The Changing Times

Taxpayers should be concerned about their money being sent to Calpers each year to fund employee pensions without stringent oversight on their behalf. Calpers has grown in riches and power; their directives are given priority by the legislature and their actions control municipalities budgets and taxpayers money. The powerful in Sacramento; unions, the legislature and Calpers have co-existed in harmony, each benefiting the other. The 13 board members of Calpers are chosen by a variety of individuals; however, there are no members or electors from taxpayer or business groups. Business describes Calpers as having a pro-labor agenda, which benefits the special interest groups comprised of the powerful in Sacramento.

The taxpayers deserve an audit of the $80Million of their money being sent to Calpers yearly. If Long Beach officials are monitoring their activity, it should be accessible to the taxpayers. Currently, the people are isolated from any knowledge or control of their money. No reasonable person would hire and entrust an investment manager to invest their money without oversight and accountability, and yet that is what City Hall has expected of the taxpayers, who pay 90% of the pension costs. They have forgotten whose money it is!

Not only is transparency needed at Calpers, it is also needed at City Hall. The citizens have no access to labor negotiations, but the City is able to indebt them in the form of pension obligation bonds and smoothing, thereby increasing pension costs. Our City Manager and the Unions negotiate behind closed doors, while the taxpayers are left in the dark, but are expected to pay the bill without any input. Pension costs are rising at such a fast pace, no minor reforms of pensions, or cuts in services will fix the problem. Since 2000, pension costs for the General Fund alone have increased from $8Million/yr. to $48Million/yr., a 600% increase, while revenues have increased a mere17% during the same10 year period. These steep increases will continue in the next three years and beyond.

The actions of the Long Beach City Council in 2002 were inexcusable, and bordered on ethics violations and conflict of interest. Whether the City Council was following the recommendations of the City Manager or Calipers, they never considered the affect their decisions would have on the taxpayers; therefore they could be reckless with their actions. The Long Beach City Council in 2002 showed nothing but indifference toward the taxpayers by not insisting on their own actuary, instead of following the recommendations of the City Manager and Calipers, who did not consider ‘conflict of interest’ a problem. They did what was best for their own self interest, not considering the consequences of their actions. In fact, Calipers defends ‘conflict of interest’ as if it were standard practice. Looking back at the 2002 Long Beach City Council, we had business owners and an attorney on the council, and yet the vote to enhance the pensions was 9-0. It is hard to believe that no one on the 2002 City Council questioned the directive of the City Manager to enhance the pensions or questioned the costs of retroactive pensions, while retirement ages were being lowered, and pension formulas were being enhanced.

Former Governor Gray Davis, who signed legislation, allowing the increases to go forward, is now quoted as saying, “The evidence seemed to suggest the state was wealthy enough to afford it," he said. "It was part ideology and part math and the point is the math was wrong big time." “But during the current situation, where a deep recession has been followed by a slow, sickly economic recovery, Davis said it was time to scale back. Pension reform is essential. We just can’t afford the benefits that have been promised because all the actuarial studies turned out to be wildly optimistic,” he said. “We have no choice now and if I was governor, I would be doing exactly what Arnold is trying to do, which is require people to contribute more to their pensions.” “Pension reform is going to occur, because people understand that elected officials and state employees cannot live demonstrably better than the rest of California.” Spoken like a true politician – Mr. Davis finally admits his decisions were based on ideology, or more appropriately put, union ties. Former Governor Davis and all others associated with the spike in pensions were nothing less than reckless, out to protect their political careers and own self interest. An admission by former Governor Davis that his signature on both SB 400 and AB 616 was based on ideology is a declaration of his irresponsible behavior and partisan politics at its worst. The fact that the ‘math was wrong’ is indisputable, something that anyone with high school mathematics would have known. He should have realized the predictions were ill advised by special interest groups.

The Director of External Affairs for Calpers, Patricia Macht, defends ‘special interest’ votes by claiming a recent Supreme Court decision says: “there is no conflict of interest when pension board members make decisions that benefit a broad, large group of people, similar to legislators who make decisions that benefit all of the state’s residents, including themselves.” Calpers does not benefit all the people, it only represents the employees and their own self interest! Their investment and placement managers are currently being investigated by current Attorney General Brown, and a former chief executive and former board member are being sued by the state. Calpers is a mini Wall Street set up for one purpose, to grant benefits to public employees. In order to meet its’ ever increasing monetary obligations, Calpers has become lax in the oversight of its investment and placement managers. The recent investigation of Wall Street by Congress should be followed by a thorough investigation of Calipers and pension funds alike.

As reported in the LA Times, Ms. Macht also defends luxury travel by Calpers’ top investment staff, claiming, “they did not have to disclose the payments, because the luxury travel was part of Calipers’ contracts with the investment firms”. Calpers has never allowed those contracts to be made public, arguing that they contain trade secrets”. The state’s pension fund allowed its top investment staff to accept private jet trips around the world and other luxury travel with financial firms with whom they were doing business, without disclosing any of the trips publicly. History does repeat itself – Luxury travel is not new to Calpers investors and placement managers. In 1998, it was discovered that several Board members were taking expense paid trips and other gifts from people trying to do business with Calpers. As a taxpayer and money supplier for Calpers investments, we should be allowed access to these records and given an account of our money.

Calpers is run by the same mind set as those on Wall Street. How Calpers invest taxpayer money has become a problem that can only be solved with strict oversight. Because Long Beach cannot provide the necessary controls needed to protect the taxpayer, the City should stop sending our money to Calpers and let the employees handle their own investments through a 401K Plan. The taxpayers have no say or management powers over Calpers' investments, so they should no longer be put at risk for paying 90% of the pension cost for employees and left vulnerable for their losses.

