Eber: Cities bit the bullet for CalPERS failures


By Richard Eber, California Political News and Views  

On the eve of the Democratic Party Convention, California’s Lt. Governor Gavin Newsom in a plea for contributions for his campaign to replace Governor Jerry Brown in 2018 asked fellow progressives what issues were most important to them.

At the top of his list was making health care accessible to all, supporting Planned Parenthood, affordable education, protecting the planet from climate change and opposing the immigration policies of Donald Trump.  Almost as an afterthought Newsom suggested investing in infrastructure and creating better jobs.  As might be expected, there wasn’t a clue of how to pay for any of this.

Most notably, missing from Newsom’s list were concerns for California’s future with the shortfall of public employee pension funds available from their Administrator CalPERS and CalSTRS.

It might not be a big deal to the State of California as indicated by Jerry Brown loaning 6 billion dollars to the pension funds to ease the immediate burden to other governmental agencies.  At least theoretically, the money has to be paid back (much like credit card debt). But in reality this will likely never happen. As often happens with the operations of the state, Peter is robbed to pay Paul.

This conclusion was reached with critics of the recent gasoline tax and vehicle registration hikes engineered by the Governor under SB-1 to perform infrastructure improvements. They believe this tax increase is in fact a transfer fee to booster mounting pension deficits during the next five years.

Unfortunately, City governments throughout the state don’t have the latitude of transferring tax payer dollars, from one account into another.  They must actually pay for the shortfall of Caltrans flawed investments.

In the past 8 years the agency  has lost or broke even half the time.  The worse year was 2009 when they lost 24% for the year mostly from defaulted real estate loans. In 2015 when the stock market was booming CalSTERS was making only 2.4%  Overall during this period the pension money was making less than 1/3 of what they expected to do.  The end result of this has been their clients (governmental agencies) going into the hole.

Were this to have occurred on hated Wall Street, CalPERS  managers would be fired and replaced.  But since this agency is a civil service entity, their failures are considered to be no more serious than a bad hair day.

Because of  CalPERS  pitaful performance,  Governor Brown lowered the expected annual return of the State employee pension funds to about 7%.  These adverse developments have resulted in muncipal governments  being asked to make up the difference.

As an example the City of Anaheim is expected to pony up for their civil service employees from 23,787,214 in 2017-18 to 39,505,875 by 2020-21. Mid-size Concord in Northern California the story is pretty much the same with over 2.2 million extra owed to CalPERS.  The news gets worse as these totals don’t include the extra money both cities must pay for law enforcement pensions which is more than double of these totals.

The news gets worse for CalPERS.  During the last year the amount of assets of virtually every client has declined by approximately 3%.  If this pattern continues, there won’t be enough funds to pay retirees.

While cities and public agencies are being asked to put in extra funds for their employees pensions, they have a limited amount of options to make up the shortfall. This includes:

  1. Reduce government services and employees to subsidize additional retirement payments.
  2. Raise local taxes once again to bail out the State.
  3. Ask city employees to increase their monetary contributions to CalPERS while reducing their take home pay.

These alternatives generally come under the category of Hobson’s choice (What would you prefer the firing squad or lethal injection).

Trying to reduce spending on a local level is painful to do at any time but doing so to pay for retirees is a difficult task for city council’s to impose on their constituents. This is especially true today as tax payers have been forced to increase their local tax contributions during in the past decade to make up for less revenue returned to cities by the state. They may be reluctant to have history repeat itself.

This leaves us with asking government employees to put more money in their own pension programs. Such a strategy has proven to be unpopular with labor unions when cities and governmental agencies throughout the state have tried to adjust pension plans of existing workers; they have been rebuffed by the courts each time they have tried to do this.

Typical is what occurred in San Diego, when the City Council passed legislation reducing pension benefits. Later, a court ruled that they did not have the authority to act unilaterally as adjusting the contracts of civil service employees must be determined by the collective bargaining process.

The only way that restructuring of pension plans has been allowed is by changing the terms of benefit packages for new employees on what has been called a “two tier” system.

At the forefront of pension reform in the Golden State is former San Jose Mayor Chuck Reed who was unsuccessful in placing an initiative on the ballet in 2016.  Next year he expects to be successful in putting pension reform before voters.  But it remains to be seen if the measure will be passed and even if it does will the liberal courts in California rule the people’s will to be  considered  unconstitutional once again?

This sad state of affairs in California should not be blamed on the ruling Democratic government.  After all, the strongest supporters of the Progressive’s who have a super majority in both houses of the legislature, are public employee unions. Why would Democratic office holders in Sacramento ever consider turning their backs on their loyal followers who faithfully keep them in power each election cycle.

While the electorate is asked to blame the Koch Brothers, Donald Trump, and Big Business for the estimated 1.4 trillion in pension fund deficits in California, a good hard look in the mirror might be in order.  At the present time with emphasis in the mass media being placed on hatred of the President, concern for undocumented residents, climate change, increasing governmental regulations and questionable laws pertaining to social issues, cities going broke is nowhere to be found on their radar screens.

Perhaps the citizens of California need the services of a “reality coordinator” to set them straight. This task was previously performed by the Republican Party that used to oppose reckless spending and expansion of wasteful governmental programs to keep a balance that all Democracies require to maintain sanity.

Now they are virtually invisible fighting the good fight.

Perhaps rock bottom has to take place before anything is done. When a building permit  to add on a bathroom costs $5,000 and it is known most of the cost is for paying pension deficits, a general wake-up call might be heard by California voters. Perhaps they will ask why public employees deserve pension benefits that dwarf what is provided in the private sector?

In the meantime Gavin Newsome, Kevin De Leon, Kamala Harris, and their progressive buddies can proudly proclaim that their leftist agenda is working even if the rest of us are going broke making their Marxist visions coming true.


Richard Eber studied journalism at the University of Oregon. He writes about politics, culture, education restaurants, and was former city and sports editor of UCSB Daily. Richard is president of Amerasa Rapid Transit, a specialized freight forwarder.

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