Friday, November 24, 2017
Thursday, November 23, 2017
CalPERS is shocked – just shocked – to find cities reeling under the burden of growing pension debt
CalPERS is shocked – just shocked – to find cities reeling under the burden of growing pension debt
November 21, 2017
The California Public Employees’ Retirement System’s union defenders feign shock whenever pension reformers accuse it of “kicking the can down the road” in dealing with the state’s mounting pension debt. It’s like the scene from Casablanca, when Captain Louis Renault is absolutely shocked to find gambling going on in a gambling house.
CalPERS is never going to state the obvious: “We know these massive, underfunded pensions are not sustainable, but we’re going to do everything possible to push the problem into the future and blame everyone else for the problem.” But the pension fund’s board might as well have said as much after two actions it took at last week’s Sacramento meeting.
In one case, it decided to seek a legislative sponsor for a bill that would enable it to shift the blame to local agencies whenever such agencies decide to stop making their payments to the fund and retiree pensions are cut as a result. In the second case, at the urging of cities CalPERS decided to delay a vote on a more actuarially sound means of paying off pension debt – rather than risk a fifth rate hike to local governments, and risk a mutiny among hard-pressed local governments.
Both of these actions maintain the status quo and – you got it – kick the can down the road.
The first action involved the fate of two local agencies that have exited the pension fund because they couldn’t afford to keep making their payments. As California Policy Center previously reported, the tiny Sierra Nevada town ofLoyalton in 2013 decided to exit the plan, but then was hammered with a $1.66 million termination fee that it couldn’t possibly afford. The town’s entire annual budget is $1 million and it couldn’t even make its $3,500 month payments to the fund.
Furthermore, the East San Gabriel Valley Human Resources Consortium, known as LA Works, shut its doors in 2014, but was likewise penalized by CalPERS for stopping its payments. The end result: Loyalton’s four retirees have their pension benefits sliced by 60 percent, and LA Works’ retirees lost as much as 63 percent of their pension checks.
In making an example of these small agencies, CalPERS revealed an ugly truth. The pension fund assumes a rate of return of 7 percent to 7.5 percent on its investments. The higher the assumed rate, of course, the less debt on its books. It’s in the union-controlled fund’s interests to assume the highest-possible rates and maintain the status quo – even if that means that taxpayers ultimately will have to pick up any slack.
When agencies decide to leave the fund, however, CalPERS puts them in a Terminated Agency Pool, where CalPERS assumes a rate of return of a measly 2 percent. Upon departure, these agencies can no longer expect future earnings or taxpayers to pick up the shortfall, so the 2 percent rate is the actual risk-free rate that CalPERS expects from its investments.
The legislation the fund seeks, facetiously referred to as the Anti-Loyalton Bill, would “require a terminating agency to notify past and present employees of its intention to terminate,” according to the language approved by the full CalPERS board last Wednesday. Bottom line: CalPERS wants local agencies to provide the bad news to employees and retirees so that they, rather than the massive pension fund, receive the brickbats.
The proposed bill is not a big deal per se, but it’s yet another example of how CalPERS is more interested in hiding – rather than dealing with – its pension debt. Basically, this is a public-relations strategy designed to discourage agencies from leaving the fund. It’s a way to tighten the golden handcuffs and punish agencies that want to exit the fund.
In reality, if 2 percent is the earning rate that CalPERS can safely expect on its long-term investments, then that should be the rate that it assumes for all of its investments. But lowering the assumed earnings to such a realistic number would cause mass panic, as municipalities would need to come up with dramatically increased payments. They already are struggling with their current payments.
Under that scenario, the state’s pension debt would be around $1.3 trillion, according to some estimates – and it would become implausible to push the problem down the road. Even with the current high assumption rates and even after a great year of earnings of 11.2 percent, CalPERS is only funded at a troubling 68 percent. (The California State Teachers’ Retirement System had even better returns last year, but is funded only at 64 percent.)
