Posted on 05/14/2009 1:43:23 PM PDT by NormsRevenge
Oh how I wish you were right!
What follows is from a good friend that keeps his eyes on Sacto every day... this is as of yesterday. ... Until CalPers, the State pension plan, is fixed, Californians are in deep trouble. At the last accounting the system was $181 billion upside down. My guess is that due to losses and the stock market, it is over $200 billion in the red.. ... We now have a $63 billion deficit, over $114 billion in debt, and now another $200 billion debt -- all to be paid for by the taxpayers.
Well, I think I am right--lol--and I'll explain. I'm familiar with Steve Frank's website -- I used to be a pretty regular reader but hadn't visited there in a couple years. I like the new format!
As to debt, there is no doubt that California has a large debt load or that we have created a huge portion of it in just the past couple of years. But all debt is not equal. Not only do you have different types of bonds (general obligation vs. revenue), but they are issued for all sorts of purposes (good and bad). Issuing general obligation bonds as they did in Prop 57/58 -- clearly bad -- was using debt to pay for ongoing expenses of government. That's kind of like mortgaging your house, not for improvements, but to pay for food for the next year. When the money runs out, you still don't have income to cover it -- but you'll need to eat. You also have GO bonds for things like highways which, not funded by tolls, are an obligation of taxpayers. You also have GO bonds for some of the pet projects of government -- bad, imo -- like stem-cell research. On the other side of the equation, you have revenue bonds -- usually bonds for public works or other projects that will generate revenue to pay for the bond. A water company might be an example where the cost of the debt will be passed on in the price of water. So, to just add up all the numbers and say "OMG, look at the debt" is not sufficient and is often used as just another type of scare tactic. You need to break it down and look at the debt servicing cost of that debt and the annual revenues that are required to cover it.
As to CalPERS, I've worked a lot with private-sector pensions and don't find the numbers to be all that staggering. When Steve says "upside down" or "in the red" I have no idea what numbers Steve could be referring to. As of last week, CalPERS assets were valued at $179 Billion -- that's Assets. In 2007, they were in the $250 Billion range after achieving 19% positive returns. So, yes, we've lost ground, but that is the nature of the beast. Returns were so great in 2000 that zero-to-nominal contributions were required at all.
Losses in asset value, and gains, get spread over many years. CalPERS has indicated that, to make up for a 20% loss to their asset value, an increase in contribution rates of 2% to 5% (as a percent of payroll) would be indicated. Since the current annual contribution is currently in the $3.5 billion range, that could increase the number to about $4.5 billion. That isn't reason to hit the panic alarm, especially when you're talking an annual budget of $140 billion or so. Like I said "not that bad." The only number I can think Steve is referring to is the actuarial accrued liability itself, but that would never be referred to as "in the red" number.
I was going to go on about all the gory details of pension problems, accounting gimmicks, variability in actuarial assumptions, and some obvious common-sense solutions (that don't require throwing the whole thing out and bringing in a new nightmare), but I'll start with this post. I don't want to bore you to death. LOL. But remember -- I believe I am right and prepared to explain more, if required. Lastly, I will say that the focus on "the taxpayers are on the hook" mantra is overplayed. There is a contract between employee and employer to be compensated for work performed -- pensions is one element of that contract. Given sound investments, there is no reason that the program in place cannot be managed without throwing the whole thing out. There are special interests that have something to sell by pushing the "do away with the pension system" screed -- the LAO did a long report on such a proposal a couple years ago and guess what the result was? The employee got screwed and the taxpayer paid just as much. But that is a whole nother subject.
You're welcome. The only thing you have to remember is it really will post it as you format it. So always remember that you need to put a *manual* line break in the text, otherwise it will run forevermore to the right and be pretty obnoxious for readers.
I found it useful for posting simple columns (without all of that fancy html stuff). It is useful for posting election results -- all sorts of things.
Heard on the radio today that he will open up off-shore drilling (off Santa Barbara).
......governments don’t actually lay off “workers.....
How about RIF.... reduction in force
Reasons for Changes in Employer Contributions (PDF)So, even though the cause of the growth in expenses noted here was caused by a burgeoning payroll and generous salary increases, the Administration will yell and scream about the evil pensions. This is what I've seen over and over the past 5 years. Plain old dishonesty.The contribution rates presented in this agenda item reflect the -5.1% return experienced by CalPERS in fiscal year 2007-2008. As a result of the rate smoothing methods adopted by the Board, the impact of this negative return is being greatly mitigated. Some rates are going up and some are going down. Contribution rates for all plans are changing by less than 0.4% of payroll with the exception of California Highway Patrol which is lower by almost 4% of payroll as a result of a reduction in benefit that was bargained for and adopted by the passage of AB 2936 (2005-2006 Legislative Session).
Overall, the required contributions for the State plans have increased by $262.4 million between fiscal year 2008-2009 and fiscal year 2009-2010. The main reason for this increase is the growth in payroll for all State plans between the June 30, 2007 valuation and the June 30, 2008 valuation.
This growth in payroll was a combination of pay increases granted to existing employees as well as the growth in the number of active employees.
The plans with the largest growth in their active membership were the State Industrial and Safety plans. For these plans the active membership grew by 13% and 9.2% respectively. Overall, the total active population for the State grew by 3.5%.
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