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GULLIXSON: What are the odds of winning this ‘gamble’?

By PAUL GULLIXSON

 

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 paul.gullixson@pressdemocrat.com.





18 Responses to “GULLIXSON: What are the odds of winning this ‘gamble’?”

  1. Tom Lynch says:

    ahem…excuse me… John???

    Average salary/benefit for all 3400 County workers is NOT $200K; it’s about $125K with the lowest 1000 around $80 K.

  2. John Sakowicz says:

    Dear “Integrity”,

    If you relocated from across the country to Sonoma County — uprooting your kids from their schools, derailing your spouses’s career, inconveniencing your family, etc. — for the high pay and insanely good benefits here, I’m sorry. Truly.

    But stuff happens. C’est la vie. Things change.

    What happened?

    What happened is the greastest recession since the Great Depression.

    The size and scope of governmnent going back to before the recession is simply unaffordable today. Our addiction to deficit spending is simply unaffordable. The reckless and relentless issuing of government debt is simply unaffordable.

    This is the reality check: One of out every four adults in California are unemployed or underemployed.

    It seems no amount of fiscal and montetary stimulus by Congress and the Federal Reserve Bank can put these folks back to work it — even now, with trillions of dollars of QE2 flooding the money supply.

    High unemplyment is the “new normal”.

    That said, the 3,400 public employees in Sonoma County making an average of $200, 000 in salary and benefits, and the 500 top managers making over $200,000 in salary and benefits, have priced themselves out of a job.

    We need cuts in headcount. We need cuts in pay. We simply can’t afford you.

    Cut everything…except cops, firefighters, other first responders, and teachers.

    It stinks, I know.

    And you have a right to your outrage. Protest. Have your rallies. Sing your union songs. Wave your signs. Write your editorials.

    But when the day is done, those one of out four unemployed or underemployed workers will be happy to have your job. And they will be happy to work for a lot less.

    It beats unemployment checks and food stamps.

    And that, my friend, is the “integrity” of the real world.

  3. Integrity? says:

    John,
    ** Integrity in public service — this is the cause I’m passionate about.***

    Intergity also means keeping your promises. We shall see. I specifically came to Sonoma County because I did research and liked their benefis and pension plan. We shall see how much integrity is involved in the solution..

  4. John Sakowicz says:

    Hi Lisa,

    I think you are more than capable of being on a radio show with Joe Nation and myself. You are passionate, educated, informed, highly experienced, street smart, politically connected, convinced of the correctness of your belief system…and an attorney.

    I want you at my side in a knife fight.

    That said, Joe Nation is a confirmed guest for next Friday, March 11, at 9-10 AM, on my show, “The Truth About Money”, on KZYX, community radio in Mendocino County. In Ukiah, it airs at 91.5 FM.

    Santa Rosa, where your office is located, is a little bit out of our broadcasting area, but the show streams live from the web at http://www.kzyx.org.

    Tomorrow’s guest at “The Access Program” with host Norman De Vall, is Kendall Smith, chair of the Mendocino County Board of Supervisors.

    Although I haven’t seen Norman’s talking points for his show, I’m guessing that our county’s deeply troubled pension system will be a topic.

    See the California Municipal Bond Advisor: http://www.californiabondadvisor.com/bondupdates.html

    Our county’s inability to live within its means and balance its budget is troubling enough. More troubling at the Mendocino County Employee Retirement Association are discrepancies between our actuary’s report and our auditor’s report in the tens of millions of dollars.

    There are serious discrepancies in the following line items: contributions, investment return, and net assets.

    The discrepancy in net assets is $43 million.

    Our county is near bankruptcy, Lisa. We are closing animal shelters, slashing library hours, and laying off teachers,homeless outreach workers, drug and alcohol treatment counselors, mental health and public health workers. We are even laying off sheriff deputies. Mendocino County can ill afford incompetence, let alone corruption and public malfeasance.

    Integrity in public service — this is the cause I’m passionate about.

  5. BigDogatPlay says:

    It took four posts for someone to play the Koch brothers attack card.

