California: McPherson warns of another ballooning deficit

Santa Cruz Sentinel ^ | October 12, 2003 | BRIAN SEALS

[John Jorsett]

APTOS — State Sen. Bruce McPherson warned of dark budget clouds continuing to loom in Sacramento, stemming from the late fix put on the current year’s budget.

The Santa Cruz Republican, speaking to more than 100 people at an Aptos Chamber of Commerce breakfast Thursday, said some bonds used to fill the budget gap face a court test.

One plan that would have used $2 billion worth of bonds to pay for pension obligations was rejected by the courts, which ruled that bond measures needed to go to a public vote.

Another plan to sell $10.7 billion in deficit bonds faces a similar court test, he said.

Throw in Gov.-elect Arnold Schwarzenegger’s pledge to rescind the universally unpopular vehicle licensing tax, which would mean $8 billion in revenue loss, and the deficit facing the state could swell back up to about $20 billion.

That could mean the new governor will hold a special budget session.

"I think we’re going to be called back quickly to address that," McPherson said.

However, aside from how money is collected and spent, more structural reform is needed to alleviate a seemingly recurring budget challenge, he said.

"We’ve done about everything we can do already with loans and accounting gimmicks," McPherson said.

As he has said in the past, several reforms would be helpful:

• Crafting a two-year budget rather than a one-year spending plan.

• A requirement that bills which would cost money identify a revenue source. Bills are now analyzed for cost, but not for where the money would come from.

• California’s fiscal year, which begins July 1, should be matched with the federal government’s fiscal year, which begins in October. The federal government accounts for about $30 billion of the state’s budget, McPherson said.

• Establish a 3 percent reserve.

  McPherson serves on the Senate Budget Committee.

[Batrachian]

They should outlaw pensions in state government. There's no reason for tax payers to support retired state workers, at huge expense, for the rest of their lives.

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[claudiustg]

Republicans in Santa Cruz?!

[Joaquin]

Tell me, now; who do you work for, and what's your pension like, hmmmm?

[Batrachian]

I work for a private company and I have a pension commensurate with whatever I contribute to it. Taxpayers certainly have no responsibility for my retirement.

And you?

[Joaquin]

I don't work for the State of CA, but I have several friends who do. It never ceases to amaze me when people make remarks like yours. Are you saying that ALL State workers don't deserve a retirement plan? Do they contribute NOTHING??

[Batrachian]

For Pete's sake, man, they have to sell billions in bonds just to keep these pension funds solvent, and that's in addition to what's already being paid. They issued $10.7 billion in bonds, and another $2 billion that's being challenged in court. Don't you see what a burden that is on taxpayers? Why do they have to pay for the retirement of these government workers? This is legalized theft of the worst sort. Almost $13 billion just in bonds to cover pensions, on top of the existing tax burden. When do you say enough? How much pandering to state unions, which is where most of these pensions came from, is enough?

[snopercod]

I predict that the courts will - surprisingly for them - actually follow the California Constitution and require that these bonds be approved by the voters.

The instant they do that, California becomes technically bankrupt. IOW, their payroll checks will bounce. Schools, fire departments, and police departments will close down (but not Medi-Cal).

Schwarzanegger will be blamed by the media, of course.

[EggsAckley]

APTOS?!?

That's where I live.

[snopercod]

Look fellas, I think we can all agree that public employees provide a useful service, in at least some cases - police, fire, etc. I understand that they are paid with money taken by force, but let's ignore that issue for a minute.

What really needs to be discussed is the magnitude of these retirement plans. For instance, should prison guards - retroactively - receive 90% of their maximum salaries after 20 years of service?

I vote no on that, and propose that 50% might be more reasonable.

[Batrachian]

The state government of California is in the pocket of the state worker unions and gives them whatever they want in return for votes and campaign contributions. As a result, the cost of these pensions is enormous and getting bigger. This is one of the most important reasons why Gray Davis was recalled. Everyone knew his relationship with the state unions and was outraged by it, as well they should have been. People know how much they have to pay in taxes, and why. I can't believe this fellow Joaquin would defend this. He's from California. He's paying the taxes. I guess he thinks he has to because his friends are sucking from the public tit. I say enough already.

[LasVegasMac]

There's no reason for tax payers to support retired state workers, at huge expense, for the rest of their lives.

I think that is a fairly lame statement.

Axe to grind with state level retirement? Do you also think the Highway Patrol folks don't need a retirement system?

If you don't agree with state level funded retirements, then local / city retirement systems must be a real burr in the saddle, uh?

