By PAUL GULLIXSON
The man who came in out of the cold to deliver some chilling news to a Sonoma County audience Thursday morning was no stranger — and he was not your average Joe.
Joe Nation has about as much credibility on the issue of pensions as anyone can hope to have. And he deserves to be heard.
As a former state assemblyman, he understands the influence, — one might say control — labor unions have on the state Legislature. As a Democrat and former representative for the North Coast, he understands the political landscape and the fiscal challenges elected officials face in this economy.
As a former union representative — and as the son and brother of former and current public employees — he understands the role unions play in protecting workers from unscrupulous and greedy employers.
But as a trained economist – and currently as public policy professor at Stanford — he understands the numbers. And the numbers are bleak.
“People talk about a pension tsunami. This is a tsunami that’s hitting us right now,” Nation told a crowd of top county, city and labor officials at the Sheraton Sonoma County in Petaluma on Thursday.
What is the message? That the state and the North Bay, including Sonoma County, are headed for financial disaster.
First for the state: When you add up all California’s debt including general obligation bonds ($77 billion), unfunded retiree health costs ($52 billion), unfunded pension liabilities ($104 billion) and every day “kick-the-can-down-the road” kind of debt ($40 billion), the total comes to $273 billion — roughly 3.5 times the state’s general fund budget.
To put that another way, that’s $7,386 every man, woman and child owes the state one way or another.
That’s the good news. That’s the problem if the economy bounces back to essentially what it was last decade. If not, things get worse.
Take the unfunded pension liabilities of $104 billion. That’s the number if CalPERS is able to meet its goal of an average annual return of 7.75 percent over the next 20 years.
What are the odds of that happening? Nation actually calculated them, he told those in the audience at the annual Sonoma State University Economic Outlook Conference. He ran 10,000 simulations of what could happen with the economy and CalPERS assests over the next 20 years.
His conclusion: If things go according to plan, they have a 1 in 4 chance of ending up with enough assets to cover their commitments to retirees.
At the same time, the simulations show there is a better than 50-50 chance that the system will end up with more than $400 billion in the red. More scary: There’s a 26 percent chance that the state will end up in excess of $600 billion in the hole.
Nation said he has not calculated the odds for the performance of Sonoma County’s assets, which is also predicting a 7.75 percent return over the next 20 years. But he said that Marin County — which is anticipating similar returns — has an 8 percent chance of ending up with enough assets to cover its liabilities.
That’s why Nation and his researchers are preaching that the projections by Marin County reports that 18 percent of its budget is devoted to pension costs. In Sonoma County, it’s 30 percent. In some counties, it’s expected to climb to 70 percent, Nation notes.
Meanwhile, the benefits gap between public and private sector — some call it “pension envy” — continues to grow. Only about 1 in 10 workers in the private sector have any kind of defined benefit plan let alone one that allows you to retire at the age of 50 with 3 percent of your final salary for each year of service. (That’s for public safety employees in Sonoma County. Others get 3 percent at 60.)
But let’s be clear. Public employees are not the enemy here. They were promised these packages when they signed on, and they can’t be blamed for getting a good deal. At the same time, public employee unions need to get behind the need for reform or run the risk of seeing a backlash at the ballot box.
In some ways, it has already started. As Nation notes, of the 10 pension reform measures that were on the ballot throughout the state in November, nine were successful.
On Thursday, the bipartisan watchdog group Little Hoover Commission recommended that the state and local governments roll back pensions for existing employees, toss out guaranteed retirement payouts and put more of the responsibility for pension benefits on workers. That would trigger a major legal battle, but it may be a confrontation that’s unavoidable.
The options are simple, as Nation spelled out last week.
You either increase contributions to pension funds — thus further eating into general services — or you reduce benefits.
Or you gamble.
Here’s one last troubling fact: In January, the number of retirees in Sonoma County, for the first time, exceeded the number of active employees (3,792 retirees to 3,754 actives). And with the county looked to cut another 350 to 500 employees this year, that gap is only going to widen.
Short of a major commitment to reform by public officials and labor, I don’t see this ending well.
Paul Gullixson is editorial director for the The Press Democrat. E-mail him at firstname.lastname@example.org.