Posted on 06/16/2009 9:17:04 AM PDT by NormsRevenge
Ten years ago today, California's march toward its present fiscal chaos began. On June 16, 1999, the board of the California Public Employees Retirement System (CalPERS) – its investment portfolio bulging after several years of large gains – voted to ask Gov. Gray Davis and the Legislature to broadly increase benefits for more than 800,000 government employees and retirees.
There was some skepticism. An aide to Davis, who was then cultivating an image as a pragmatic, can-do centrist, said the governor worried about the prudence of such a broad benefit boost. Assemblyman Tom McClintock, R-Thousand Oaks, questioned how CalPERS could assert that the massive benefits hike could be enacted with little or no strain on the state budget. The contention presumed CalPERS' huge portfolio would continue its big annual growth indefinitely.
But the Wall Street dot-com boom was at its zenith, with some technology mutual funds, not just individual stocks, quickly doubling in value. And after 16 years under Republican Govs. Pete Wilson and George Deukmejian, the state's public employee unions were spoiling for a huge victory.
Three months after the CalPERS board made its recommendation, Senate Bill 400 swept to passage and was signed by Davis.
It revised sharply upward the formula under which retirement benefits were calculated for state and public school workers; it based the benefits on the final year of pay (normally the highest), not an average of the final three years; it erased a previous money-saving reform by ending a tier system under which new hires received smaller pensions; and it conferred a vast array of pension sweeteners on retirees and their survivors.
It also paved the way for local governments throughout the state to offer similar retroactive gifts of public funds to their employees and retirees.
CalPERS' argument that this enormous pension spike would have little long-term fiscal consequence had carried the day. Its official estimate was that in 2008-09, the state's employer contribution would be only $379 million.
The actual figure: $4.6 billion. The likely figure in the next few years, thanks to the stock market's huge slide, will probably be much higher.
In other words, the annual cost of the allegedly benign 1999 pension spike is likely to be at least a dozen times the original estimate. And if state leaders did the prudent thing and started setting aside money to cover at least $48 billion in unfunded retiree health benefits, that would add at least $2 billion more to the annual tab.
It's hard to imagine how the state could be more irresponsibly managed.
CalPERS officials chose not to respond to our request for comment on the catastrophic fallout of its board's decision 10 years ago today. They seem to be under the impression, however, that things have gone well. Last year, CalPERS gave a $209,000 bonus to executive Russell Read, on top of his $555,000 salary.
How dumbfounding. How ridiculous. How Sacramento.
politicians should never be allowed to play actuary
CalPERS' argument that this enormous pension spike would have little long-term fiscal consequence had carried the day. Its official estimate was that in 2008-09, the state's employer contribution would be only $379 million.The actual figure: $4.6 billion. The likely figure in the next few years, thanks to the stock market's huge slide, will probably be much higher.
In other words, the annual cost of the allegedly benign 1999 pension spike is likely to be at least a dozen times the original estimate. And if state leaders did the prudent thing and started setting aside money to cover at least $48 billion in unfunded retiree health benefits, that would add at least $2 billion more to the annual tab.
A similar vast underestimate of future costs associated with universal healthcare couldn't happen under an Obama administration. Obama and the Democrats are much too competent to make a mistake like that.
Yet another spot-on editorial from the SDUT.
You would think there would be some personal accountability for such an erroneous miscalculation. The board of idiots, while not criminally liable, should at least be civilly liable for such a mistake. I’d like to see these idiots have their personal assets attached and sold at auction so that “mistakes” like this are less likely in the future.
Anytime any politician 'estimates' the cost of a program, multiply that figure by 10 and you'll approach the true cost.
L
Unfunded liability, a major problem that has been sailing along under the radar. A seperate, additional problem from the current budget crisis.
Even if the legislature and executive can squeeze past the current cash flow crisis, the looming liability crisis will still sink the ship of state.
The problem is so great that simply changing benefits for new state hires won't put a dent in the debt. The only solution will be a massive increase in taxes or a real time curtailment of existing benefits. The later would put the state judiciary in charge of California's annual budget.
If you think that elected politicians can't be trusted with fiduciary responsibilities, wait until the judiciary gets done.
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