I have a retirement fund - funded for the rest of my life (I hope!). Military. And guess what, I did not contribute one dime to the retirement system while I was on active duty! Screwed yourself into the ceiling yet?

LVM

[Batrachian]

So you like how Gray Davis gave away fat pension plans to unions in exchange for campaign contributions? That pleases you? This state is almost bamkrupt, you know. They can't afford this.

[Pukin Dog]

Our state has too many public employees. Many will be fired under Gov. Arnold S. My guess is that he will also declare the state bankrupt, allowing him to restructure pensions. This is what is needed, and probably what he will do.

[Joaquin]

http://www.sacbee.com/content/politics/recall/story/7579497p-8520553c.html

The state plans to sell a $1.9 billion bond to cover its payments to the state retirement system. Another $10.7 billion bond would retire the deficit remaining from the 2002-03 fiscal year.

As you can see, it's NOT "Almost $13 billion just in bonds to cover pensions, on top of the existing tax burden." as you stated.

Little known fact: The State and other governmental agencies got a free ride for several years, while times were good. They contributed NOTHING to CALPERS for several years in the 90's. Instead of socking money away during the good times, Davis and the legislature spent like drunken sailors (apologies to sailors everywhere).

Here's a little something I posted here on FR on this subject, a while back:

Davis knew of the budget shortfalls as far back as '2000. At the labor negotiations that year, his people refused to give raises to most state workers. He did give sweetheart deals to 3 groups, highway patrol, fire fighters, and prison guards. Some of these groups are now supporting him, against the recall. Everyone else got no raise. Instead, he used a "creative financing" trick. Up to that time, state workers had been contributing 5% toward their own retirements. The '2000 contracts stipulated that the state would pay 1/2 of that 5% the first year, then all of the 5% the second year. At the end of the contracts (now), the state workers would start paying that 5% again, and would receive a 5% pay increase. Wild isn't it? The net effect was a 5% increase over 3 years. Not overly generous in my opinion. The situation now is that the employees must start paying their 5% retirement, but without a budget, there will not be an offsetting 5% pay increase. Yes, their net paychecks will go down.

It never ceases to amaze me that so many people assume that government workers are useless, overpaid hacks, not deserving what little pay they receive. The news is full of stories about "overpaid government workers". What crap. The truth is that the state of CA has had major problems attracting employees for years, because the pay of state workers is often 10% - 25% LESS than that elsewhere.

Don't believe me??? I left a Sr. position in state service last year, going to a non Sr. position, for $10,000 a year more, elsewhere.

Joajuin

[John Jorsett]

I wouldn't eliminate public employee pensions, but I'd switch them to Defined Contribution instead of Defined Benefit. And being Defined Contribution, there'd be no adjustment for inflation, just like there isn't for mine. You'd be expected to invest your contributions and draw your benefits in a manner designed to carry you through to the end of your life. That's the boat I'm in, and I don't see why public employees should be treated any differently.

[Joaquin]

Tell me this. You work for a private company, correct. Does that company contribute to your retirement in any way? If they do, the customers of your company are paying for your retirement, indirectly, are they not??

[Batrachian]

Yes, they provide matching funds to my contribution. The difference is that my company's customers have a choice. They have no legal obligation to pay for my retirement. It's entirely voluntary. The only choice for the taxpayers of California is to leave the state, which if the reports are true, they're doing in droves.

If you're on this forum I would think you'd understand that when the public sector gets too big it destroys a society. Public workers and programs aren't what made America great and they aren't what made California great. Freedom and capitalism are what made them great, and when a state takes too much it destroys freedom and capitalism. Do you really need so many social workers and clerks and beaurocrats? All public workers are not policemen and firemen that at least provide a necessary service. How many translators does your state employ because of all the illegal immigrants? It's a two pronged problem. Too many public workers and too generous contracts. They also get medical and overtime. That's how you get a $38 billion deficit.

[Oatka]

I've beat the drum on this on other posts but I will submit my "modest proposal" again.

It will probably take an initiative to do it, and it will be subject to review (as unconstitutional) by a liberal judge, as per usual.

Shift over to 401Ks for all state workers, elected and appointed officials. Grandfather in the current people but all newbies wiould go under this new plan. The state matches the first 6%, then says "Go with God" when they leave.

Consider the pluses: Political and judicial officials no longer nurse at the taxpayers' teat - ergo no ballooning retirement expenses. Other benefits, without the lush pensions, the slimier pols will look elsewhere for a career. Those that stay will take a closer look at the laws they pass as their own pensions would be at market risk instead of being insulated courtesy of the taxpayer.

Yes, it will take years to kick in the cost savings, but if we had done this even 10 years ago, California would be a lot better off.