In its second major action last week, “CalPERS delayed action … on the chief actuary’s proposal to shorten the period for paying off new pension debt from 30 years to 20 years, a cost-cutting reform that would end the current policy not recommended by professional groups,” explained Ed Mendel, on his respected Calpensions blog.
Localities already have faced four major rate increases since 2012.CalPERS assesses the increases to make up for the unfunded liabilities, and recent studies suggest that local governments are slashing public services to come up with the cash. Had CalPERS decided to pay off new debt in a shorter time frame, it would have meant a fifth increase, according to Mendel. He quoted the League of California Cities’ official Dane Hutchings with these words of warning: “The well is running dry.”
It’s a mess. If CalPERS does the right thing, it exacerbates local governments’ current problems. But maintaining the status quo will make them worse down the road. As Mendel explained, under CalPERS’ current payment approach, “the debt continues to grow for the first nine years” with the payment not even covering the interest. “(T)he payments do not begin reducing the original debt until year 18, more than halfway through the period.”
In other words, I have a great 30-year plan for paying off your credit-card debt: You make minimum payments for the next 18 years and then worry about it then. Isn’t that the very definition of kicking the can down the road?
It’s hard to feel too sorry for these struggling cities. Do you remember when they warned about the impending disaster if the state Legislature passed a 1999 bill, promoted by the California Public Employees’ Retirement System, that would retroactively raised pensions across the state by 50 percent? Do you remember when city managers angrily resisted union-backed efforts to raise pensions at their city councils? Neither do I.
Unfortunately, their efforts to avoid another rate hike only helps CalPERS do what it likes to do most – remind us that all is well and that the stock market will pay for all the pension promises. It might, but then again it might not. If the market slows, there will be a lot of California officials shocked to find a dead end up ahead.
Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.
Wednesday, November 22, 2017
California should be able to reduce public employees’ pension benefits, Jerry Brown argues
California should be able to reduce public employees’ pension benefits, Jerry Brown argues
NOVEMBER 22, 2017 09:48 AM
Gov. Jerry Brown got most of what he wanted when he carried a proposal to shore up the state’s underfunded public employee pension plans by trimming benefits for new workers.
Five years later, he’s in court making an expansive case that government agencies should be able to adjust pension benefits for current workers, too.
A new brief his office filed in a union-backed challenge to Brown’s 2012 pension reform law argues that faith in government hinges in part on responsible management of retirement plans for public workers.
“At stake was the public’s trust in the government’s prudent use of limited taxpayer funds,” the brief reads, referring to the period when he advocated for pension changes during the recession.
While the brief targets a specific provision of the pension overhaul he championed, its arguments suggest he favors broader pension changes that affect current employees.
“It was as good as anything the lawyers we use could have written,” said Dan Pellissier, president of an advocacy group that that wants to reduce California pension obligations for public employees and retirees.
The filing embraces a cluster of recent court decisions that hold public employees are entitled to reasonable pensions, but not necessarily ones that are calculated on the most favorable formulas for them.
And the filing paints unions as unreasonable in insisting that any reduction in pension benefits must be offset by additional compensation. That’s the so-called “California rule,” the legal precedent that has barred state and local governments from modifying pension benefits for existing workers they’ve offered over the past 60 years.
“Many legal experts have criticized the rigid inflexibility of the union’s position, pointing out that it is contrary to contract clause principles, inconsistent with general contract and economic theory, and effectively depresses the salaries and benefits of new generations of public employees,” Brown’s attorneys wrote in a footnote.
Brown’s office this month supplanted the attorney general in defending Brown’s pension reform law in a long-running lawsuit filed by the union that represents Cal Fire firefighters. The union wants to restore the ability of public employees to buy “air time,” a perquisite that lets workers purchase extra years of service that are credited to their pensions.
Before Brown’s pension reform law took effect, California public employees could buy up to five years of service credit through the air time offerings. Participating in the program cost workers tens of thousands of dollars up front, but gave them a higher pension when they reached retirement age.
Cal Fire Local 2881 President Mike Lopez said air time gave firefighters some assurance that they could count on a full pension if an illness or injury forced them to retire early.
