Jerry Brown Embraces Pension Shell Game

Jerry Brown budgetLOOMING PENSION PAIN–The Jerry Brown administration last week released its revised May budget and, lo and behold, it has finally decided to (kind of, sort of) tackle the state’s massive and growing level of unfunded liabilities – i.e., the hundreds of billions of dollars in taxpayer-backed debt to fund retirement promises made to the state’s government employees.

It’s best to curb our enthusiasm, however. The governor didn’t have much of a choice. This was the first state budget that is compliant with new accounting standards established by the Governmental Accounting Standards Board that requires states to more properly account for retiree medical and benefits beyond pensions.

Because of those new standards and low investment returns, the state’s unfunded liabilities (including the University of California retirement system) soared by an astounding 22 percent since last year. But even this new estimate of $279 billion in liabilities is on the optimistic side. Some credible estimates pin California state and local governments’ pension liabilities at nearly $1 trillion, based on more realistic rate-of-return predictions.

The pension system invites eyes-glazing-over debates about the size of the liability. That’s because debts are calculated on guesswork about future investment earnings. The California Public Employees’ Retirement System (CalPERS) recently voted to lower its predicted rates from 7.5 percent a year to 7 percent. The lower the predicted rate, the higher the liabilities, which is why CalPERS and the state’s unions are so bullish on Wall Street.

CalPERS’ latest investment returns were below 1 percent, but the agency insists there’s nothing to worry about and no need to do the unthinkable (reduce future benefit accruals for current employees.) That’s the same CalPERS, of course, that in 1999 assured the Legislature that a 50-percent retroactive pension increase wouldn’t cost taxpayers a dime.  I suppose CalPERS was right. It didn’t cost a dime, although it did cost many billions of dollars. Their returns were then yielding 13.5 percent a year, and CalPERS figured the heyday would go on forever.

The other reason to be skeptical of the Brown administration’s commitment to solving the problem can be found in the May revise itself. The budget “includes a one‑time $6 billion supplemental payment” to CalPERS, according to the Finance Department. “This action effectively doubles the state’s annual payment and will mitigate the impact of increasing pension contributions due to the state’s large unfunded liabilities.”

Where is the extra $6 billion coming from in a budget that supposedly is so pinched that the governor recently signed a law raising annual transportation taxes by $5.2 billion?

Simple. The state is borrowing the money to pre-pay some of its debt. “The additional $6 billion pension payment will be funded through a loan from the Surplus Money Investment Fund,” according to the budget summary. “Although the loan will incur interest costs (approximately $1 billion over the life of the loan,) actuarial calculations indicate that the additional pension payment will yield net savings of $11 billion over the next 20 years.”

In other words, the state will be borrowing the money at fairly low interest rates and then investing the money and earning, it hopes, higher rates. The difference will help pay down some of those retirement debts. Even the well-known pension reformer, Sen. John Moorlach, R-Costa Mesa, lauded the administration for embracing that idea.

But it’s something of a shell game. It should work out well, provided the markets do as well as the state expects. In doing this, however, the state is taking out new debt that will need to be repaid. There’s no free money here. A number of localities have embraced a similar strategy with pension-obligation bonds, which are a form of arbitrage, in which the government is borrowing money and betting on future market returns.

This gimmick is similar to the one people will embrace in their personal lives. Are those credit-card debts crushing the family budget? Then borrow money from the home-equity line of credit at 5 percent and use it to pay down the 10-percent credit card loans. It makes sense, but it doesn’t deal with the real problem of excessive consumer spending.

“This is the Band-Aid,” said Dan Pellissier, a former aide to Gov. Arnold Schwarzenegger and well-known state pension reformer. “The surgery everyone is trying to avoid is on the California Rule – changing the benefits public employees receive in the future.”

When it comes to pensions, everything comes back to that “rule,” which isn’t a rule but a series of court precedents going back to the 1950s. In the private sector, companies may reduce pension benefits for their employees in the future. An employee can be told that, starting tomorrow, she will accrue pension benefits at a lower rate. The California Rule mandates that public employees, by contrast, can never have their benefit levels reduced.

That limits options for reform. In 2012, Gov. Brown signed into a law the Public Employees’ Pension Reform Act (PEPRA), which promised to address the pension-debt problem by primarily reducing benefits for newly hired employees. A reform that affects new hires will reduce contribution rates but won’t make an enormous difference until they start retiring.

“Gov. Jerry Brown’s attempt at pension reform has failed,” opined Dan Borenstein, in a recent East Bay Times column. The reason: the rapidly growing pension debt. “The shortfall for California’s three statewide retirement systems has increased about 36 percent. Add in local pension systems and the total debt has reached at least $374 billion. That works out to about $29,000 per household.”