    What that, and a self serving Forbes cite, misses is that public employee compensation and benefits (particularly here in California) are out of all proportion to comparable private sector job descriptions. This is due, at the core, to the power of the public employee unions and them being able to exert that power on elected officials who’ve been voted into office on the back of massive campaign contributions. And those contributions are paid for by mandatory union dues taken from the employees without recourse.

    We, as a population, decry the 3% at 50 public safety retirement plan that CALPERS and many city and county plans around the state have adopted. That formula, and a massive wage increase at the time for CHP and the prison guards (which took raises away from virtually every other state employee for the following several years)was signed onto by the Governor Gray Davis. An astute observer would recall that Governor Davis’s two largest political contributors were:

    1) The California Association of Highway Patrolmen

    2) The California Correctional Peace Officer’s Association

    Rank and file CHP and the prison guards…. what a surprise.

    We recalled Governor Davis, in part, because he added 36,000 new headcount to the state payroll in his first five years in office. The man who replaced him, Governor Schwarzenegger, nearly doubled down on that adding even more headcount to an already bloated bureaucracy. And to what end?

    Are our schools any better? Are our roads and highways in any better shape? Are we not laying off cops and firefighters around the state?

    The unions and the politicians need the government work force to continue to advance. There is more power in more bodies employed and, after all, someone needs to be paying into the system when all of the mega inflated pensions need to be paid. Ponzi would be so proud.

    Many states are on the brink of financial disaster. California is leading the wave. Raising taxes isn’t really an option as it will only chase more jobs out. In the end someone in Sacramento is going to have to gather up the testicular fortitude to make difficult choices… and no one in the Legislature or the Executive branch currently seems to want to do that.

    Because to do so, you have to cross the public employee unions.

    Public employees are virtually impossible to fire or discipline. There is no “job protection” reason for them to have union representation. In California the compensation and benefit packages for public employees largely exceed those in the private sector. And since they negotiate with politicians who they (in large part) have put into office, why should we be surprised to find ourselves in this position?

    It’s not union hate. It’s not the eeee-vil Koch brothers. It’s reality. The sooner those on the left who curry their power from their friends in the union movement come to understand that reality, the better it will be for all of us.

  6. Hi Joe S.
    I am happy to discuss public pensions and workers rights. I am not sure which radio station you represent,( not to mention that from your remarks it looks as if you are not an informal moderator since you have so publicly stated your opinions) but I am willing to discuss the issue with Mr Nation in an unbiased forum.I believe that the anti-worker economists and professional public pension bashers have already gotten more than their fair share of airtime.

  7. John Sakowicz says:

    I would also like to invite Lisa Maldonado to debate Joe Nation on the air in a radio show. I’ll moderate with John Dickerson, a public pension and debt specialist.

    How about Friday, March 11, at 9-10 AM? I’ll do my best to make it happen.

    Editorial meetings bore me. Typically, they’re one-sided, and the shill that shows up for the meeting is generally funded by a special interest group. It’s their job to present just one side of an issue. More importantly, editorial meetings are closed to the public.

    How about it?

  8. Paul Gullixson says:

    Lisa,
    Our Editorial Board would be happy to meet with you and other county workers and union members to discuss pensions. Much has happened since our last meeting. My office number is 521-5282. Let’s set that up.
    Paul

  9. Tom Lynch says:

    I too would encourage the Press Democrat to hold a forum on pensions with County Workers, Trade Unions, Private Industry and the Public.

    I think it would be helpful to do a comparison of the top employers of Sonoma County, what they pay in benefits for pensions, health care, etc.

    Of note would be a comparison between Trade Unions, hospitals, manufactures, etc. Also a comparison between Federal, State and County benefits…I suspect if Sonoma County had similar retirements as given to the State and Trade Unions there would be a lot fewer layoffs if not a problem at all.

  10. Tom Lynch says:

    Hi David,

    Good to see you contributing to the pension thread.

    I agree that one needs to include all the salary and benefit as part of the equation of the total compensation as mentioned in the link for Wisconsin. And yes in that sense the employee pays ALL their retirement benefit from the salary/benefit paid by the taxpayers.

    Presently at Sonoma County the average salary/benefit for all 3400 employees is about $125,000/worker with the top 500 average salary/benefit over $200,000/year. As an aside Petaluma’s John Record, executive director of COTS, is paid salary/benefit of $80,000/year overseeing a program that is being decimated by cuts from state and local government funds.

