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One thought on Thursday’s pension forum in Santa Rosa: There was some discussion about whether this pension crisis is primarily a problem of investment performance, one that will be rectified as the stock market recovers.
What many seem to forget is that newspapers, including us, were writing about unfunded liabilities and runaway costs of retirement benefits back in 2006, well before the bubble burst.
Furthermore, David Crane, the former econmic adviser for Gov. Arnold Schwarzenegger, now a lecturer in the Public Policy Program at Stanford University, recently blogged that pension funds “need the Dow to be over 29,000 now — more than twice its current level — in order to meet the return guaranteed from 2000-2012.”
He projects that the Dow would now have to be over 29,000 now to meet the return guaranteed from 2000-2012.
In order to meet the giveaways and pension guarantees the state made in 1999, “by 2016 — just four years from now – the Dow needs to triple,” he wrote.
Again, it could happen. But I wouldn’t bank on it.
— Paul Gullixson
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Can California be fixed?:
http://www.nationalreview.com/corner/299975/can-california-be-fixed-victor-davis-hanson
Cities and counties are headed for bankruptcy with the ill-advised promises they made during the boom years. Unions are pushing their legislative lackies to prevent this by preventing cities from filing bankruptcy. Call you representative and demand they oppose Assembly Bill 1692 or we will lose all balance in city negotiations with unions!
Read about this travesty of democracy here: http://www.sacbee.com/2012/05/14/4487337/dan-walters-municipal-bankruptcy.html
“Furthermore, David Crane, the former econmic adviser for Gov. Arnold Schwarzenegger, now a lecturer in the Public Policy Program at Stanford University, recently blogged that pension funds “need the Dow to be over 29,000 now — more than twice its current level — in order to meet the return guaranteed from 2000-2012.”
It is convenient that Crane, political hack turned academic (sound familiar?) chose the absolute height of the tech bubble as one end of his yardstick. By that kind of logic, one might just as well disprove global warming by pointing to all of the days during which the high temperature has been less than the record high.
More snake oil from Stanford U.
Excellent post Doctor.
What is it they say about those who don’t learn from History?
Michael Allen, Gray Davis and their ilk have essentially set the State, Counties and Cities of California so far back it will take at least a generation to recover…but only if we act now.
If you want to help pension reform, better vote for anyone but Mediocre Michael Allen. As the executive director of SEIU, the county’s largest labor group he was responsible for getting the contracts that are sinking Sonoma and Marin counties. In the PD’s Sept. 25 2011 “How soaring Sonoma County pension costs began” Allen said, “No one thought of a catastrophic meltdown.”
He’s getting upwards of eight hundreds of thousands of dollars from out-of-the-area unions and they are his biggest contributors. They helped him abandon Solano and Napa’s voters by moving him to San Rafael to try to takeover Jared Huffman’s new assembly district. Also, in Sacramento he’s in charge of the pension reform committee.
So Mediocre Michael created the problem, he’s getting hundreds of thousands of dollars from the unions that are benefiting the most from no pension reform, he getting a pension from SEIU, plus extra personal income from other unions and now he is in charge of fixing the problem in Sacramento. Mediocre Michael, the professional politician.
Excellent editorial.
So if they are only employeed by the state do they get Social Security too? Does the money that would have gone to Social Security get applied to the state where they manage it instead?
Gov Gerry Brown just agreed to extend Union contracts in Sacramento. I couldn’t understand why he would not show progress on the spending issue before asking for more taxes, but then it became obvious in the article: Ken Murch union negotiator said “The timing isn’t right to go in and make economic demands on the state…things could get better in the future, although it still wouldn’t automatically mean rasies for state workers.”
They don’t want to negotiate now because they expect RAISES after Gerry’s tax increases are passed. Not schools mind you, prison physiciatrists.
There is no hope for reform of the problem from the Sacramento politicians, they are the problem.
Reality Check: Too late. The Federal government debt was reported today to be GREATER in amount than all the European Union and England combined.
I might add…. the amount reported is so great that it is impossible to keep it under control. The great ship America is sinking before our eyes.
Only the government workers and the government bureaucrats are in denial. Every other finance expert agrees that the great ship America is sinking.
Your children and your grandchildren are guaranteed to suffer a falling quality of life thanks to a greedy, corrupt government staffed by liars.
Tom Lynch…”…we all have to work collaboratively together toward sustainable solutions.”
Uh, anyone notice that public employees are enamored with terms that float around the public employee vocabulary like germs off of persons breath?
“Collaborate” and “Sustainable” are two terms I am really, really tired of hearing coming out of the mouths of public employee bureaucrats.
Take notice. You’ll see what I mean. lol.
I’ve read my Reality Check and I’m following the Follower.
@Tom Lynch
“…we all have to work collaboratively together toward sustainable solutions.”
Wouldn’t THAT be nice??!!
But the problem is that we are not all working “collaboratively together” because we don’t “all” have a say in this.
It’s all in the hands of the Union bosses and the elected officials who are beholden to the Unions to remain employed.
It’s NOT a Union bosses job to be concerned about the employers ability to pay.