CalPERS rebutted Borenstein by arguing that he “greatly oversimplifies and needlessly discounts the real impact that Governor Brown’s pension reform has had since it took effect in January 2013.” The pension fund insists, “PEPRA already is bending the pension cost curve – and will keep doing so with greater impact every year going forward.”

Yet the growing liabilities and the administration’s latest budget plan suggest that whatever minimal cost savings PEPRA is achieving aren’t nearly enough. Of course, union-controlled CalPERS’ goal isn’t protecting taxpayers or the state general fund – it is to enhance the benefits of the state workers whose pensions it manages.

As Calpensions explained, that $6 billion of borrowed money doubles the amount of general-fund dollars that the state is paying to deal with pension obligations. Meanwhile, as the state borrows money to pay that tab, it raises taxes to fund transportation. If Brown and the Legislature had trimmed pension costs, it would not have needed to raise gas taxes and the vehicle license fee. And the problem reverberates for local governments, too.

The May revise also showcased the same old issue with the administration’s priorities. Los Angeles Times columnist George Skelton noted that “Brown’s entertaining rhetoric itself made him sound, as usual, like a skinflint, a penny-pinching scold. But the introductory document could have been written by Bernie Sanders, if not Depression-era Socialist Upton Sinclair, the losing 1934 Democratic candidate for governor who ran on the slogan ‘End Poverty in California.’”

The budget championed myriad big-spending programs, including higher pay for public employees. So the state has been spending like crazy, but can’t manage to deal with its pension problem – at least not without borrowing money to temporarily paper over its growing debt.

All these games are about avoiding dealing with the obvious fact that California’s public-employee pensions are absurdly generous, filled with costly and anger-inducing features (spiking, double-dipping, liberal disability retirements, etc.) and unsustainable.

In 2011, the state’s official watchdog agency, the Little Hoover Commission, argued to the governor that “Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.” Six years later, the governor is still just chipping away at the edges by embracing gimmicks.

Steven Greenhut is a contributing editor to the California Policy Center, on whose website this piece originally appeared. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

Prepped for CityWatch by Linda Abrams.

Questions for Someone Who Supports Superior Benefits for Government Workers

“Without disputing the figures, Monique Morrissey, an economist with the Economic Policy Institute in Washington, D.C., said the findings are misleading because they do not compare specific classes of employees or account for differences in education levels and total hours worked.”
California Is Golden State For Public Employees, by Michael Carroll, AMI Newswire, Jan. 31, 2017

Ms. Morrissey has a point, even though there was no intent to “mislead.” While our recent study “California’s Public Sector Compensation Trends,” found that full-time public sector workers in California earn pay and benefits that average at least twice as high as their counterparts in the private sector, going into comparisons by specific class of employee was beyond the scope of that particular study. But Ms. Morrissey is missing the forest for the trees.

First of all, as acknowledged in Carroll’s article where Morrissey is quoted, the study found that California’s public employees earn pay and benefits that average 39 percent higher than their public sector counterparts in the rest of the U.S. So especially in California, we conclude there are two classes of workers – public sector workers, whose 2015 pay and benefits averaged $139,691 for full-time work (if you properly fund their pensions), and private sector workers, who, very best case, earned pay and benefits that averaged $62,475.

Everybody knows that public sector workers have, on average, higher levels of education than private sector workers. Should this translate into average (and median, by the way) total earnings that are twice what all private sector workers receive? It challenges credulity.

Ms. Morrissey’s biography states, “She is active in coalition efforts to reform our private retirement system to ensure an adequate, secure,and affordable retirement for all workers.” Bravo. That is a goal we share. And so in the spirit of aligning ourselves with practical, feasible, equitable objectives towards achieving that goal, Ms. Morrissey is invited to answer the following questions:

(1)  Do you think what public sector pensions (ref. CalPERS, the largest) pay to California’s government retirees should be three to five times what Social Security offers private sector retirees?

CalPERS pensions

(2)  The average current retiree pension – not including retirement health benefits – for a state/local government worker with 30 years of service is $67,762 per year (click on any pension system to see average per former employer). There are 10 million Californians over the age of 55, 25 percent of the total population. If all of them received a pension of $67,762 per year, that would cost $677 billion dollars, 32 percent of California’s aggregate personal income of $2.1 trillion. Do you think people who are retired should collect state-funded pensions worth more on average than the earnings of people who work? Do you think this is feasible?

(3) Defenders of unaltered state/local government pension benefits in California argue that pension benefits are primarily paid for via investment returns. But they claim investment returns can average 7.5 percent per year (4.5 percent after adjusting for inflation), “risk free.” Are YOU, Ms. Morrissey, willing to personally guarantee that MY retirement investments will earn this much? Because if you are, I’ll invest every penny I’ve got with you.