Calpers did not for see the Real-Estate Bubble and the Tech-Bubble, and have moved towards more risky investments in the past years to make up for their losses. Over the past ten years, per Calipers website, they averaged a return of 2%, instead of the7.75% projected return. Most money managers and economist think the 7.75% return is too high, and a more realistic return in the future years should be adjusted to reflect the realities of the new world economy, more on the order of 4%. Long Beach and other cities have an obligation to monitor Calpers investments, until such time the taxpayers decide to change from Calpers to a 401K Plan through a ballot initiative. Meanwhile, the City is obligated to protect the taxpayers; anything less is unacceptable. The focus cannot continue to be on the employees in lieu of what is best for the 500,000 citizens of Long Beach.

The problem associated with becoming too large and powerful is that it invites imprudent behavior. Managing a huge portfolio, like Calpers, becomes too complex to properly oversee. Placement agents are paid Millions a year of taxpayer money to get their clients in front of Calpers’ investment managers to become part of their portfolio. If it is found, during the current investigation, that investment decisions by Calpers’ fund managers were again influenced by bribes, it would continue to erode the trust of the taxpayers, and an appropriate time to end the relationship.

The apathetic behavior of Calpers towards the taxpayers complements the actions of Jerry Brown during his term as Governor. In 1978, then Governor Brown signed the Dills Act, which gave public employees the right to collective bargaining.

The taxpayers and municipalities have been paying for the indiscretion of Mr. Brown and his legislature ever since. Candidate for Governor, Jerry Brown says that if elected he would consider overhauling public employee pension programs while opposing any move to privatize them.

In speaking to SEIU members, the Sacramento Bee reports, populist Brown trumpeted giving state employee’s collective bargaining rights when he first served as governor from 1975 to 1983. "I'm very proud to have created this system that gave workers a choice," he said.
Even though candidate Brown acknowledges the need for pension reform, there will be only so much he can accomplish while maintaining the support of labor. Real reform will have to come through a ballot initiative, because the taxpayers can no longer trust elected officials to do the right thing.

To quote the chief actuary at Calpers in 2009, “I don’t want to sugarcoat anything,” Seeling said. “We are facing decades without significant turnarounds in assets, decades of what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan. We’ve got to find some other solutions.”

Some of the more damaging facts come from former Calpers board members and a former assemblyman. In1984, the voters narrowly approved Proposition 21, a revised version of Proposition 6, which was originally struck down. Proposition 21 lifted a cap, allowing Calpers’ to invest more than the previous limit of 25% of their funds in stocks, leaving the rest in bonds and other predictable yield investments. That gave Calpers the green light, allowing them access to markets where their portfolio could grow by taking risks. Proposition 21 was chaired by Robert Carlson, the Calpers board president, now retired. Per Calpensions, Mr. Carlson is quoted as saying, “studies showed that investing in all asset classes yielded higher returns”. “Other funds across the U.S. had unlimited authority and some had limited authority,” he said.

“Calpers fund, about $32 billion in 1984, made big gains under the policy of letting laymen, acting as prudent fiduciaries with advice from experts, determine the asset classes”, said Carlson.
He believed the change would be more successful than letting “politicians dictate” the amount that could be invested in stocks. In his view, Proposition 6 failed because it specified a percentage for stocks, rather than allowing flexibility.

The ballot pamphlet arguments for Propositions 21 and 6 were signed by former Assemblyman Larry Stirling, R-San Diego. The former city councilman said much of his motivation came from the San Diego retirement system.

He said the San Diego pension fund was getting minimal investment earnings, sometimes as little as one percent, from institutions that were loaning the money to others at a much higher rate, sometimes more than 5 percent.

Stirling said he wanted to end the profitable “arbitrage” by the lenders, get a better yield for the pension funds to aid retirees and taxpayers, and strengthen the “trust” status of pension funds to prevent raids by politicians seeking money to balance their budgets.

What he did not foresee, said Stirling, is that the financial health of the pension funds resulting from Proposition 21 would be used to approve “unsustainable” increases in pension benefits.
“You learn a lesson,” he said, “and the lesson is there is nobody enforcing the prudent man rule.”

The ballot pamphlet argument for Proposition 21 said pension trustees would be “personally liable” if they fail to exercise the care expected of a “prudent person” knowledgeable in investment matters.

Mr. Loren Kaye, Cabinet Secretary for former Governor Wilson, reports on the attempts to reform pensions even in1991 by creating a two-tier system. It would have decreased benefits, but also lowered the cost for the employees. It lasted until Davis got into office and he and the legislature retroactively dismantled the two-tier system and put those employees back into the first tier. Former Governor Davis and the Legislature did not stop there; they proceeded to increase the benefits even further in1999 and 2001. Per Mr. Kaye, “now instead of paying $650 million as estimated at the time by Calipers, state taxpayers will pay $3.5 billion this fiscal year. The result: rather than providing a sustainable and adequate retirement plan for a growing state workforce, we are facing a crisis of monumental proportions that threatens vital education, public safety and safety net programs”. “The 1991 law passed by the Legislature to implement a two tier system was over the objections of Calpers. The Board and its union allies then qualified and passed a constitutional amendment to ensure all policy decisions, even by the Legislature are ratified by the Calpers Board. It isn't pretty, but that's the world today.”

It has taken former Assembly Speaker Willie Brown to speak up and tell the truth about how labor has manipulated the Legislature into implementing their demands.

Former Speaker Brown, one of the strongest supporters of Proposition 21, wrote about the out of control civil service in his weekly column in the San Francisco Chronicle. Mr. Brown is quoted as saying, “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life,” Brown asserted. “But, we politicians -– pushed by our friends in labor -- gradually expanded pay and benefits…while keeping the job protections and layering on incredibly generous retirement packages….This is politically unpopular and potentially even career suicide…but at some point, someone is going to have to get honest about that fact.”

Former Los Angeles Mayor Riordan is also not standing on the sidelines as he sees his city and state being destroyed by those unwilling to take action on pension costs. To quote former Los Angeles Mayor Richard Riordan, “pension costs could cause the city to run out of money to pay for parks, libraries and other services within two years”.

The former mayor made his comments at a gathering of activists, from across the political spectrum, looking to push out the six City Council members in Los Angeles who are running for reelection in March.

