Pensions

Jerry Brown is All Talk on Teacher-Pension Mess

Talking about a problem is one thing, and using one's political capital to fix it is quite another.

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SACRAMENTO — When Gov. Jerry Brown announced his first budget in 2011, a reporter at a Capitol press conference asked about his plans for reforming the state's pension systems which were, and remain, mired in liabilities. Brown assured the audience of his commitment to the issue as he directed them to a Web site with the pertinent details.

The Brown plan—hiking employee contribution levels, creating a hybrid system for new employees combining elements of the current defined-benefit system with 401/k-style components, limiting pension-spiking, and other measures—was applauded by pension reformers. But he didn't move the details from the Internet to a budget, nor help Republicans who proposed a bill that mirrored his ideas.

Pension reform went nowhere until 2012, when the governor and Democratic legislators put together a watered-down reform package that critics saw largely as a political ploy to help encourage voters to pass the Proposition 30 tax measure (You can give us more money because we're serious about reform!). Legislators have since declared the system "reformed" and have gone on to other things.

Given that experience, it's easy to wonder whether Gov. Brown is serious about his recent call to fix a pressing pension issue related to the underfunded California State Teachers' Retirement System (CalSTRS). That system and the larger California Public Employees' Retirement System (CalPERS) have deep debt problems caused by a combination of poor investment returns, increased benefits for retirees and longer lifespans.

CalPERS can pass on its costs to make up for shortfalls. It has been dramatically raising its rates to cities and is expecting to do so yet again soon. This has been crowding out local services as councils have to come up with more cash to backfill the retirement fund. This is even pushing some troubled cities to the brink of bankruptcy, but this is mainly a problem for the locals.

But CalSTRS poses a more direct statewide budget problem. For statutory reasons, the system needs the Legislature to approve any effort to pass on higher costs. It is so underfunded that officials there say it needs another $4.5 billion a year or it will be insolvent in 30 years. The longer the state waits, of course, the more money future Californians will have to pay to make good on past and current retirement promises.

There have been many warning signs. Newspaper editorial boards of various political bents have been urging the governor and Legislature to clean up this mess before adding new programs. Prior to the budget's release, prominent Democratic pension-reformer David Crane published an open lettercomplaining that the state has ignored a CalSTRS problem that has long been known: "Every day of additional delay adds millions of dollars to the next generation's burden."

Just this one long-term debt problem—and there are others, by the way—casts a pall over the happy Sacramento chatter about surpluses and spending proposals. An extra $4.5 billion a year could quickly eat away at the surpluses, which no doubt explains legislators' desire to avoid dealing with this issue for at least another year.

The governor's budget would repay some money the state directly borrowed in past years, but it doesn't pay down any of the long-term unfunded liabilities (pensions, health care, unemployment insurance)—and it only pays lip service to this long-term CalSTRS funding problem that may soon require some short-term cash infusions.

"CalSTRS faces a growing $80.4 billion unfunded liability and is expected to exhaust its assets in approximately 30 years," according to the governor's budget summary. This "could overwhelm other education priorities as well as policy initiatives."

Brown calls for "a new funding strategy" and vows to "begin working with the Legislature, school districts, teachers, and the pension system on a plan of shared responsibility to achieve a fully funded, sustainable teachers' pension system within 30 years."

At his press conference last Thursday, he, too, fielded a question from a reporter wondering about his plans to deal with CalSTRS. The governor didn't point to a Web site, but he did promise to begin meetings, which is a necessary start. But talking about a problem is one thing, and using one's political capital to fix it is quite another.

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  1. Just ask him about the Dill act.

    1. That would put him in quite the pickle

      1. As is did the state.

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  2. Godammit.

    Didn’t Dumb-fy used to claim cops were pro-armed citizen? I’ve never seen any evidence of any cop respecting the 2A.

    1. And this is evidence why gun registries are not “no big deal”.

    2. I, for one, welcome our new steroid-addicted overlords.

    3. In Maryland they definitely aren’t. If I’m not mistaken, the state police have final say on who gets a concealed carry permit.

      1. His CCW is in Florida. He was literally just passing through MD on a road trip.

        1. Yeah, I know. I just brought that up to show how MD police feel about armed citizens.

        2. Interesting where states rights is okay, isn’t it?

  3. So these teachers are fully unaware of the history of relying on the government to keep promises? Shocking!

    1. So these teachers are fully unaware of the history of relying on the government to keep promises? Shocking!

      FTFY

      I recall more than one “social Studies” teacher who used the post as a place from which to rant about ideolology.

      1. My junior year HS social studies teacher proclaimed that Jimmy Carter had only agreed to increase the defense budget to forestall a military coup.

  4. Editorial which expresses outrage at teacher and administrator pay raises and pensions while cutting services

    Then there’s this sublime comment:

    Or the people could just lower the number of children they have. That would save money.

    Look, schools cost money and everyone says they want good schools with nice facilities and great teachers. You can’t get that stuff for free. You can, however, lower demand. Don’t want to pay for schools — don’t have kids.

    Damnit, teachers could retire at 50 if only people didn’t have kids!

    1. Reducing the number if children in government schools somehow does not reduce the cries that classrooms are too crowded.

      Reducing the number of children? ROFL, that is straight from the “people are killing Mother Earth” playbook.

    2. In CA teachers (and other public employees) already largely can retire at age 52-55 (30 years of service). That’s a huge part of the problem – public employees often stay on their pensions longer than they ever worked in the first place, and I believe they draw 80% of what they made.

      1. That’s at 80% of what they made in their final year, which will be 120% of what they made in years 15-20

        1. In FL it is 80% of the average of your five highest years. So at least they can’t just work every over-time shift for the last year and nearly double their base (which used to be the way that cops handled pension inflation in NYC at least).

      2. I met a retired CA public teacher a couple of years ago. He was living in Nevada, of course, to avoid CA income taxes. We started talking about his pension and, at one point, I asked him if he had any idea how much the pension was worth — how much it would cost to buy an annuity that paid as much as his pension. I pointed out that it was probably in the range of $2M. He got this little smile on his face and said, “You know, when I was in college I was the dummy in the ed school while my genius friends went into engineering. But now I’m doing better than all of them — who’s the dummy now?”

    3. Funny you say that. I know two guys who did retire at 50, both of them public school teachers.

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  6. One number in this admittedly rather well written document, proves that Gov. Brown is denying reality:

    http://gov.ca.gov/docs/Twelve_……27.11.pdf

    That number is 75%. The target replacement rate for final year salaries targeted by CALPERS etc. Given that retirees are empty nesters who have cleared the mortgages, the replacement rate should not exceed 60%, with nobody receiving a pension large than 80K/year.

    I would go further. The defined benefit component of California public pensions, should not exceed $48K/year, including Social Security. Anybody who wants a fatter pension than that should invest in 403b account, and negotiate employer contributions. Failing that, he should invest in a personal IRA or Roth account.

    USA state and local government face a catastrophic unfunded liability on their defined benefit pensions. And the way forward will have to include benefit cuts, especially to those promised over 40K/year under current provisions.

    There is good news here. It appears that some or all California state & local authority employees are on Social Security and hence will access Medicare when they retire. States where that is not the case are marching to a major catastrophe. Retiree health benefits have been prefunded only to a trivial extent.

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