(4) Our “apples-to-apples” comparison of California’s new “Secure Choice” pension option for private citizens yielded the following comparisons: (a) Public sector: Teachers/Bureaucrats, 30 years work – pension is 75 percent of final salary. (b) Public sector: Public Safety, 30 years work – pension is 90 percent of final salary. (c) Private sector: “Secure Choice,” 30 years work – pension is 27.6 percent of final salary. Do you think this disparity is fair to private sector workers?

(5) Can you explain why public sector pensions are not subject to the same conservative funding and investing rules as private sector pensions are under ERISA?

(6) Do you support government programs that offer ALL American workers the SAME retirement benefits, subject to the SAME formulas and incentives, or not?

In reference to our recent CPC study, Ms. Morrissey is also on record as saying, “There have been a lot of attacks on public-sector unions because their members have been a stalwart voting block for the Democratic Party, but that doesn’t mean they’re overpaid.” This remark suggests Ms. Morrissey thinks nonpartisan “attacks” on government unions aren’t justifiable and won’t happen. That is incorrect.

Government unions, unlike private sector unions, have the ability to negotiate for financially unsustainable pay and benefits because they control their bosses through campaign contributions, because their bosses are politicians instead of business people, and because these pay and benefit packages are paid for through coercive taxes instead of via allocations of precarious profits.

Government unions have created two tiers of workers in this country. Government workers not only have unaffordable pay and retirement security, but their union leaders have an incentive to support government policies that destabilize and divide this nation, because that will create the need for even more unionized government workers. Government unions, intrinsically, are economically damaging and politically authoritarian.

“Unsustainable” means that sooner or later an end will come. When the money is gone, Morrissey and her gang will have a lot more questions to answer.

Ed Ring is the director of policy research for the California Policy Center.

Sales Tax the Only State Tax to Decrease in 2017

Taxes“Four years ago, voters approved Proposition 30, which raised the income tax significantly on the wealthiest Californians and raised the sales tax a tiny bit on everyone,” Capital Public Radio recently recalled. “That quarter-of-a-cent increase equated to paying an additional $0.01 on a $4 coffee; $1 on a $400 television; and $100 on a $40,000 car.” But on Election Day 2016, that changed. “Voters extended Proposition 30’s income tax increases in [November’s] presidential election with Proposition 55 — but that initiative allowed the Prop. 30 sales tax hike to expire.”

The shift means California’s sales tax is the state’s only tax to be decreased this year, from 7.5 percent to 7.25 percent. As the U-T reported, “Some local jurisdictions tack on their own assessments, so residents in certain areas will still pay more than the statewide rate.” In certain parts of the state, like the San Francisco Bay Area, voters allowed substantial increases.

From spending to taxing

Prop. 30 ushered in the so-called Schools and Local Public Safety Protection Act of 2012, as California voters threw their support behind increased spending on state education and benefits. “The act increased sales tax and income tax rates to help maintain funding levels for public schools and colleges and pay for programs for seniors and low-income families,” U-T San Diego noted. “The additional revenue also provided local governments with a constitutional guarantee of funding to comply with a new state law that shifted lower-level offenders from state prisons to county jails.”

Some municipalities, particularly in parts of the state that joined a Democrat-led initiative to hike minimum wages, opted to raise more funds. “Bay Area voters this year generously approved taxing themselves in large numbers — and they’ll feel the pinch at the cash register in 2017 as local sales taxes across Silicon Valley take effect even as a state tax expires,” according to the San Jose Mercury News.

“As California cities struggle to fund basic city services like police, fire protection, libraries and parks, they’re increasingly turning to voters for help. And voters this year said ‘yes’ to tax hikes in at least eight Bay Area cities in exchange for fewer potholes, less traffic and more cops, including San Jose, Newark, Martinez and Pleasant Hill.”

Pension pinch

For years, public pension costs have steadily built pressure on Golden State cities. In some areas, the problem has become egregious: The city of El Monte, in Southern California, shelled out 28 percent of its general fund to pay retirement costs. “Among California’s 10 largest cities, only San Jose paid as much toward retirement costs relative to its general fund. Los Angeles spends 20 percent of its general fund on retirement costs,” the Los Angeles Times revealed. “El Monte’s outsize pension bill weighs heavily on the San Gabriel Valley city of 116,000, where half the residents were born outside the United States and a quarter live below the poverty line.”

Meanwhile, CalPERS, the nation’s largest public pension fund, has struggled with its own imbalanced budgets. “CalPERS has 65 cents for every dollar that it needs to provide pension benefits for almost two million people,” Fox Business recently recalled. “CalPERS pension debt is roughly $164 billion and mostly likely will grow larger in coming years.”

In an effort to come to grips with the problem, the fund reduced its forecasted return on investment from 7.5 to 7 percent. “It has been paying out $5 billion more a year in benefits than it’s receiving in contributions and investment returns, not a sustainable trend,” the Fresno Bee noted in an editorial. “With investment returns averaging 4.6 percent during the past decade, some experts urged CalPERS to reduce its forecast even more.” But that would risk pushing more California cities toward bankruptcy — or toward even higher local taxes.