But when a Union makes demands on a company, the Union must face the fact that the company can only pay so much before they go out of business. So there are built in limits to what the Union can demand.
Not so with Public Employee Unions because the Union KNOWS that there is a bottomless well of money for the Employer to draw from… TAXES!
So we have a situation were the Union boss doing what he is paid to do, using every tactic available to do it, essentially blackmailing the employer with the threat of backing the other candidate in the next election if they don’t get their way.
The “employer”, completely free of any concern for “going out of business” gives them what they want and here we are.
It’s time to BAN PUBLIC EMPLOYEE UNIONS and put a stop to this charade instead of passing it off to our children.
Will stocks save us from a pension debacle? Who knows. Is it a gamble any generation should pass onto the next? Really, the problem will be solved only when, to paraphrase Golda Meir, we love our grandchildren more than we hate paying for the benefits we’ve promised.
And since we’re obviously having trouble taxing ourselves enough to fund our generous pension promises, maybe it’s time to rethink them.
Folks, it’s one or the other. Pay up or change the benefit package, not tinker with it. The alternative, leaving it to the next generation, is to abdicate all claim on morality.
Draft Unfunded Retirement Obligations 101
In order to fund the retirement benefits for past service of all 8000+/- SCERA (Sonoma County Employee Retirement Assocition) members, 4068 Retirees and 3500 Active employees, they need approximately $2.2 Billion in the investment fund earning 7.75% interest for the next 29 years.
SCERA presently has approximately $1.85 Billion in their portfolio, with $618 Million of that from Pension Obligation Bonds (POB), on which we still owe over $500 Million…approximately $800 Million unfunded retirement obligations paid back over the next 20 years +/- with interest of about $700 Million or a total of $1.5 Billion…IF SCERA averages 7.75% return over the next 20 years!
The above does not include the $258 Million unfunded liability for retiree medical based on what we would need in the portfolio earning 8.25% interest over the next 30 years to paying approximately $600 Million principal and interest).
On top of the above the County also pays into Social Security and upper tier managers/electeds get an additional 5-6% 401(a) that is included as part of their final year salary.
The taxpayers guarantee the 7.75% rate of return for SCERA. Unfortunately last year SCERA averaged a 1 % return on their investments thus incurring an “unfunded liability” of over $150 Million paid back over the next 20 years (SCERA policy) by the taxpayers at the rate of 7.75% adding another $150 Million in interest; i.e. $300 Million principal and interest paid back over 20 years on a payroll of $300 Million. Add to the above almost another $150 Million paid in on top of the $300 Million salary toward retirement benefits.
Last year, on a payroll of $300 Million, Sonoma County paid in $150 Million toward retirement benefits and incurred another $300 Million principal and interest over the next 20 years…$450 Million on a payroll of $300 Million or about $1.50/$1.00 of payroll…compare that to most in the private sector lucky enough to have a job, that their employer is simply paying in the 7.65% toward Social Security. Sonoma County is paying in almost 20 times most of the private sector and rising.
Last year a $100K/year middle manager received another $150K/year in retirement benefits, 2/3 paid over the next 20 years by our children and through loss of services this County once was able to provide for generations. Perhaps “generational equity” should be the next human rights movement, akin to the Suffragettes of the early 20th Century and the Civil Rights Movement of the 1950’s and 60’s.
We are in the midst of a debacle, a disaster; and we are doomed without a solution. Most of our elected officials, administrators and union heads have been willfully blind to the problems we boomers have created. And as others have noted this is NOT a struggle against our public servants, unions and retirees…this is a math problem that we all have to work collaboratively together toward sustainable solutions.
The stock market to me is artificially high. Sure, some corps have stagnant money, but the market can lose a few thousand in a few days.
Then go figure. ICLIE
Oh, I almost forgot.. they WANT us all bankrupt……
If only pensions could be funded by hopes and dreams. You can call it a crisis, crossroads, or problem, but futher delays in action is not an option. Pay attention to Stockton, LA, Mammoth, Hercules and other communities that have acknowledge, then ignored the need for pension reform.
Arrogance comes devoid of memory. “What many seem to forget is that newspapers, including us, were writing about unfunded liabilities and runaway costs of retirement benefits back in 2006, well before the bubble burst.” And, at the same time, the brilliant seers at the Press Democrat were also telling the public to vote exclusively for liberal Democrats, the same politicians who created this pension mess.
As Dr. Eyler pointed out, the market downturn beginning in 2008 simply made more visible underlying structural problems in the current public employee pension system. An infusion of cash whether in the form of a market rebound or new taxes would help cover up the problem, but won’t make it go away.
The article makes an excellent point. The local and state governments in California are grasping at straws in the wind. The only thing that will salvage something out of the public pensions, is a drastic cut in benefits and a complete reorganization of the whole system which has been out of financil control for several years now.
It is in large part controlled by the public sector unions who sit on the board and have a blind eye to what is indeed a financial crisis that is destroying the state budget and the local budgets in California.
500 to 600 hundred billion in unfunded liability. Now folks, that a real chunk of change. And to date, there is no real plan to address this ocean of debt offered up by the democrat legislature or the democrat governor. Only a band- aid and some crystal ball readings.