    Sonoma County’s pension fund has an Accrued Liability of approximately $2.1 Billion with $1.8 Billion in assets of which $600 Million is derived from Pension Obligation Bonds (with $550 Million still owed).

    The liability is what is needed to cover benefits for previous years service IF the pension fund achieves a rate of return of 8%. If it recieves a return of 4%, like it has the last ten years, that libility increases to over $4 Billion.

    Sooo…yes we’ve been had by Wall Street but that doesn’t change the simple fact that right now the pension fund is under 60% funded with an 8% return or 30% funded with a 4% return.

    Thus far the County and the soon to be retired union heads have made the difficult decision of loss of positions through unfilled retirements and laying off younger workers. The County and Unions will continue this trend this year with perhaps another 500 job losses to cover pensions that were never adequately funded in the first place.

    What would you do? Keep in mind the pension system for the County bears no resemblence to that of the trade unions; the trade unions do not fund their own retirement from laying off younger workers or with unfilled postions from those that retire.

    We are not Wisconsin. Facing economic reality in order to protect the jobs of younger workers and the services of Sonoma County is not anti-union or against collective bargaining. In fact a more sustainable system would create more union jobs and prevailing wage opportunities.

    What would you do David and Lisa? Reforms or layoffs? More jobs or less?

    This from a progressive Democrat tired of the rhetoric and wanting to hear about solutions.

  11. Dear Mr Gullixson
    My proposal to have and editorial board meeting with county workers and union members was not a rhetorical one. I really do think it is time for you to sit and discuss pesnions (a problem you have railed against ad nauseum and constantly in your paper without perspective of the actual parties involved) with some of the actual people involved in Sonoma County. I was hoping for some kind of a response to my questions, but maybe you don’t read your own blogs?

  12. David Keller says:

    Paul and folks -

    Please read the following blog reports from FORBES online, and provide your comments on the information there, which is clearly presented, and takes quite a different direction for who is responsible for what, and who should be held accountable for fixing the problems, real or imagined. The PD has not been a friend to its union members for years, and it’s time to share in the responsibilities of budget crunches.

    Oh yes, remember that not one of the financial geniuses who created our national and world-wide collapse is serving time in jail for fraud, theft or other monumental crimes committed against all the rest of us – and they’re mostly getting big bonuses again, while the public sector, including education, healthcare, infrastructure maintenance, environmental and safety protections and other critical governmental functions
    get robbed again.

    People who do real work are still suffering, while some 30% of American economy is in the ‘financial sector’, producing nothing tangible except debt.

    —–
    The Wisconsin Lie Exposed – Taxpayers Actually Contribute Nothing To Public Employee Pensions

    Rick Ungar: Forbes Policy
    2/25/11

    http://blogs.forbes.com/rickungar/2011/02/25/the-wisconsin-lie-exposed-taxpayers-actually-contribute-nothing-to-public-employee-pensions/

    Pulitzer Prize winning tax reporter, David Cay Johnston, has written a brilliant piece for tax.com exposing the truth about who really pays for the pension and benefits for public employees in Wisconsin.

    ———–
    Koch Brothers Behind Wisconsin Effort To Kill Public Unions
    Feb. 18 2011
    By RICK UNGAR – FORBES online
    http://blogs.forbes.com/rickungar/2011/02/18/koch-brothers-behind-wisconsin-effort-to-kill-public-unions/

    As the nation focuses on the efforts of Governor Scott Walker to take away collective bargaining rights from public employees in Wisconsin, new information is coming to light that reveals what is truly going on here.

    Mother Jones is reporting that much of the funding behind the Walker for Governor campaign came from none other than uber-conservatives, the infamous Koch Brothers.

    What’s more, the plan to kill the unions is right out of the Koch Brothers play book.

  13. truth in news says:

    Joe Nation is just another official trying to throw sonoma county unions under the bus. HE has been feeding off the people his whole career, just like Woolsey, Boxer and all the other democrats. I want to know how much EACH of them makes, what their retirement is, how great their medical plans are. IF IT IS GOOD ENOUGH FOR THEM IT’S GOOD ENOUGH FOR ME! After all, police and fire are at least adressing problems every day…not hiding from them under the guise of “elected official.”