The group, known as L.A. Clean Sweep, held a launch party recently to recruit candidates and raise money for challenges to council members Paul Krekorian, Tom LaBonge, Tony Cardenas, Bernard Parks, Herb Wesson and Jose Huizar.

Riordan, who left office in 2001, said he hadn't made up his mind on whether he wants to get rid of the council members. But he told the crowd that the mayor and council have done little to address the spiraling cost of the city's retirement system.

“If they don’t do anything … in the next year or two, they’re going to have to close down the parks, close down the libraries, stop fixing streets,” he said.

The revelations in the City of Bell and Vernon are just a symptom of what has been going wrong for years at taxpayer’s expense. An organization, Calpers, who did not responsibly raise red flags when managers in Bell and Vernon were collecting salaries that are unheard of in municipal government, should not be the organization where taxpayers are obligated to put their money and faith. No matter what reforms are put in place to protect the taxpayers in the future, there will be a new generation of dishonest with greedy ambitions, because of the human nature of man.

There is no reason that makes sense for the City of Long Beach to continue with a Calpers Pension Plan. We cannot count on our representatives in the Legislature or at City Hall to oversee the taxpayer’s interest when it comes to making sound fiduciary decisions, especially when there is ongoing pressure from the unions at the municipal level, and pressure on Calpers to make greater returns to pay for their unfunded liabilities. The total unfunded pension liabilities in California amount to $500 Billion. The unfunded liability for Calpers comes from their losses during the recession and the overly generous pension enhancements of 1999 and 2001; although a major portion can be attributed to Calpers’ risky investments.

During these tough budget negotiations, it is vital that the City not allow itself to give concessions that do not move towards full and complete pension reform. A big first step is to have the employees share fairly in the pension costs and increase the retirement ages. The next step is to reduce the outlandish salaries and do away with COLA’s for retirees. Colorado and Minnesota have done away with retiree COLA’s. It would reduce the rise in the number of employees in the $100,000 Retirement Club and those moving up the ladder. Eventually, the City will have to face up to its’ $187Million unfunded liability for banked sick leave and supplemental health care costs and eliminate that benefit as well.

Long Beach will not flourish and be able to serve the public in the future unless bold measures are taken, but the City Council has refused to face reality and take charge of the issue.

Throughout the U.S., there is a $3Trillion unfunded pension liability for state governments. We have left our cities to decay in favor of those working for government, and we have foolishly indebted our children. These are changing times --- and the time to act to save our children’s future is now.

Kathy Ryan and Tom Stout
Long Beach Taxpayers Association

We Need your help in reforming the system....

LONG BEACH TAXPAYERS ASSOC. MEETING
NOTE: CHANGE OF VENUE FOR MEETING.

Dr. Martha Flores Gibson, candidate for the 54th Assembly District will be the speaker at the September meeting of Long Beach Taxpayers Association.

Candidate Gibson has her doctorate in educational leadership and a masters in social work. Dr. Gibson has worked in the Long Beach Unified School District for over 20 years, providing support to teachers, counselors, principals and administrators to increase student achievement for all students.

We are all searching for leadership in those we elect to help lead California during these troubling financial times. Dr. Gibson will present her ideas for a ‘Better California’, and her plans to lead California to a more prosperous future during the next decade. A question and answer period will follow Dr. Gibson’s presentation.

Be an informed voter and…

Join us at 7:00 p.m., Thursday September 16th at the office of David Wagner Kitchen & Bath Design Center, 1800 Palo Verde Ave., Ste. E. Long Beach, 90815 (Corner of Atherton and Palo Verde, above FedEX complex)

RSVP: Kathy Ryan
Long Beach Taxpayers Association
(562) 494-8808 or (562) 597-1540
or e-mail: kathyryan43@hotmail.com
Refreshments will be served.

How to Fix California's Public Pension Crisis
How the state's public pension system broke and how to fix it

Adam Summers
June 3, 2010

"California’s $19 billion budget deficit seems to worsen by the day, but an even larger financial crisis is brewing in the state’s pension system. Over the last two decades, state lawmakers have bestowed massive pension and benefit increases upon government workers. Unfortunately, taxpayers are now getting the bills for these handouts. Recent studies estimate California has $500 billion in unfunded pension liabilities. My new Reason Foundation report details how the state got into this pension crisis and how to fix it. This study highlights numerous problems, including:

California’s public pension and retiree health and dental care expenditures have quintupled since fiscal year 1998-99, from about $1 billion to $5 billion this year. Retirement spending is expected to triple again - to $15 billion - within the next decade.

Since 1998, California’s state workforce has grown by 31 percent and taxpayers now pay for more than 356,000 state workers.
Since 2008, California has added over 13,000 employees to the state payroll during this recession.

California taxpayers are paying pensions that exceed $100,000 a year to over 12,000 former state and local government workers, including more than 9,000 state and local employees covered by the California Public Employees’ Retirement System (CalPERS) and over 3,000 former school administrators or teachers covered under the California State Teachers’ Retirement System (CalSTRS).

In the 1960s, just one out of every 20 California state workers received “public safety” pensions. Now, one out of three state workers receives the lavish public safety benefits originally intended for the firefighters and police officers who put themselves in harm’s way.

California taxpayers pay 85 percent of the health care premiums for most active state workers, 100 percent of the health care costs for most state retirees and 90 percent of health care costs for their families.

CalPERS reported a loss of $56.2 billion for the fiscal year that ended June 30, 2009. CalSTRS posted a loss of $43.4 billion in 2009. California taxpayers are on the hook for funding shortfalls not made up by pension fund performance or employee contributions, so taxpayers will be paying more to make up for these pension investment losses.

The public pension benefit increases passed in 1999 via SB 400, which offered retroactive benefit increases to government workers, were supposed to cost $650 million in 2010. That figure was based on CalPERS’s assessment of its “superior return on system assets.” The actual costs of SB 400 to taxpayers: $3.1 billion this fiscal year and $3.5 billion next year. SB 400 passed by a 70-7 margin in the Assembly, and unanimously (39-0) in the Senate.