This piece was originally published by CalWatchdog.com

CalPERS opts to keep ban on tobacco stocks

As reported by the Sacramento Bee:

CalPERS said no again to tobacco Monday.

Amid a passionate debate on the wisdom and morality of investing in tobacco, the big California pension fund rejected a recommendation by its staff to end its 16-year-old ban on tobacco. CalPERS’ investment committee, in a 9-3 vote, concluded that the tobacco industry is heading toward long-term decline and presents too much of a risk

Because the investment committee consists of every member of the governing board, the vote represents the final decision.

Not only will CalPERS not buy tobacco stocks, it decided it will unload $547 milllion worth of tobacco investments that it has held through outside investment managers. …

Click here to read the full story

Mapping the $100,000+ CA Public Employee Pensions at CalPERS Costing Taxpayers $3.0B

Editor’s note: This piece was originally posted by Forbes.com

The California Public Employee Retirement System (CalPERS) is the USA’s largest pension fund with $301 billion in assets. It’s also a lucrative transfer mechanism helping 1,251 local governments confer ‘highly compensated’ pensions to tens of thousands of public employees. Updated numbers displayed at OpenTheBooks.com show there is a $2.8 billion annual cost to payout 21,862 six-figure public-sector retirees via CalPERS.

calpers-retirees

In California, according to data captured by OpenTheBooks.com, the Top 10 All-Time CalPERS public employee pensions start at $390,485 per year.

It’s a massive payout equivalent to the combined income tax payments of nearly 1.6 million individual California taxpayers.

So which CA governments conferred the most $100,000 plus pensions through CalPERS?

Using our interactive mapping tool, quickly review (by last employer ZIP code) the 21,862 public employee retirees at CalPERS who pulled-down a pension of $100,000 or more. Just click on a pin and use the scroll bar to review the results rendered in the chart beneath the map.

The ‘Big Dog’ units of government conferring the most $100,000 retirement pensions include the California Highway Patrol (1,066); Santa Clara County (836); City of Oakland (509); CA Forestry and Fire Protection (476); Riverside County (461); City of Long Beach (351); CA Dept. of Justice (280); CA Corrections, Paroles and Com (275); CA Corrections (268); and the City of Anaheim (253).

No one has hit the pension jackpot quite like the sworn officers of the California Highway Patrol (CHP). Of the 1,066 six-figure retirees, their average pension is $10,192 per month or $122,304 annually. On top of that, there are the 6,350 active employees at CHP averaging $115,000 in pay with taxpayers chipping in another $48,300 in pension contributions. Therefore, each officer costs $163,000 in pay and pension costs alone.

Meanwhile, Riverside County has 461 six-figure retirees and the top 12 retirements each exceed $200,000 per year. Last year, the assistant sheriff made $653,025 by cashing in banks of unused benefits, i.e. leave.

Pension envy in California is real. The hard working private sector doesn’t have benefits even remotely close to government workers.

It’s no surprise that Oakland is a sanctuary city for highly compensated public employees. It’s ranked third most in $100,000 pensions with its top 509 retirements averaging $126,000 per year. But, soon, the pension problems worsen: Oakland pays 1,251 active employees more than $100,000.

We discovered a ‘$1 Million General Manager’ position at the Los Angeles Sanitary District (LASD). In 2007, LASD General Manager James Stahl retired on a pension of $303,420. His replacement, Stephen Maguin, retired on a pension of $345,408 in 2012. Today, the new ‘General Manager’ earns a salary of $336,972. So it takes $1 million to fund a general manager position where there’s two retirees and only one is working!

In many cases the system legalized corruption. Public pensions are not only for government employees, but are also for special non-government and private associations clouted into the public pension plan at CalPERS. Incredibly, taxpayers guarantee and help fund the pensions but have no say over the salary spiking that pads lifetime pensions (i.e. huge end-of-career raises that increase lifetime pension payouts).

For example, the California School Boards Association is a self-described non-profit organization yet a private entity muscled into the public pension plan. In 2010, Executive Director Scott Plotkin was investigated and exposed for paying out a $175,000 ‘bonus’ which spiked his pay to $540,000 (2008). In an attempt to save face he retired, but now taxpayers guarantee his lifetime pension largess of $148,620.

This is the new ‘CalPERS Effect,’ in which the system itself became an outright lobbyist for higher member benefits. Now, even small towns and agencies are gaming the system for personal gain.

West Hollywood – home of the Sunset Strip – contracts its library, police, and fire protection from the county. Although it occupies less than two square miles, it still employs 69 staffers with salaries over $100,000. In 2010, the city allowed its assistant manager, Joan English, to retire on a $177,048 pension. Immediately, she was rehired on a ‘temporary’ basis in the same position.