“It’s an option for the sacrifice the firefighters are making for the citizens we protect,” he said.
Neither Brown’s office nor the Attorney’s General’s Office would say why the governor took over the case, but unions and lobbyists noticed the change.
“The governor has one year left and he like others sees the future and wants to try to make some meaningful reforms,” said Dane Hutchings, the chief lobbyist for the California League of Cities. Members of his organization have been asking lawmakers and pension leaders for more flexibility in negotiating to lower their pension costs.
Advocates who say California can’t afford the benefits it has promised to 1.8 million public workers and pensioners in the California Public Employees’ Retirement System in particular cheered the governor’s arguments.
Despite the pension changes Brown championed, the state’s two largest public pension systems are still severely underfunded. CalPERS, with $343 billion in assets, and the California State Teachers’ Retirement System, with $220 billion, each have a little more than two-thirds of the assets they’d need to pay the benefits they owe.
Both systems also are asking local governments and schools to pay more money to fund the pensions of their employees, a trend that some local government advocates say is“crowding out” their ability to fund services.
“There comes a point where you can’t become any leaner than you are,” Tulare City Manager Joe Carlini told the CalPERS Board of Administration last week.
The Cal Fire Local 2881 case is one several lawsuits that public employee unions filed shortly after Brown signed the Public Employees’ Pension Reform Act, which restricted benefits for public employees hired after Jan. 1, 2013 and required them to contribute more money toward their retirement plans. It did not change the base pension formulas that were available to employees who were hired before that date.
The law took aim at “spiking” by restricting the types of pay that public employees could use to calculate their pensions, and it prevented CalPERS from selling “air time” credits after Jan. 1, 2013. Both of those changes applied to workers who started their jobs before the law took effect, which the unions considered to be an infringement on the “California rule” because they cut incentives for current employees.
“You have to twist yourself up pretty good” to believe the air time and spiking changes will hold up in court despite the “California rule,” said Terry Brennand, pension director for SEIU California. “You’re taking away a benefit that is part of my program without offering me anything. I get removing it for future employees, but going backwards was a political move.”
The other lawsuits, one from Alameda County and from Marin County, challenge parts of the pension reform law that restrict “spiking,” or the practice of inflating public employees’ salaries late in their careers to swell the pensions they receive in retirement.
All three cases are headed to the California Supreme Court. They gained attention in lower courts when judges handed down opinions that seemed to challenge the “California rule.”
“While plaintiffs may believe they have been disadvantaged by these amendments, the law is quite clear that they are entitled only to a ‘reasonable’ pension, not one providing fixed or definite benefits immune from modification,” justices at the state’s 1st District Court of Appeal wrote in the Cal Fire case.
Brown’s filing at the state Supreme Court in the Cal Fire case cited those recent rulings in contending that governments have an interest in modifying pension plans. His brief called the airtime credits an “inherently unworkable and fiscally irresponsible scheme” and it warned that voters would not support tax increases if they don’t trust officials to manage the money well.
“That to me was the broadest argument he could make,” said Joe Nation, a former Democratic assemblyman who researches public employee pensions at the Stanford Institute for Economic Policy Research.
“What’s promising to me is he ties pension benefits to the general public good, and the general public good I would define as the government’s core mission” to provide public services, Nation said.
Union representatives and Cal Fire Local 2881’s attorneys said they were not surprised that Brown’s office intervened to defend a law that’s closely associated with his legacy. The Cal Fire union attorneys are also representing MarinCounty retirees in that other marquee case.
“The signature issue in both cases is the future of the California rule,” Gary Messing, one of the lead union attorneys. The Cal Fire “case is directly in the heart of it because you have a promise” from an employer to an employee.
Tuesday, November 21, 2017
Happy Thanksgiving! But before you eat that turkey, thank private property!
Happy Thanksgiving! But before you eat that turkey, thank private property! Without it, Thanksgiving would be "Starvation Day." Here's why...