California is the only state in the nation that uses just one year – an employee’s final year salary – to determine their long-term pension benefits. Most states use three- or five-year periods to determine pension benefits, making their systems less susceptible to pension spiking.

SB 2465, which implemented the one-year final salary rule in 1990, has cost taxpayers more than $100 million a year. It was supposed to cost “only” $63 million per year.
Recommendations

This study makes several recommendations to improve the state pension system and reduce the burden on taxpayers:

Perform an evaluation of wages and benefits offered in the private sector and adjust all future state employee compensation so that it is in line with this standard. Repeat such an evaluation every five years.

Close the defined-benefit pension plans for state employees and enroll all new employees in defined-contribution plans for pensions and other post-employment benefits, such as retiree health care and dental benefits.

Adopt more conservative investment strategies and more conservative discount rate assumptions for current employees’ defined-benefit plans.

Begin pre-funding post-employment benefits liabilities for employees already in the current system, with the ultimate goal to achieve full funding.

Adopt an amendment to the state constitution requiring all future government employee benefit increases to be ratified by the state’s voters.

Adopt an amendment to the state constitution prohibiting retroactive benefit increases.

Eliminate “air-time” purchases to reduce pension spiking and discourage early retirement.

Require employees who have previously retired to forfeit their retirement checks while they are on the state’s payroll to avoid double-dipping, as over 5,000 former state employees are doing today.

California’s pension and retiree health care benefits are unaffordable and unsustainable. Governor Arnold Schwarzenegger and politicians, from both sides of the political aisle, are now calling for action on this tremendous problem. They’d better hurry. Taxpayers are sick and tired of being forced to pay ever-greater amounts of their hard-earned money towards increasingly generous benefits for government employees, all while their own retirement accounts shrink amidst the recession. To avoid bankruptcy, governments at all levels are going to have to switch from defined-benefit pensions to 401(k)-style defined-contribution"

States eye MN pension lawsuit

Posted By admin On August 24, 2010

When a Minnesota lawsuit – the first of three in the nation challenging state legislation changing current public pension benefits – hits court Sept. 15, every other state will be watching. The outcome could lead others to follow or stop a movement in its tracks.

By Jonathan Miltimore

A legal battle in Minnesota next month will test the ability of states to change benefits of current retirees. The outcome could prompt other cash-strapped states to follow suit or grind a fleeting movement to a sharp halt.

“I think a lot of people will be closely following what happens in Minnesota,” said Katie Kaufmanis, director of communications for Colorado Public Employees' Retirement System.
Spurred by the deepest recession since the Great Depression, states around the country are scaling back retirement benefits estimated to be at least $1 trillion and possibly more than $8 trillion under funded.

While most states that overhauled pensions trimmed benefits for future hires, Minnesota, Colorado and South Dakota passed legislation that trimmed cost of living adjustments for current recipients.

Minnesota lowered its 2.5 percent COLA to a rate ranging from 1 to 2 percent, depending on the plan, for the majority of the 65,000 retirees, and suspended COLA for retirees in the Teachers Retirement Association for two years, according to the lawsuit. Plans are scheduled to resume the 2.5 percent rate once they are 90 percent funded.

Colorado suspended its 3.5 percent COLA earlier this year, as state projections [1] showed its retirement system bankrupt by 2029 even if the system met it’s 8.5 percent assumed return rate, while South Dakota reduced its COLA [2] from 3.1 percent to 2.1 percent in July.

Retirees in all three states have filed suit, and first on the docket is Minnesota.

The lawsuit contends that plaintiffs, upon retiring, “acquired vested rights to their pensions, including the right to statutory post-retirement adjustments to their pension benefits.”
State officials say the solvency of state pensions is at stake.

“The state passed legislation based on the severe drop in the market,” Minnesota State Retirement System Executive Director Dave Bergstrom said. “We wanted to make sure our plans are sustainable.”

The lawsuit comes as states and municipalities are scrambling to shore up budget deficits, with some proposing selling off assets such as zoos, parking lots, airports and water supplies to plug budget holes, according to the Wall Street Journal. [3]

With states facing a $90 billion budget gap next year and ballooning long-term pension obligations, officials in several states indicated they would be watching the outcome in Minnesota. But some pension experts say the case may not have a sweeping affect, whatever its outcome.

“I’m not sure how much can be learned from one state to another,” said Olivia S. Mitchell, Director of the Pension Research Council at the Wharton school.

Mitchell said several states have “ironclad” constitutions that preclude adjustments once a recipient begins drawing benefits. From her experience in corporate pension suits, Mitchell said cases often hinge on the finer points in legal documents.

“This might largely depend on the contracts themselves and the language used,” Mitchell said.
Richard Maus, a retired middle and high school teacher who lives in Northfield, MN, said he believes retroactive adjustments to his retirement plan are unfair.

“Basically I just figured a contract was a contract,” said Maus, a plaintiff who worked primarily in the Robbinsdale school area and retired after 26 years.
Mitchell said exposing retirees to inflation can result in significant wage losses over time, particularly for those who live a long time.

“It has the perverse effect of cutting benefits for those who are most likely to feel the effects the greatest,” Mitchell said. “Then again, at least they get something; in corporate America it’s usually nothing at all.”

The trial is scheduled for September 15 and will be heard by Judge Gregg E. Johnson.

An attorney for the plaintiffs did not return a voice mail left Tuesday.
From John Curry, August 25, 2010

Regulators Should Scrutinize CalPERS
Sep 06, 2010
Union-Tribune Editorial Board


"This editorial page has on several occasions observed that the California Public Employees’ Retirement System’s own financial reporting doesn’t live up to the high standards it demands of the corporations it invests in. CalPERS dismisses this and just about all criticism. But what’s happening in another state with a nighmarishly underfunded pension system suggests CalPERS may yet have the day of reckoning that it deserves.