Another example: the California Bar Association (CBA) pays six-figures to 133 currently active employees, plus there are 13 CBA retirees on $100,000 plus pensions. The top pension is Herbert Rosenthal at $181,632. Retiring in 1998, Rosenthal’s career spanned 35-years, but he’s already been retired for 18-years.

The golden state of government pension largess just might collapse under its own weight. Recently, CalPERS projected that there’s up to a one in three chance of entering a ‘crisis point’ of doomsday underfunding sometime in the next 30 years.

Still, there may some hope and relief coming soon. In August, a San Francisco based state appellate court held that reasonable benefit cuts are permissible in the pension system.

As is the case in pensions systems across the country, CalPERS shows that handing out lavish benefits to everyone – or the many – creates retirement security for no one.

Note: Recently at Forbes, we showcased the 220,000 currently active California public employees making over $100,000 and costing taxpayers $35 billion each year.

Adam Andrzejewski (say: Angie-F-Ski) is the founder and CEO of OpenTheBooks.com.

CalPERS says town defaulted on pension debt

As reported by the Sacramento Bee:

CalPERS on Wednesday declared that the Sierra County town of Loyalton has defaulted on its debt to the giant pension fund, a move that means the state is poised to scale back retirees’ pension benefits.

The CalPERS board said Loyalton has failed to make the nearly $1.7 million “termination liability” it owes to the pension fund – the result of a City Council decision in March 2013 to pull out of the California Public Employees’ Retirement System.

The default means the CalPERS board can move to reduce retirees’ benefits in Loyalton by about 60 percent, according to a formula that takes into account the dollars the city has already paid into the pension system. That would mark the first time in state history that CalPERS has reduced retirees’ benefits because of a municipality’s failure to pay its pension bills. …

Click here to read the full article

How Will New Laws, Signed By Gov. Brown, Affect Your Life?

Jerry Brown state of the stateSACRAMENTO – The 2016 legislative season is officially over, with Gov. Jerry Brown having signed 900 bills while vetoing 159 by Friday’s deadline. Some of the recently signed bills are far-reaching and will have a noticeable effect on Californians’ lives. Here’s a small sampling of some of the measures that will soon be law.

A new government-run retirement program: On Thursday, Gov. Brown signed Senate Bill 1234, which gives legislative approval to the state’s continuing efforts to create a new government-run retirement program for private-sector employees. Once it is up and running, private employers (with five or more employees) will be required to offer this program, whereby 3 percent of each employees’ earnings will be deducted and invested by a state-selected investment group – possibly, the California Public Employees’ Retirement System (CalPERS).

Employees can opt out. The details are not yet certain, but the goal is to invest the money in a low-risk investment tied to the Treasury bond. Supporters say the law protects taxpayers from incurring more than minimal costs, but critics insist the program could grow and change in ensuing years – and that there’s no way of creating a massive new government program without imposing risks on the state budget.

The idea, which is being pitched in other states too, grew out of union activism. Several years ago, when publicity over unfunded public-pension liabilities began creating pressure for pension reform, union allies wanted to come up with a “positive” rebuttal to all those news stories about six-figure pensions and pension-spiking gimmicks. This idea is designed help private workers.

Putting limits on ‘policing for profit’: One of the most controversial policing strategies in recent years has been “civil asset forfeiture.” Born out of the nation’s drug war in the 1980s, forfeiture was designed to help police agencies crack down on drug kingpins by allowing departments to grab the cash, cars and properties gained through their illegal activities. But like many government programs, asset forfeiture morphed into something its creators never envisioned.

Two of the men who helped create the program in the U.S. Department of Justice, John Yoder and Brad Cates, wrote an op-ed in The Washington Post in 2014 pointing to the corruption engendered by this process: “Law enforcement agents and prosecutors began using seized cash and property to fund their operations, supplanting general tax revenue, and this led to the most extreme abuses: law enforcement efforts based upon what cash and property they could seize to fund themselves, rather than on an even-handed effort to enforce the law.”

Basically, police agencies came to depend on the revenue and they distorted their law-enforcement priorities based on the chance to grab more cash. There’s no due process here, given that police agencies file suit against the property itself, alleging it was involved in a drug crime. No conviction is necessary. California had previously passed reforms that mostly required a conviction, but police agencies got around that by partnering with the feds (and operating under looser federal standards) and then splitting the seized property.

Senate Bill 443 was killed last year after lobbying efforts by police chiefs and other law-enforcement agencies. But a fairly recent amendment – allowing cops to still take large amounts of cash without a conviction, but limiting smaller amounts of cash and property takings – eliminated most opposition from law enforcement. The new law is meaningful, and one of the more substantive compromises to take place in Sacramento this year.