  14. Jake Hamilton says:

    I have to wonder if the county would be in such a big hole if it’s employees had not invested their retirements in the stock market. As I understand it they could/can collect interest on their money that would be at a safe, fixed rate. Or, you could go to Las Vegas. Or better yet, they could invest in our state by playing the lottery with their retirement.

  15. Wilson says:

    Ask most south county residents how much credibility Joe Nation has and you’ll either hear “Joe who?” or “ZERO… he never did anything for us when he was in office”.

  16. John Sakowicz says:

    Brilliant editorial. Thank you.

    A quick comment about Mendocino County’s retirement system…

    We’re much worse off than Sonoma County.

    And here’s why. For over 20 years, three incumbents pretty much ran things here in Mendocino County: former treasurer and pension administrator, Tim Knudsen; former auditor, Dennis Huey; and county counsel, Peter Klein. Together, this troika ran the Mendocino County Employee Retirement Association (MCERA) as if it were a private fiefdom. And it was. Members of the Board of Supervisors came and went over 20 years, but these three guys were fixtures.

    And did they screw up.

    Here’s how. Between $40 million and $50 million was added to our county’s unfunded pension liabilities through the abuse of a dubious accounting trick known as “excess earnings”.

    Technically, the public sector allows excess earnings, also known as “unrealized actuarial gains”.

    But in the private sector, the same accounting trick is known as “capitalization of expenses” or “improper revenue recognition”.

    It’s what landed Bernie Ebbers, of MCI WorldCom, in federal prison for fraud; also, Ken Lay and Jeffrey Skilling, of Enron.

    Here’s the real kick in the head. Of that $40-50 million, $9.6 million in county contributions was diverted from the pension account.

    Yup, $9.6 million, which, incidentally, was written off as a complete loss during the July, 2010 meeting of the Retirement Board.

    So why isn’t our district attorney, David Eyster, investigating.

    “Conflict of interest,” he states flately. “I’m a member of the retirement system.”

    So why not refer to the district attorney of a neighboring county, or to the California Attorney General?

    No answer.

    My bet is that Mr. Eyster, like almost every politican, is beholden to SEIU and other powerful special interests.

    But the people of Mendocino County will continue to suffer as our unfunded pension liability tops $100 million. Fewer cops on the street. Fewer teachers in the classroom. Hours slashed at the library. Animal shelters closed. Fewer treatment beds for drug and alcohol rehab. Fewer casae workers for the homeless and the mentally ill. Garbage collection and the county dumps privatized.

    And on and on and on.

    Our current Board of Supervisors recently received a resounding vote of no-confidence. The people of Mendocino County defeated Measure C, which would have raised our sales tax, by a 70-30 margin. Measure C was widely perceived as a “pension fund bailout”.

    Time for a change.

    We should take our cue from the people of Tunisia, Egypt, and Libya. We can’t trust our leaders. We can’t trust our government. They won’t solve the problem, because they leaders are the problem.

    Pension envy? You bet! We live in a class society — those few who can afford to retire, and the rest of us who can’t. We’ll be working into our seventies until we drop.

  17. Mr Gullixson,
    How about a “major committment” to editorial fairness ? For instance,why not mention that the panel that Mr Nation was on consisted of mostly partisan, anti-labor speakers (including Brian Sobel a well known political consultant with no special knowledge about public pensions) Or that it included not one labor economist or labor voice on the panel to speak on behalf of those who have actually worked for the benefits Mr Nation is trying to take back. (If your paper had covered an event on “Myths and Realities of Public Pensions” that was held two weeks ago, you would have heard some less biased information from an economist and researcher from UC Berkeley as a fair counterweight) It’s unfortunate that your paper continues to chide and lecture workers and labor while never soliciting the voices and views from the hardworking men and women who have made huge concessions to keep this county going. Perhaps it’s time for your editorial board to sit down with workers and speak honestly and listen carefully to what we are saying. After all you have done it for everyone else but the working people who have most at stake. How about an editorial board meeting one of these days? We would welcome the opportunity to set one up if you like. Problems like these are better solved when ALL are at the table.
    http://www.calpersresponds.com/issues.php/little-hoover-commissions-report