California's 2000% Pension Spike

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Steven Greenhut, author of our great February cover story on the "Class War" between public sector employees and the rest of us, had an equally blunt-spoken piece last week in the Wall Street Journal, entitled "Public Employee Unions Are Sinking California." Some numbers and verbiage that were new to me:

When after all, it was you and me

Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility. […]

Fail!

A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar. […]

Told ya!

State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."

This situation, which is playing out all over the country, is definitionally untenable: Something will have to give.

In related news, a cover story on California's "savage budget cuts" in The Nation, written by Inside Obama's Brain author Sasha Abramsky, does not contain the words "pension" or "retirement," and the only mention of "unions" comes in a protest-banner exhortation to "respect" them. As ever, a thick chunk of the California commentariat refuses to grapple with the zero-sum reality of pension spending crowding out favored social programs.

And as always, it's important to remember this salient fact: If states had limited their budget growth to the growth rates of inflation plus population during the salad days of 2002-2007, instead of jacking up spending by 80 percent in real terms, they would have been sitting on surpluses when the economic crisis hit, instead of scratching at the door of the federal government.

Greenhut link via Jonathan Adler over at Planet Volokh.

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  1. My URLs to the Holy One’s website don’t show up as links. Am I ritually unclean? Have I offended the Great Anonymous One?

    http://www.online-piracy.int.tc/

    1. My ways are shrouded in mist, Grasshopper.

      RT
      http://www.online-piracy.int.yada-yada

      1. You cannot leave the temple until you can snatch the hyperlink from his palm.

      2. There is no Bot but the Anonymity Bot, and Pingback is his prophet.

        1. Praise Be Unto Him.

  2. Something will have to give.

    Not the pensions. Ain’t. Gonna. Happen.

    3 guesses as to what *will* give.

    1. Could it be a three-syllable word starting with “T”?

      1. I’d like to buy a vowel, please.

    2. 3 guesses as to what *will* we’ll give.

      FIFY

      1. Oh oh, is it 50% income? No wait 75%? 90? It’s 90% isn’t it?

  3. What exactly are public people suppose to do? Give up their pensions. They were promised this pension.

    Perhaps California should have NOT squandered their pension funds. The US Government did the SAME THING with the Social Security and Medicare fund. They jumbled these funds into the General Treasury and are NOW SCREAMING that these funds are BROKE. Of course they are, they were squandered by every president since Reagan (Including Clinton).

    In all of these Social Pyramids, the fund is essential as the interest accrued (and sometimes, the underlying principal) are used to pay the entitlements.

    Now, the US Government and California, are crying BROKE and stating that they have no fund and can ONLY depend on TAXING the hell out of people.

    They should CONSIDER paying back the FUND from the General Treasury and NEVER TOUCHING IT AGAIN.

    1. “What exactly are public people suppose to do? Give up their pensions. They were promised this pension.”

      What are the rest of us supposed to do? My employers and I have been paying 15% of my income into OADSI for over 30 years with the PROMISE of payment in my retirement. Now my annual Social Security report includes a disclaimer that actual payment will likely be less than the earned payment. In other words – it doesn’t matter what was “promised”, if there’s no money the promises can’t be paid.

      Yes, it’s unfair that a lot of union people (public and private) are going to get screwed on their pension promises. But the rest of us are getting screwed too. Why should unions have special protected status?

    2. Why not just cut the pensions and salaries of the ruling class in all State legislatures and also in Washington, D.C?

      1. Because no politician wants to be THAT GUY.

    3. “What exactly are public people suppose to do? Give up their pensions. They were promised this pension.”

      You could at least nail the people that are trying to game the pension system. Since they tend to have the more lucrative ones to begin with, punish them by taking the whole thing, and use the proceeds to help pay for the pensions of those who are at least trying to basically stick with the spirit of the rules.

      1. What exactly are public people suppose to do? Give up their pensions. They were promised this pension.

        People promised things by other, now bankrupt, people, don’t get what they were promised.

        Public employee pensions should be crammed down to a sustainable level. Unfortunately, no mechanism exists for making this happen.

    4. “What exactly are public people suppose to do? Give up their pensions. They were promised this pension.”

      And I was promised the right to life, liberty and the pursuit of happiness you two-bit leech.

    5. Some of the pension increases were made after people had already retired. Those were fraudulent and yes, should be given up.

      A big problem is that fund managers always overestimate their long term rate of return. And the legislature has saddled the fund with a lot of mandates that have nothing to do with making returns.

    6. “What exactly are public people suppose to do? Give up their pensions. They were promised this pension.”

      obviously they should take my income and retirement. its not like i was promised that money, i merely earned it.

    7. Alice,
      They CAN’T pay. That’s the point. Promises were made that could never have been kept and pretending that something might change that is what politicians have been doing for a while now.
      At the individual level it’s a tragedy for those who relied on those promises, but there is no magic solution, no Robin Hood, that can deliver the money; not the state, not the Feds.

  4. In the defense of conservatives/libertarians that are outraged by public pensions, $100,000 per year is ridiculous to pay someone towards retirement. They should be paid NO more (if not less) than the NET MEDIAN US INCOME and require to pay no income tax. That would be about $24,000 per year. Way more than enough to maintain a living for people over 65.

  5. Standard libertarian disclaimer: Using taxation to make transfer payments from rich people to poor people is a Bad Thing[tm]. We shouldn’t do it.