In a case with similarities to the action it brought against San Diego over the city’s pension deceit in 2002 and 2003, the Securities and Exchange Commission formally charged New Jersey with deceiving buyers of state bonds, saying “its misrepresentations and omissions created the fiscal illusion that [the state’s two pension funds] were being adequately funded.” New Jersey settled the charges without admitting guilt. But the SEC’s action was a welcome reminder that state governments and their agencies have an obligation to be honest in their financial affairs.

As assemblyman-turned-Stanford professor Joe Nation pointed out this week, CalPERS’ misrepresentations to the Legislature in 1999 appear as egregious as what was done in New Jersey.

In lobbying for SB 400 – a bill that ended up being the vehicle for enormous retroactive pension increases for hundreds of thousands of public employees – CalPERS put out a 17-page brochure that made the hallucinatory assertion that such a vast gift of public funds would have little or no long-term cost for taxpayers. But as former U-T reporter Ed Mendel revealed in July on his calpensions.com blog, at the same time CalPERS put out the brochure, its actuaries were warning that if CalPERS’ investment returns flagged, SB 400 could end up costing the state nearly $4 billion in 2010-11. That’s pretty much what happened.SEC, come on down. CalPERS must be held accountable for this public policy atrocity."

Best state pension system reform: Get rid of it
By Chris Powell
Published: Thursday, September 2, 2010 9:52 AM EDT

"For years Connecticut state government has been funding itself by raiding the state employee pension fund, an abuse that worsened by $315 million in the last two years as the Rell administration and General Assembly could not bring themselves to cut spending to match the decline in tax revenue. As a result the pension fund has only about half the assets considered necessary to fund its long-term obligations.

The state employee unions haven't minded this, since pension obligations are contractual and it's state government's problem, not the problem of retirees, to figure out how to pay them if the pension fund runs dry. In that case the pension benefits will just have to be taken out of ordinary tax receipts.

Connecticut residents may think that they maintain their government to promote the general welfare, but as a matter of law they couldn't be more wrong. For the only legal obligation state government has is to its own employees. The law does not guarantee even basics like police protection, medical care, roads, or any particular quality of schooling. No, under the law, every purpose of state government is secondary to state government's obligation to its employees. State government has given them contracts; taxpayers have gotten only the obligation to pay for those contracts.

If this isn't changed, eventually state government will function only as a pension and benefit society for its employees. Already that is the only function state government performs well, and state and municipal governments lately have been cannibalizing themselves, reducing services to the public, so that the compensation of the government class can avoid reduction during hard times.

Throughout her six years in office Governor Rell evaded this issue. But now that she is retiring in a few months and can escape the political consequences, the other day her deputy budget secretary, Michael J. Cicchetti of the state Office of Policy and Management, proposed a few modest pension system reforms to the Post-Employment Benefits Commission, which he chairs:

-- Increase the pension fund contributions required from state employees.

-- Raise from 62 to 65 the retirement age for state employees hired after 1984 and increase pension penalties for early retirement.

-- Calculate pensions according to an employee's last five years of earnings instead of his last three as is now done.

-- Give new state employees 401(k) retirement savings plans instead of the luxurious defined-benefit plans current state employees have, plans that hardly any private-sector workers have anymore.

-- Require all state employees, not just, as at present, those hired in the last five years, to contribute 3 percent of their pay toward the costs of medical insurance benefits for retirees and their dependents, costs that are running at nearly a half billion dollars annually and are expected to increase rapidly, state government's medical insurance being so luxurious.

-- Restrict the portability of state employee medical insurance benefits so that they are available only to people who retire directly from state government jobs after 10 years, not to people who work 10 years for the state and then work elsewhere for a while.

These reforms would still leave state employees light years ahead of most taxpayers. But the state employee unions are in business to preserve their advantages, and since these advantages are matters of contract, state government has given the unions veto power over reforms. A union representative on the pension commission, Salvatore Luciano, urges keeping benefits as they are and paying for them by taxing the rich more, state employees thinking that they have a better claim to everyone else's income.

But most Connecticut residents who are not employed by government may be tired of hearing that government employees deserve their superior salaries and benefits because they are so much more skilled and educated than taxpayers when, in fact, they are only more politically influential, having gotten control of a political party. In any case Connecticut no longer can afford the exemption government employees have from the financial pressures endured by most workers, most workers having lousy pensions and indifferent medical insurance if any at all and always being subject to layoff, not having the job guarantees recently given to state employees.

Generous pension and insurance benefits were given to state employees to compensate for what used to be mediocre salaries. Now that those salaries are superior, there's no economic justification for a state employee pension system anymore, just a political one. The best reform of the system would be to get rid of it."



Chris Powell is managing editor of the Journal Inquirer.

Posted by: Tom Stout, LBTA

California once again leads the nation with a $26 billion budget deficit plus an unfunded pension obligation of $500 billion. Its current financial structure is clearly unsustainable. It has an operational structure that in ungovernable with often duplicative agencies, some collecting less in tax revenue than the agencies spend on collection. Wikipedia lists 500 existing public agencies for the State of California. California can no longer afford such a luxury. It must deconstruct these bloated inefficient government agencies, and rid itself of their chairman, staff, offices, cars, pensions and the overhead that such excess represents. A $26 billion dollar deficit is not something that can be corrected with a wage freeze or job furloughs. Bold leadership can lead California to deconstruct its 500 agencies down to 100 functional organizations. California is a classic example of what must change in the coming Great Deconstruction.


A Tsunami Approaches: The Beginning of the Great Deconstruction

by Robert J. Cristiano 09/05/2010

In the distant horizon, a giant wave is building. There are some who recognized the swell and raised the alarm. There are others who deny the possibility of such a wave. Most remain blissfully unaware. The wave is building and when it reaches our shores, it will hit with the force of a tsunami.

The wave is propelled by government spending and crested with unfunded pension obligations. The Pew Center on the States wrote in The Trillion Dollar Gap (February 2010), “A $1 trillion gap exists between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay for them.”

Like any tsunami, the wave began long ago and very far out to sea. Thirty years ago the vast majority of union workers were in the private sector. Public employees in unions reached parity with private sector members by 2009. This was aided in part by campaign contributions from the unions to elect Democratic Party candidates and generous pay packages and retirement plans passed by those same politicians in return.

