California Government Pension Systems “Endangered”

EditorialBy Stephen Frank

Originally published in Watchdog.com, view 2/5/15

The Washington Examiner published a story showing that 150 unions had “endangered” pension systems. “Another 85 funds are listed as being “endangered,” meaning they lack the assets to meet at least 80 percent of their future obligations.” http://www.washingtonexaminer.com/feds-place-150-union-pension-funds-in-critical-status/article/2559606

Based on the Federal criteria both CalPERS and CalSTRS, the two major California government systems, are “endangered”. CalPERS reports they are 77% funded, yet at the same time mandated a 50% increase in the contribution from member agencies. If the system is growing so well, why the massive increase? “An estimated funding level of 77 percent for the Public Employees’ Retirement Fund (PERF) – a positive growth of more than 7 percentage points. The PERF was funded at 69.8 percent as of June 30, 2013 based on the most recent actuarial value of assets.  The PERF is the main pension trust fund that pays retirement benefits.”

CalSTRS, is also under 80% and is more than doubling the contributions to try to reach the 80% endangered level, “Employer contributions will increase from 8.25 percent to a total of 19.1 percent of payroll, phased in over the next seven years.” For the teachers this is a pay cut. For the students this means less equipment, squeezing of resources. For parents, this means more votes for bonds and fees.

Money meant to improve education quality is instead going toward pensions in the Los Angeles Unified School District (LAUSD). Teachers are being forced to pay higher contributions to CalSTRS, the teacher retirement system. But, LAUSD has decided to give the teachers a special pay raise, so the net affect—on teachers’ pay—is zero. Sadly, money for computers and better facilities have to be cut to afford this “benefit”. “The board is providing the salary increases primarily to offset the higher pension contributions required by new state rules, which restricts the amount that the school district was formerly able to provide. Nevertheless, the raises might not serve to balance out the loss because of taxes on the additional income.” From the Los Angeles Business Journal, June 6, 2014.

In the 2014 election people in numerous California cities voted on sales tax increases. The campaign were about roads, libraries, public safety. But when you read the language of the measure, the money was not allocated to those community needs. Instead the money was going into the General Fund. In the 2014 election forty sales tax increases, with money going to the General fund passed in California, with fourteen failing. Many were extensions of sales tax increases set to sunset. In all cases the money for these fifty-four measures were to go directly to the General Fund. Government has a saying, “money is fungible”. In this case, government made the case for roads and libraries, but the ballot measures did not allocate the funds raised to a specific category. You can find the results of these ballot measures, statewide, here.

The biggest problem is that the massive unfunded liabilities of CalSTRS and CalPRS is unsustainable. Even with the large ROI for the past three years, it cannot make up for the losses from the recession. Plus, with retirees living longer, CalPRS has put out a statement concerned about the economic fallout of folks receiving checks for months or years longer than anticipated based on actuarial tables.

Both CalPRS and CalSTRS are only 77% funded. Based on the Federal criteria noted above for unions, these California systems are “endangered”. The steps taken to save these programs include new sales taxes, increased contributions for personnel, 50% increase in mandated contributions. But reforming the system has been tried and the courts refused.

San Jose and San Diego voted for pension reform, both with 70% of the vote. The unions went to court and the major portions of the reforms were thrown out. Governor Schwarzenegger tried this, and his efforts failed. Governor Brown passed legislation to reform the system—three years later most of his reforms have been repealed.

To fix the system will take a voters revolt. They need to refuse to increase taxes or vote for legislators that demand higher taxes. Voters and covered personnel need to be honestly informed as to the financial status of the two government pension systems. The most important reform would be to force government, at all levels to put out yearly reports detailing the unfunded liabilities and the numerous tax and program sources of their funding.

Either reform or collapse. The people of California and our workers deserve a better system.

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Stephen Frank

Stephen Frank

Stephen Frank: Is the the publisher and editor of the California Political News and Views.  Mr. Frank speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows and is a full time political consultant. http://capoliticalnews.com/

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