Agenda 21 in Namibia (Africa)
In case anyone needs confirmation about Agenda 21 and Smart Growth being a worldwide scourge of social engineers, check out this poster for "transit oriented development" in Namibia, a poor Sub-Saharan African nation. People want progress and freedom, not bureaucrats and control.
Monday, November 20, 2017
Shooting straight on state gas tax measure
Editorial: Shooting straight on state gas tax measure
California Attorney General Xavier Becerra speaks during an interview with the Associated Press. (AP Photo/Rich Pedroncelli, File)
Now Xavier Becerra is using his entire fist to squash attempts to repeal the state’s new 12-cent-a-gallon gas tax increase and $25 to $175 boost in annual vehicle registration fees.
Repealing the taxes championed by Gov. Jerry Brown would be terrible for California, whose roads and bridges have deteriorated to a dangerous degree over the past decade. But the attorney general is stooping to new lows of electoral deception to try to stop it, and that’s just plain wrong.
The issue is an initiative by Assemblyman Travis Allen, R-Huntington Beach, to repeal the increased tax and fees. He hopes to qualify it for the November 2018 election.
Becerra insisted that the title on the signature petitions make no mention of repealing “taxes and fees.” Instead, he directed that it say it would “repeal revenues” for road repair and transportation funding.
Seriously. “Repeal revenues.” Whatever that means.
Becerra’s obfuscation is a pathetic attempt to hide the truth and discourage voters from signing the petitions. That is essentially what Sacramento County Superior Court Judge Timothy Frawley concluded when Allen appealed the attorney general’s petition language.
The judge called Becerra’s title and summary “confusing, misleading, and likely to create prejudice against the proposed measure.” It “obscures the chief purpose of the initiative: repeal of the recently enacted taxes and fees.”
Frawley ordered new language, explicitly stating that the initiative would repeal those taxes and fees.
Becerra appealed to the state Court of Appeal, saying the judge overstepped his authority. Last week, the 3rd District Court of Appeal in Sacramento ruled in Becerra’s favor, deciding that his summation of the initiative was “neutrally presented.” State law gives the attorney general “considerable latitude” in writing the official description, the court ruled.
Common sense tells us Frawley got the substance right. Allen says he will appeal the decision, taking it to the state Supreme Court.
While this fight is over the initiative petition language, the attorney general also controls the wording on the ballot and the short summary in the ballot pamphlet. In each case, the wording is supposed to be true, impartial and convey the measure’s chief purposes and points.
But, like his predecessors, Becerra, who must stand for election next year, is using his power over initiatives to sway voters and score political points with supporters — in this case to protect the governor’s transportation tax plan. It was Brown who earlier this year appointed Becerra to replace Kamala Harris as attorney general.
There’s a remedy for this. The responsibility for presenting clear information to voters should be taken away from politicians and turned over to the non-partisan state legislative analyst.
Political leaders aren’t big on giving up power. So it will probably take a good-government initiative to get it done. We can only imagine what that petition title might say.
Marinwood CSD approves $77k plus "Martha Stewart" Fire Kitchen makeover- November 2017
The Fire Department wins approval of the "Martha Stewart" Kitchen makeover featuring luxury appliances like a $4500 Viking stove, custom cabinetry. Lea Kleinman-Green argues that to "determine price" we must approve the $77,000 makeover and then deal with the contractor adjustments after the fact. The rest of the Marinwood CSD board eventually agrees unanimously. Only months before the CSD REFUSED a generous $25,000 gift for less fancy kitchen by falsely claiming it was ILLEGAL to take the contribution. The winning contractors have ties to people in the community. The TAXPAYERS ARE BEING SCREWED. In other business, the CSD is considering reorganization of the fire department in secret meetings. The Marinwood CSD agree to this outrageous abuse of taxpayers like blind sheep.
Sunday, November 19, 2017
Miller Landslide Repaired but still no agreement with the Marinwood CSD.
Apparently, the Marinwood CSD is not budging with a mutually acceptance of financial responsibility for the landslide repairs on the Miller property and would rather risk a law suit. Eric Dreikosen, general manager feels that the law is on his side.
Hmmm.
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