    But as long as the political reality is that the public will not accept throwing people entirely back on their own resources, and as long as some kind of transfer payments are going to be made, we would be much better off with a Minimum Family Income program administered like the Earned Income Tax Credit than we are with our current system.

    The first thing we need to do before we can build a libertarian society is drastically reduce the number of public employees. And the host of public employees with social work degrees that are hovering over the current system of transfer payments have got to go. If that means we have to just hand cash to the poor, rather than use a thousand “targeted” credits and non-cash administrative subsidies, so be it.

    I realize that the worst pension abusers are police and firemen. Followed by teachers. And social workers are last. But we have to start winnowing down the number of people who are employed by the state, because in local elections and local politics these folks are the reserve army of statism and we have to gut them. If putting a few more dollars directly in the pockets of the undeserving poor allows us to cut all the social worker salaries, AND their future pension benefits, let’s do it. At both the state and federal level. Before they get vested.

  6. Quylyn’s Plan to Fix California:

    Step 1: Declare bankruptcy and get overgenerous pension obligations reduced as much as possible.

    Step 2: Reduce public employee headcount by 25%. Reduce wages by 25%.

    Step 3: Convert all remaining public employees to fixed-contribution retirement plans.

    I’m sure nobody will complain.

    1. And then, ten years from now, California will be back to the same place, because the public employee unions still exist and can bring to bear the same pressures that created the situation.

      How to fix California? Pass the following initiative(s) (the initiative process being used in order to bypass the legislature):

      1) Prohibit state officials from engaging in collective bargaining with public employee unions. (Already law in a number of states.)

      2) Prohibit the state from withholding dues on behalf of public employee unions. (Already law in a number of states.)

      3) Outlaw strikes by public employees. (Already law in a number of states.)

      4) Pass right-to-work legislation, so contracts can’t specify that public employees must join unions. (Already law in a number of states.)

      5) Prohibit any union role in public employee hiring, discipline, and firing decisions.

      6) Prohibit the administration of public employee benefits through unions.

      Where the above contradict existing contracts, said contract terms remain in force, but cannot be renewed.

      In a matter of five years, the result will be the complete elimination of the public employee unions as a significant force in California.

  7. Fluffy,
    I agree that as long as we’re going to make tranfer payments, a straight-up negative income tax is the way to go.
    Didn’t Friedman propose something like this, or am I misremembering?

    1. Yes, he did. I was about to make the same point. Negative income tax with no welfare was his proposal.

      1. The Fair Tax is basically a negative income tax in that everyone receives a fixed payment. If your sales tax is less than the fixed payment, you are receiving a transfer like with the negative income tax.

    2. One of its many merits is that sometimes welfare recipients rise up out of welfare.

      Not many public employees “rise up” out of their pension.

  8. Yesterday on the NewsHour, PhD in Retard, Robert Reich said the economy continues to slag because at the state spending level the states have created an ‘anti-stimulus package’ due to their frugal spending and the requirement for balanced budgets. Bad enough that he is lying through his teeth in defense of an unsound ideology, but he said it with his typically pious tone that makes you want to take a bottle of Nair to his woolly face.

    1. Yesterday on the NewsHour, PhD in Retard, Robert Reich said the economy continues to slag because at the state spending level the states have created an ‘anti-stimulus package’ due to their frugal spending and the requirement for balanced budgets.

      Reich opposes balanced budgets and surpluses?

      Clearly, he was President Bush’s chief budget advisor.

  9. What exactly are public people suppose to do? Give up their pensions. They were promised this pension.

    Use the Obama Banker Bonus Tax Plan. If the state gets bailed out, tax the Cadillac pensions at 90%. Your goose/gander mileage may vary.

  10. It’s not just California, either. State employee pension funds are bankrupting all the states!

  11. Good thing CalPERS just lost $500M in the Stuyvesant Town bust.

  12. Existing public pensions are protected by both the California and U.S. Constitutions — particularly the contracts clause. States cannot file for bankruptcy, so every cent of those pensions will be paid to the retired employees. Get used to it….

    1. Just because a state is legally required to pay doesn’t mean it is capable. CA might not be that bad off yet (although who can say), but it might be one day. Of course, eventually it will be cheaper for the state to hire a squad of hitmen on retainer to clear off some of the larger pensions.

    2. Your dreaming …. there’s no money ….. I see a breadline in your future.

      1. Do you just troll around the blogs all day pasting the same comment? There are hundreds of billions of dollars currently in the retirement fund, as well as more money coming in every day from the current workers.

    3. Your dreaming …. there’s no money ….. I see a breadline in your future.

    4. Your dreaming …. there’s no money ….. I see a breadline in your future.

    5. Your dreaming …. there’s no money ….. I see a breadline in your future.

  13. Add this to the unfunded liabilities of SS & Medicare, throw in the expense of running the Empire, add a dash of Healthcare, and stir vigorously. What do you get? Money printing from hell. The Feds will dangle the cash to bail out the bankrupt states and all they need do is sell their souls, thereby destroying the last vestiges of the Republic as it was conceived. The printing press will be running 24/7 to pay for it all and the money will be stolen the old fashioned way, via inflation, right out of your back pocket. Taxes? We don’t need no stinking taxes! The middle class will be destroyed. Plan accordingly.

  14. Abramsky also ignores that a couple million people have crossed the border from Mexico into California, and that the state’s response has largely been to shrug and look away. Businesses are hamstrung by regulations, Jerry Brown is working overtime to make sure new jobs are aborted thanks to his deluded worship of Global Warming, and the state is leaking brain power and capital.

    Thanks, Matt, for writing this.

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