Giving the terminally ill the right to try: One of the more significant “freedom” battles this year was over the so-called “right to try” – i.e., the ability of terminally ill patients to try experimental drug treatments that have yet to gain final approval from the Food and Drug Administration. Similar measures have been approved by 31 other states.

The Goldwater Institute, a Phoenix-based free-market think tank, has been championing these measures across the country. As Goldwater explains: “The FDA … often stands between the patients and the treatments that may alleviate their symptoms or provide a cure. To access these treatments, patients must either go through a lengthy FDA exemption process or wait for the treatments to receive FDA approval, which can take a decade or more and cost hundreds of millions of dollars.”

The California law, Assembly Bill 1668, passed overwhelmingly. According to the official bill analysis, it authorizes drug manufacturers to make investigational treatment available “to a patient with a serious or immediately life-threatening disease, when that patient has considered all other treatment options currently approved by the FDA, has been unable to participate in a relevant clinical trial, and for whom the investigational drug has been recommended by the patient’s primary physician and a consulting physician.”

Allowing felons to vote: One of the more controversial new laws, Assembly Bill 2466 by Assemblywoman Shirley Weber, D-San Diego, allows felons who are serving their sentence in county jails to vote. The measure was opposed by law-enforcement groups, but Weber argued it would stop discrimination in voting and make it less likely that prisoners would commit new offenses.

“Civic participation can be a critical component of re-entry and has been linked to reduced recidivism,” Weber said, according to a Los Angeles Times report. For me, this bill is not about second chances, but about maintaining the integrity of elections,” said Sen. Pat Bates, R-Laguna Niguel, in a statement. “Close elections, especially at the local level, could now turn on a handful of ballots cast by people in jail. This new law is bad for democracy and will further erode trust in government.”

Putting self-driving cars on the road: Autonomous vehicle technology has been advancing rapidly, and California is, not surprisingly, ground zero for the development of this important new technology. Gov. Brown signed a bill Thursday “that for the first time allows testing on public roads of self-driving vehicles with no steering wheels, brake pedals or accelerators,” according to a San Jose Mercury News article. “A human driver as backup is not required, but the vehicles will be limited to speeds of less than 35 mph.”

Assembly Bill 1592 itself is rather modest. It provides two spots for such testing – in a San Ramon business park and at the former Concord Naval Weapons Station. And Friday, the California Department of Motor Vehicles released new regulations that are far friendlier toward self-driving cars than the DMV’s previous regulations. So while the new law itself isn’t particularly significant, the state’s new legislative and regulatory approach certainly is. If that approach continues, we’ll be seeing rapid expansion of autonomous vehicles here.

Greenlighting granny flats: The governor’s signing of Senate Bill 1069 shows increasing bipartisan understanding of the state’s skyrocketing home prices. The bill would relax standards for creating ADUs (accessory dwelling units), better known as granny flats.

“Eliminating barriers to ADU construction is a common-sense, cost-effective approach that will permit homeowners to share empty rooms in their homes and property, add incomes to meet family budgets, and make good use of the property in the Bay Area and across California while easing the housing crisis,” according to the bill analysis’ summary of the author’s arguments.The bill embraces a regulatory approach that could be tried with other types of housing.

Steven Greenhut is Western region director for the R Street Institute. He is based in Sacramento. Write to him at sgreenhut@rstreet.org.

This piece was originally published by CalWatchdog.com

Average Costa Mesa Firefighter Makes Nearly $250,000 Per Year. Why? Pensions.

Does that fact have your attention? Because media consultants insist we preface anything of substance with a hook like this. And it even has the virtue of being true! And now, for those with the stomach for it, let’s descend into the weeds.

According to payroll and benefit data reported by the city of Costa Mesa to the California State Controller, during 2015 the average full-time firefighter made $240,886. During the same period, the average full-time police officer in Costa Mesa made $201,330. In both cases, that includes the cost, on average, for their regular pay, overtime, “other pay,” the city’s payment to CalPERS for the city’s share, the city’s payment to CalPERS of a portion of the employee’s share, and the city’s payments for the employee’s health and dental insurance benefits.

And if you think that’s a lot, just wait. Because the payments CalPERS is demanding from Costa Mesa – and presumably every other agency that participates in their pension system – are about to go way up.

