Pension Crisis Is About To Hit California
I know I write a lot about illegal aliens, and that is the number one issue in California.
But the number two issue few have heard of is the pension crisis, it is very real in California. In total, the unfunded pension liability of government agencies in our state is north of $100 billion. The unfunded liability for health care by government is in the tens of billions. In December, for the first time, government must tell the public the exact deficit in these accounts. If a private corporation did not tell the shareholders or the SEC about their unfunded liabilities, the CEO, the CFO and other officers of the corporation would go to jail for fraud. But, government exempted itself, until now. Counties like San Diego and Orange could go belly up due to their unfunded liabilities. LA Unified School District has unfunded liabilities of over $10 billion!!! No wonder they want the Education Bond to pass…they can’t afford, after December, of running the District and paying off the pension crisis. So, get the Bonds, and let the State taxpayers be put on the line.
Several counties had to cut their services to taxpayers in order to pay part of the pension liability. One county fired 73 law enforcement personnel. Wait till next year, when the real amount is known and people start asking questions. The governor was right last year to make this an issue. Sadly, the special interests demonized him, so instead of fixing the problem by responsible fiscal action, in all probablity it will be fixed the same way United and Delta airways fixed theirs–they ended the pensions and let the Federal government take over the plans. Now, the retirees will be happy to get sixty cents on the dollar–that is the fate facing government retirees in California.
Reference:
Governments may face huge health liability
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Steve Frank is the publisher of California Political News and Views and a Senior Contributor to CaliforniaConservative.org. He is also a consultant currently working on gambling issues and advising other consultants on policy and coalition building.
Read more of his work here or at his blog.
Technorati Tags: California, Healthcare, Pensions
June 20th, 2006 at 12:46 pm
I work for San Francisco County. Strangely, our county pension system is actually managed by competent people. It is currently 118% funded. The reason this is so is that our local elected officials cannot touch the pension fund for ANY reason, ever. San Francisco does a lot of things wrong, but in this case it’s doing a good job. I really feel for state employees, though, and those that work for counties that allow politicans to raid the pension fund whenever they need more money for the general fund. Didn’t Angelides want to tap into CalPERS for something? That’s exactly the sort of thing that bankrupts pensions. Another way to destroy pension funds is to legislate that pension fund money be invested in “socially responsible” investments. This usually means forcing funds to dump tobacco stocks, as well as others such as Haliburton, Bechtel, or Caterpillar (yes, this has been proposed here). The job of the pension fund is to make money. Morality has nothing to do with it.
June 20th, 2006 at 5:02 pm
Funnily enough your no 1 can be the solution to number 2. Immigrant workers tend to have more kids then citizens. Thus leading to more young tax payers. contributing to the pension schemes. Even though it is a bit of a pyramid scheme that as with all pyramid schemes will collapse.
June 20th, 2006 at 7:48 pm
It’s a West Coast Thang
In the coming weeks and months, IÂ’ll try to expand the geographic base – or at least give you Easterners a look at whatÂ’s going on in California. Living in San Francisco, I get plenty of material. IÂ’ll keep you up to date with what the kooks are do…
June 21st, 2006 at 6:47 am
I work in the pension actuarial consulting industry, and I have a couple of comments:
First, government pension plans aren’t guaranteed by the federal government because they aren’t protected by the Pension Benefit Guaranty Corporation (PBGC). If public plans have problems, it would take a special act of Congress to cover them. So it’s not the same situation as United and Delta, which were covered by the PBGC.
Second, to #2, these plans are not like Social Security. They are truly underfunded because they have asset pools of stocks, bonds, etc. that can be compared to liabilities. Benefits to pensioners are paid from these pools. Contributions are made as specific appropriations each year by the state or local government. They are not automatically made through a specific tax, like Social Security which has no asset pool. Social Security is a “pay-as-you-go” system, meaning taxes paid now go directly to those drawing benefits. The point is higher levels of young immigrants have no direct effect on the funding of public pensions described here.
The only solution is to cut benefits (or even future accruals), increase contributions to the assets, or a combination of both. Since cutting benefits means wrangling with public unions and increasing contributions means taking money away from other uses, public plans that are underfunded can be in real trouble in the future.
June 21st, 2006 at 8:57 am
State and local pension and health plans cannot simply be chopped in a bankruptcy-like manner, as private plans can, because federal courts have ruled that such benefits, once granted, are accrued property rights (indeed, even the vesting formula is a property right, meaning that the government cannot increase the amount of time it takes for a current employee to vest). Ditto for the totally unfunded lifetime healthcare benefit, which has typically accrued after only 5 years on the job (incidentally, I doubt that San Francisco has set aside any funds for that liability — the 118% funding applies ONLY to the cash retirement pension).
The only step state and local governments can take is to reduce pension benefits (by increasing contributions, extending vesting periods, etc.) for NEW employees. Those governments can also reduce payroll, but the seniority oriented civil service rules ensure that the most expensive (longest-serving) employees will remain on the job. Indeed, they will cling to those jobs like grim death, because the last years provide an opportunity to maximize the pension by taking lots of overtime, etc., in order to get their pensions based on the highest slary possible.
The only solution to this problem is switching all new employees to defined contribtion plans for both pension and health care benefits, and to RUTHLESSLY RUTHLESSLY RUTHLESSLY cut payrolls. That means contracting out everything possible, and firing entire city and state departments.
The problem is, state and local governments cannot necessarily lock workers out when a contract expires, or weather a strike, because for many bargaining units, “binding arbitration” (i.e., a conflicted arbitrator gives the union everything it wants) kicks in when a contract cannot be reached after a certain amount of time.
In short, get ready for much higher taxes, and fewer services, as more of government’s revenues go to service pension and healthcare liabilities.
February 4th, 2010 at 12:08 am
I was just chatting with my friend about this last week at dinner. Don’t remember how in the world we landed on the subject really, they brought it up. I do remember eating a wonderful steak salad with cranberries on it. I digress…
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