By 2010, the general public received a series of shocks. The first shock was the jobless recovery of the Great Recession that cost 8 million jobs. Most of the job losses occurred in the private sector yet the majority of the $800 billion Stimulus Bill went to “save and create” public sector employment. The second shock was learning that civil servants earned twice that of private workers. According to the Bureau of Economic Analysis, Federal workers received average pay and benefits of $123,049 while private workers made $61,051 in total compensation. The third shock was revelation of incredible retirement plans doled out by politicians since 1999. In 2002, California passed SB 183 that allowed police and safety workers to retire after 30 years on the job with 3% of salary for each year of service, or 90% of their last year’s pay. During the Great Recession, fireman began retiring with $150,000 pensions at age 52 despite a life expectancy approaching 80. In Orange County CA, lifeguards, deemed safety workers, retired with $147,000 annual pensions. The Orange County sheriff, recently convicted of witness tampering, will receive $215,000 annually while in jail. Bob Citron, the Treasurer of Orange County who pushed the county into bankruptcy in the 1990s, receives a pension of $150,000 per year. A tsunami of anger and resentment is building.

As the wave approaches, economists issue thick reports with ominous names like “The Gathering Storm” (Reason Foundation) advising us that the pension obligations we have created are unsustainable. They report cities and states cannot economically allow workers to retire at 52 when they have a life expectancy of 26 years of retirement. They simply cannot pay for these pensions with existing revenue. Services will go down and taxes will go up to pay for these generous pension obligations. Orange County’s CEO, Thomas G. Mauk, predicted that pension requirements in 2014 will take 84% of the county’s law enforcement payroll. It is already 50% today. To exacerbate the problem, The Great Recession forced most states into budget deficits as their revenues decline. For FY2010, every state except Montana and North Dakota has projected a budget deficit. (RedState 3/21/2010).

California once again leads the nation with a $26 billion budget deficit plus an unfunded pension obligation of $500 billion. Its current financial structure is clearly unsustainable. It has an operational structure that in ungovernable with often duplicative agencies, some collecting less in tax revenue than the agencies spend on collection. Wikipedia lists 500 existing public agencies for the State of California. California can no longer afford such a luxury. It must deconstruct these bloated inefficient government agencies, and rid itself of their chairman, staff, offices, cars, pensions and the overhead that such excess represents. A $26 billion dollar deficit is not something that can be corrected with a wage freeze or job furloughs. Bold leadership can lead California to deconstruct its 500 agencies down to 100 functional organizations. California is a classic example of what must change in the coming Great Deconstruction.

One Orange County city has already taken bold steps to correct its $10 million deficit. It may be a model for other cities and states across the country. Internally, it has decided it will not replace any city worker that dies, retires, moves or quits. The city will simply out source the employment to an outside service company and eliminate healthcare requirements and unsustainable pensions. Building inspectors will be out sourced as will city plan checkers, librarians and meter maids. Only essential services like top executives and cops will remain on the city payroll. The city staff will eventually decrease from 220 to approximately 35 personnel. This is the essence of deconstruction.

At the state and local level, the Great Deconstruction has already begun albeit delayed by an infusion of federal stimulus dollars and grants in 2009 and 2010. The federal government must deconstruct as well. It must happen, if only because the revenue is no longer there to sustain all of these often well-intentioned programs. The federal government will not be immune from fiscal reality.

In this sense, the election in November will be a referendum on the very sustainability of our system of government. One party will continue to borrow and spend in order to maintain the 500 agencies in California and the abundance of federal programs. They have not said how long they will be able to borrow money to sustain their system. The other party will try to simply turn off the spigot - now. Either way, one day the money will run out and the inevitable deconstruction will occur.

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The Great Deconstruction is a series written exclusively for New Geography. Future articles will address the impact of The Great Deconstruction at the national, state, county and local levels.

Robert J. Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange County, CA and Director of Special Projects at the Hoag Center for Real Estate & Finance. He has been a successful real estate developer in Newport Beach California for twenty-nine years.

Posted by: Tom Stout, LBTA

The following commentary appeared in the
San Diego Daily Transcript on September 2, 2010:


A defense of Prop. 13 property tax revenues

By Richard Rider

When it comes to gathering sufficient property taxes, Prop. 13 is no problem at all -- except for profligate spenders. Look at the history of our San Diego County -- a history that pretty much reflects the history of property taxes in the urban/suburban counties that hold over 90 percent of California's population.

According to the San Diego County Tax Assessor, in 1977 -- the year before Prop. 13 took effect -- our countywide property tax revenue was about $639 million. For this past June 30 concluding the 2009-10 fiscal year, our county assessor reports revenues of $4.596 billion. For every property tax dollar collected in 1977, the county this last year collected $7.20.

During that time frame, our county population has grown about 85 percent, and inflation has gone up about 260 percent. Hence property tax revenues today are substantially higher than the bloated pre-Prop. 13 year, even after adjusting for inflation and population growth.

According to the Tax Foundation, for 2008, California was ranked 14th highest in per capita property taxes (including commercial) -- the only major tax where we are not ranked in the worst 10 states. But California property taxes per home were the 10th highest in the nation that year (see here and here).

(To see how California ranks against the other states on various taxes and other economic factors, go to RiderBlog.NotLong.com and read the latest updated version of my fact sheet, "Breaking Bad -- California vs. the other states.")

But there's another advantage of Prop. 13 few understand.

It turns out that, under Prop. 13, property tax revenue is far more stable than our other forms of tax revenue. Income tax revenue is plunging, and sales tax collections are dropping.

But property tax revenue seldom goes down at all. Since the year Prop. 13 passed, San Diego County property tax revenue has always gone up -- every year -- until this 2009-10 fiscal year.

The San Diego County assessor reports that real estate property tax revenue for the fiscal year ending June 30, 2010 is down -- but only 1.0 percent. This tiny drop comes in the fourth year of California's real estate meltdown. The year before, real estate property tax revenue was actually up 4.1 percent.