We have obtained two innocuous documents recently delivered to the city of Costa Mesa from CalPERS. They are entitled “SAFETY FIRE PLAN OF THE CITY OF COSTA MESA (CalPERS ID: 5937664258), Annual Valuation Report as of June 30, 2015,” (click to download) and a similar document “SAFETY POLICE PLAN OF THE CITY OF COSTA MESA (CalPERS ID 5937664258), Annual Valuation Report as of June 30, 2015,” (click to download). Buried in the bureaucratic jargon are notices of significant increases to how much Costa Mesa is going to have to pay CalPERS each year. In particular, behold the following two tables that appear on page five of each letter:

Projected Employer Contributions to CalPERS  –  Costa Mesa Police

employer-contributions-to-calpers

Projected Employer Contributions to CalPERS  –  Costa Mesa Firefighters

projected-employer-contributions-to-calpers-costa-mesa-firefighters

In the rarefied air of pension arcana, pension systems can get away with a lot. If you’re a glutton for punishment, read these notices from CalPERS in their entirety and see if, anywhere, they bother to explain the big picture. They don’t. The big picture is this:  For years CalPERS has underestimated how much they are going to pay in pensions and they have overestimated how much their investments will earn, and as a result they are continuously increasing how much cities have to pay them. This notice is just the latest in a predictable cascade of bad news from pension systems to cities and other agencies.

Coming down to earth just a bit, consider the two terms on the above charts, “Normal Cost %” and “UAL $.” It would be proper to wonder why they represent one with a percentage and one with actual dollars, but rather than indulge in futile speculation, here are some definitions. “Normal Cost” is how much the city pays (never mind that the city also pays a portion of the employee shares – we’ll get to that) into the pension system if it is fully funded. The reason pension systems are NOT fully funded is because, again, year after year, CalPERS underestimated how much they would pay out in pensions to retirees and overestimated how much they would earn. Read this disclaimer that appears on page five of the letters: “The table below shows projected employer contributions … assuming CalPERS earns 7.5 percent every fiscal year thereafter, and assuming that all other actuarial assumptions will be realized.”

And when the “Normal Cost” payments aren’t enough, and the system is underfunded, voila, along comes the “UAL $,” that bigger catch-up payment that is necessary to restore financial health to the fund. “UAL” refers to “unfunded actuarial liability,” the present value of all eventual payments to retirees, and “UAL $” refers to the payments necessary to reduce it to a healthy level. Notice that for firefighters this catch-up payment is set to increase from $4.2 million in 2017 to $6.8 million in 2022, and for police it is set to increase from $5.8 million in 2017 to $10.1 million in 2022. This is in a small city that in 2015 employed an estimated 125 full-time police officers and 75 full-time firefighters.

As always, it must be emphasized that the point of all this is not to disparage police or firefighters. No reasonable person fails to appreciate the work they do, or the fact that they stand between us and violence, mayhem, catastrophe and chaos. And it is particularly difficult for those of us who are part of the overwhelming majority of citizens who appreciate and respect members of public safety to have to disclose and publicize the facts of their unaffordable pensions.

The following charts, using data downloaded from the CA State Controller, put these costs into perspective:

Average and Median Employee Compensation by Department
Costa Mesa – Full time employees – 2015

average-and-median-employee-compensation-by-department

In the above chart, before sorting by department and calculating averages and medians, we eliminated employees who worked as temps or only worked for part of the year. This provides a more accurate estimate of how much full-time workers really make in Costa Mesa. Bear in mind that most part-time employees still receive pension benefits, as will be shown on a subsequent chart. As it is, during 2015 the average full-time police officer in Costa Mesa was paid total wages of $121,636, about 15 percent of that in overtime. But they then collected another $79,694 in city paid benefits, including $59,337 paid by the city towards their pension, AND another $11,562 that the city paid towards their pension that the State Controller vaguely describes as “Defined Benefit Paid by Employer.” Total 2015 police pay: $201,330.

Also on the above chart, one can see that during 2015 the average full-time firefighter in Costa Mesa was paid total wages of $150,227, about 32 percent of that in overtime. They then collected another $90,659 in city paid benefits, including $72,202 paid by the city toward their pension, and as already noted, another $10,440 that the city paid toward the employee’s share of their pension. Total 2015 firefighter pay: $240,886.

To distill this further, the following chart shows, per full-time employee, just how much pensions cost Costa Mesa in 2015 as a percent of regular pay.

Average Employer Pension Payment as % of Regular Pay
Costa Mesa – Full-time employees – 2015

average-employer-pension-payment-as-of-regular-pay

As the above chart demonstrates, employer payments for full-time employee pensions during 2015 already consumed a staggering amount of budget. For police, every dollar of regular pay was matched by 80.5 cents of payments by the city to CalPERS. For firefighters, every dollar of regular pay was matched by a staggering 94.4 cents of payments by the city to CalPERS.

The next chart shows the impact this has on the city of Costa Mesa budget. Depicting total payroll amounts by department, it compares the same variables, total employer pension payments as a percent of total regular pay. As can be seen, the percentages are nearly the same, despite this being for the entire workforce including temporary and part-time employees, some who may not have pension benefits (most do), and many who do not receive top tier pension formulas which the overwhelming majority of full-time public safety employees still receive. As can be seen, for every dollar of regular police pay, CalPERS gets 75 cents from the city, and for every dollar of firefighter pay, CalPERS gets 92 cents from the city.

