unfunded contribution.” The normal contribution is how much money must go into a pension system in any given year. It represents the amount that has to be invested in the present year to eventually fund the additional retirement benefits earned by employees in that same year. According to PEPRA, this so-called normal contribution is the only portion of an employer’s pension fund payment that employees are required to help pay for. And since the normal contribution has never been enough, pension systems have become underfunded – and the money necessary to catch up, the unfunded contribution, falls 100% on the backs of the taxpayers.

If the unfunded contribution was a trivial amount, because pension fund actuaries had made prudent forecasts, this would be a non-issue. But as summarized last week in the report “Did CalPERS Use Accounting “Gimmicks” to Enable Financially Unsustainable Pensions?,” forecasts were not prudent. They were wildly optimistic. This is why, using official projections, CalPERS requires an unfunded contribution this year that is already 21% greater than the normal contribution, and by 2024, CalPERS will required an unfunded contribution that is 53% greater than the normal contribution.

These are best-case projections, since CalPERS and CalSTRS, along with most of California’s major government pension systems are only lowering their long-term projected rate of return assumptions from 7.5% to 7.0%. All of this, this extra $30 billion per year that California’s taxpayers are going to have to cough up by 2024 to feed the pension systems, is assuming that strong investment returns continue indefinitely. If there is a major correction in the stock market, or in real estate, or in bonds, or in all three, then all bets are off.

After a run-up in the value of invested assets that has now lasted for nearly ten years, CalPERS is only 68% funded, and CalSTRS is only 64% funded. These pension systems are already requiring taxpayers to more than double their payments to reduce an unfunded liability that they’ve already racked up, despite realizing unprecedented gains in an overheated market that is ripe for a correction. When that happens, the payments they’ll require to stay afloat could double again.

If you are wondering what is truly driving the state and local governments’ insatiable desire for more tax revenue, look no further.