Revenue is up because Prop. 13 has the little-known added benefit of smoothing out real estate property tax revenue from year to year. Most properties this year (generally those purchased prior to 2003) had their property tax go up 2 percent. Add to that the resales, property improvements and new structures (which establish new tax assessment levels), and the revenue stayed rather constant in the teeth of our economic downturn.

Consider what happens without Prop. 13 protection: In the real estate boom years from 1998 through 2005, property taxes would have soared. (Even with the Prop. 13 limitations, San Diego County property tax revenue collection during this period still rose 111 percent.) But then in the last four years, without Prop. 13 our dropping property values would have caused a dramatic plummet in property tax revenues -- revenues that governments would now be hooked on -- just like we see with our volatile sales taxes, and especially with our erratic income tax revenues.

Whatever problems you might think Prop. 13 causes, insufficient property tax revenues is not one of them.

Richard Rider is chairman of the San Diego Tax Fighters.

NOTE: CHANGE OF VENUE FOR MEETING.

Dr. Martha Flores Gibson, candidate for the 54th Assembly District will be the speaker at the September meeting of Long Beach Taxpayers Association.

Candidate Gibson has her doctorate in educational leadership and a masters in social work. Dr. Gibson has worked in the Long Beach Unified School District for over 20 years, providing support to teachers, counselors, principals and administrators to increase student achievement for all students.

We are all searching for leadership in those we elect to help lead California during these troubling financial times. Dr. Gibson will present her ideas for a ‘Better California’, and her plans to lead California to a more prosperous future during the next decade. A question and answer period will follow Dr. Gibson’s presentation.

Be an informed voter and…

Join us at 7:00 p.m., Thursday September 16th at the office of David Wagner Kitchen & Bath Design Center, 1800 Palo Verde Ave., Ste. E. Long Beach, 90815 (Corner of Atherton and Palo Verde, above FedEX complex)

RSVP: Kathy Ryan
Long Beach Taxpayers Association
(562) 494-8808 or (562) 597-1540
or e-mail: kathyryan43@hotmail.com
Refreshments will be served.

In wake of Bell scandal, CalPERS may change pension calculation rules, Jeff Gottlieb and Ruben Vives, L.A. Times

Former City Manager Robert Rizzo's latest contract divided his nearly $800,000 salary between his main job and various city boards. Excluding the side pay could drastically cut his retirement income.

Former Bell City Manager Robert Rizzo and his wife, Eugenia, in 2007. Rizzo's latest contract divided his salary so that about $221,000 came from his job as city administrator and $566,000 came from his work on various city boards, some of which rarely met or did so for only a few minutes.

Continues...

Diana Furchtgott-Roth: No taxpayer bailout for union pensions
By: Diana Furchtgott-Roth
Examiner Columnist
September 2, 2010

Read more at the Washington Examiner:

http://www.washingtonexaminer.com/opinion/columns/No-taxpayer-bailout-for-union-

Jerry Brown says he'd be a frugal governor
Carla Marinucci, Chronicle Political Writer

Jerry Brown, Democratic candidate for governor, discusses his campaign with The Chronicle's editorial board.

(09-03) 19:33 PDT SAN FRANCISCO -- Jerry Brown said Friday that if elected governor he would have to "do things that labor doesn't like," including cutting pension benefits for public employees and asking labor leaders to "put everything on the table" to get California's bloated budget under control.

Continues...

What a great idea! Time has come for the citizens to take back their cities from the politicians. This is a great way to fund infrastructure. Afterall, that is how we expected our taxes to be spent; not on exhorbitant pensions and salaries that have ballooned out of control. It will also give the City the opportunity to cut the real fat, management.

Comments by Kathy Ryan, LBTA

Howard Jarvis Taxpayer Association to fund HB Charter Amendment, August 4th, 2010 posted by Brian Calle

"On June 8th the Huntington Beach City council voted in a 4-3 split for putting charter amendment 617 on the November election ballot that would require 15% of the city’s general fund be spent on infrastructure. If passed, the measure would apparently close a loophole that the city council has been utilizing to forgo a prior vote in 2002 by Surf City residents that was meant to require 15% of the city budget be spent on infrastructure annually. The loophole was made possible when the city attorney offered the opinion that instead those infrastructure funds could be used to pay off city debt. If the charter amendment passes in November, the money would no longer be used for debt service.

Continues...

Drill, Baby, Drill by By Jon Coupal, President HJTA, August 30, 2010

"If you thought this column was about oil, you’re going to be disappointed. Drill is a word that also means a practice or exercise in preparation for the real thing – think fire drill or the endless “drills” conducted on ships to prepare the crew for battle or emergencies. But as it relates to the California Legislature, even this definition is far too charitable.

In Capitol parlance, “drill” is best described as an empty exercise to prove some political point unrelated either to the merits of some legislative act or to the chances that it will actually pass.

With that as a framework for discussion, the odds are very high that Tuesday will bring us a “Budget Drill.” Make no mistake, the sides in the budget battle are still miles apart and, more practically speaking, language hasn’t even been drafted yet. So the chances of actually getting a budget this week remain zero.

Still, the Democrat leadership will apparently put up a budget proposal which, even if it garners a simple majority vote in each house, will fall woefully short of the two-thirds vote necessary to pass a budget. That plan might even include an illegal effort to raise taxes with a simple majority vote similar to the scheme of a few years ago with a convoluted swap between a gas tax and a gas “fee” that would have meant billions in higher taxes. In the Orwellian world of Democrat finance, the billions in higher taxes were not higher taxes because of the label affixed thereto. Governor Schwarzenegger rightfully vetoed that “drill” by the afternoon of the same day it cleared the Legislature.

The motivation behind this budget drill for the tax-and-spend majority party is purely political. They are hoping that this empty exercise will somehow enhance the chances of Proposition 25 passing. This proposal would lower the two-thirds vote to pass a budget to a simple majority as well as have all other kinds of anti-taxpayer ramifications.