Total Employer Pension Payment as % of Regular Pay
Costa Mesa – All active employees; full, part-time and temp – 2015

total-employer-pension-payment-as-of-regular-pay

At this point, the impact of CalPERS stated rate increases can be fully appreciated. And because this article, already at nearly 1,000 words, has violated every rule of 21st century social media engagement protocols – keep it short, shallow, simple and sensational – perhaps the next paragraph should be entirely written in bold so it is less likely to be lost in the haze of verbosity. Perhaps a meme is in here somewhere. Perhaps an inflammatory graphic that shall animate the populace. Meanwhile, here goes:

Once CalPERS’s announced increases to the “unfunded payment” are fully implemented, instead of paying $10.9 million per year for police pensions, Costa Mesa will pay $15.2 million per year, i.e., for every dollar in regular police pay, they will pay $1.04 toward police pensions. Similarly, instead of paying CalPERS $6.4 million per year for firefighter pensions, Costa Mesa will pay $9.1 million per year, i.e., for every dollar in regular firefighter pay, they will pay $1.30 towards firefighter pensions.

Wow.

So just how much do Costa Mesa’s retired police and firefighters collect in pensions? Repeatedly characterized by government union officials as “modest,” shall we report and you decide? The following table, using data originally sourced from CalPERS and downloaded from Transparent California, are the pensions earned by Costa Mesa retirees in 2015. Excluded from this list in order to present a more representative profile are all pre-2000 retirees, since retirement pensions were greatly enhanced after the turn of the century, and it is those more recent pensions, not the earlier ones, that are causing the financial havoc. Also excluded because the benefit amounts are not representative and the retirement years are not disclosed, are all “beneficiary” pensions, which survivors receive.

Average Pensions by Years of Service
Costa Mesa retirees – 2015

average-pensions-by-years-of-service

While these averages are impressive – work 30 years and you get a six-figure pension – they grossly understate what Costa Mesa public safety retirees actually get. There are at least four reasons for this: (1) The data provided doesn’t screen for part-time workers. Many retirees may have put in decades of service with the city, but only worked, for example, 20-hour weeks. They would still accrue a pension, but it would not be nearly as much as it would be if they’d worked full time. (2) Nearly all full-time employees are also granted “other post-employment benefits,” primarily health insurance. It is reasonable to assume that for public safety retirees, the value of these other post employment benefits is at least $10,000 per year. (3) Because CalPERS did not disclose what department retirees worked in during their active careers, this data set is for all of Costa Mesa’s retirees. That means it includes miscellaneous employees who receive pensions that are, while very generous, are not nearly as good as the pensions that public safety retirees receive. (4) While recent reforms have begun to curb this practice, it has been common at least through 2014 for retirees to purchase “air time,” wherein for a ridiculously low sum they are permitted to claim more years of service than they actually worked. It is common for retirees, for example, to purchase five years of air time, so when their pension benefit is initially calculated, instead of multiplying, for example, 20 years of service times a 3.0 percent multiplier times their final salary, they are permitted to claim 25 years of service.

All of this, of course, is dense gobbledygook to the average millennial Facebook denizen, or, for that matter, to the average politician. To be fair, it’s hard even for the financial professionals hired by the public employee unions to acknowledge that maybe 7.5 percent (or even 6.5 percent) annual investment returns will not continue for funds as big as CalPERS, or that history is no indicator of future performance. And even if they know this, they’re under tremendous pressure to keep silent. So the normal contribution remains too low, and the catch-up payments mushroom.

Finally, to be eminently fair, we must acknowledge that since modest bungalows on lots so small you have to choose between a swing set or a trampoline for the kids are now going for about a million bucks each in most of Orange County, making a quarter million per year ain’t what it used to be. But there’s the rub. Because until the people who work for the government are subject to the same economic challenges as the citizens they serve, it is very unlikely we’ll see any pressure to lower the cost of living. Everything – land, energy, transportation, water, materials, etc. – costs far more than it should, thanks to deliberate political policies and financial mismanagement that creates artificial scarcity. But hey – artificial scarcity inflates asset bubbles, which helps keep those pension funds marginally solvent.

Cost-of-living reform, if such a thing can be characterized, must accompany pension reform. What virulent meme might encapsulate all of this complexity?

Ed Ring is the president of the California Policy Center.

The Ever-Growing California Pension Gap

As reported by the Los Angeles Times:

With the stroke of a pen, California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy.

More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.

Proponents sold the measure in 1999 with the promise that it would impose no new costs on California taxpayers. The state employees’ pension fund, they said, would grow fast enough to pay the bill in full.

They were off — by billions of dollars — and taxpayers will bear the consequences for decades to come. …

Click here to read the full story

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

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

“‘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 CalSTRS 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, CalSTRS 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.