While it may be true that a budget drill will focus public attention (however briefly) on the normal state of political dysfunction in California, there is an old saying: Be careful what you wish for. It is just as likely that a drill of this sort will reinforce in voters’ minds that the Democrat agenda is one chock full of higher taxes. Recent polling and actual election results (Blakeslee v. Laird) strongly suggest that the public will react to the song of higher taxes like Simon Cowell reacts to a rank amateur.

For their part, the Republicans may pull a drill of their own. Again, with no hope of passage, they could very well use the Governor’s budget – proposed weeks ago – as a template for a no-tax-hike budget. This would show voters that it is possible to resolve the lack of a budget with a plan that inflicts no more damage to already reeling taxpayers.

In the context of Proposition 25, the two competing budget plans likely to be introduced this week could have an illuminating effect on the debate leading up to the November election. With the legislature as an institution at all-time record low approval ratings, do voters actually believe it is the process that is the problem, or the members of the Legislature themselves? And how will voters react when they find out that it is the politicians (and their special interest paymasters) that put Proposition 25 on the ballot?

For the vast majority of citizens in California, the lack of a budget has few real world consequences. While voters seem resigned to a state of perpetual budget gridlock, the real pain comes from high unemployment, a crushing tax burden and a Kafkaesque regulatory climate. Budget drills do nothing to address the real problems with California but, even at their worst, they may help define which side is closer to the attitudes and values of the voting public in November.

So drill, baby, drill."

Jon Coupal is president of the Howard Jarvis Taxpayers Association -– California's largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers' rights.

Public Sector Pensions: One of the Greatest Ponzi Schemes of all Times by Donna Parrey
8/24/2010 4:44:51 PM by Donna Parrey

"While governors throughout our nation wring their hands over budget deficits, there is one fiscal adjustment that has been routinely ignored … the re-thinking of over-generous public pension plans whose unfunded liabilities present an ever-increasing stumbling block to financial stability. Yet tackling this one issue can begin the important reform work that will have a substantial impact on tomorrow’s taxpayers – our children and grandchildren.

Unfortunately, the only futures being taken into account when these pension policies were put in place were the cushy retirements being created for public sector workers, at the expense of the private sector workers whose tax dollars provide them. Even more unfortunately, those tax dollars have proven to be woefully inadequate for keeping up with such rich plans, meaning more and more debt is being passed to the next generation, with no abatement in sight.

A recent report by the Heartland Institute offers a good illustration of what’s wrong with many of the state pension plans, but these 80 or so plans (some states have one, two or three plans) are just part of the picture. There are over 2,500 state/local pension plans altogether – plans that cover teachers, police, firefighters and other government workers – meaning there are more than 2,400 local pension plans that also need to be addressed. And the unfunded liabilities of these plans are bankrupting our governments.

How did these public sector pension plans get so out of control? The defined benefit plans typically offered by the government (and previously by some private sector employers) have several components to their formula: length of service or age; percent of income replaced; what income is included in the calculation; etc. Public sector employees retire earlier than most private sector workers can AND use a larger base to calculate benefits AND collect those benefits for a longer period of time AND have guaranteed increases AND receive paid healthcare benefits as well (sometimes for a spouse, too!). This combines for an expensive lifetime financial commitment on behalf of the government (meaning courtesy of the taxpayers). What’s more, with earlier retirement, there is a shorter period of time in which to fund these benefits and a longer period of time in which they will need to be paid.

But the story gets even worse. Public sector pension plans take a series of liberties that create an unrealistic financial scenario that can only be described as one of the greatest Ponzi schemes of all times. These include underestimating the raises that government workers may earn until they retire and overestimating the interest assumptions for funding. This collection of bogus assumptions is hidden away in “off-the-balance-sheet” accounting practices that allow the public sector to escape the scrutiny of those who must guarantee their retirement benefits … the taxpayers.

The Heartland Institute report measured state public pension plans against six chosen variables, including the solvency of the fund, and then scored and ranked the states. Forty-two states were identified as being unsustainable and in need of reform. To add to this dismal picture, multiple independent studies have concluded that the stated unfunded liability of nonfederal public sector pension plans ($400 billion) is closer to $3.5 TRILLION, or eight times higher than what gets reported to taxpayers. Additionally, the liability for retiree coverage under nonfederal health insurance plans is estimated at $587 billion, with $555 billion of that unfunded.

Decades ago, the private sector recognized when its defined benefit plans were unsustainable and took the difficult steps necessary to provide its workforce with an alternative way to help prepare for retirement. The public sector needs to do the same, and taxpayers need to demand that they do so. We need to insist on financial transparency; replace public sector defined benefit pension plans with defined contribution plans; require employee contributions; and end pension abuse practices.

Without urgent attention, these unsustainable public sector pension practices will continue to threaten the financial stability of our cities, counties and states. It is time for taxpayers to demand pension reform of their elected officials."

NOTE: CHANGE OF VENUE FOR MEETING.

Dr. Martha Flores Gibson, candidate for the 54th Assembly District will be the speaker at the September meeting of Long Beach Taxpayers Association.

Candidate Gibson has her doctorate in educational leadership and a masters in social work. Dr. Gibson has worked in the Long Beach Unified School District for over 20 years, providing support to teachers, counselors, principals and administrators to increase student achievement for all students.

We are all searching for leadership in those we elect to help lead California during these troubling financial times. Dr. Gibson will present her ideas for a ‘Better California’, and her plans to lead California to a more prosperous future during the next decade. A question and answer period will follow Dr. Gibson’s presentation.

Be an informed voter and…

Join us at 7:00 p.m., Thursday September 16th at the office of David Wagner Kitchen & Bath Design Center, 1800 Palo Verde Ave., Ste. E. Long Beach, 90815 (Corner of Atherton and Palo Verde, above FedEX complex)

RSVP: Kathy Ryan
Long Beach Taxpayers Association
(562) 494-8808 or (562) 597-1540
or e-mail: kathyryan43@hotmail.com
Refreshments will be served.