Gov. Schwarzenegger listening to a reporter’s question after a meeting on public employee pension reform in July. (AP photo)
How severe is the public employee pension problem across the U.S.? (Hint: Is a $3 trillion debt severe?)
ASK THIS | August 26, 2010
Columnist and author Steven Greenhut looks at the ongoing pension issue, including abuses of it, and deals with some of the key questions.
By Steven Greenhut
As the economy boomed, few people worried much about the debt that local and state governments were amassing to pay for increasingly generous pension and health-care benefits for public employees. Now that budgets are tight thanks to a down economy, the issue is big news -- made even bigger by the outrageous pay and benefit plans received by officials of the small, working class city of Bell, Calif., where the now-ex-city manager stands to receive a pension valued at $30 million. That news story, uncovered by the Los Angeles Times, put some faces on overall public-employee-pension scandal.
Even bigger news is the size of the pension debt -- estimated in California alone at $500 billion, according to a recent Stanford study. The nationwide debt is more than $3 trillion. The state of New Jersey settled this month with the Securities and Exchange Commission. As the Newark Star-Ledger explained: "For years, New Jersey had been cooking its books and neglecting to tell investors it was grossly underfunding pension plans." Although California and New Jersey have taken the pension-abuse situation to the extreme, it remains a nationwide problem.
The national media have done an excellent job focusing on the expanding pension debt; all one has to do is peruse the pensiontsunami.com Web site to see how widespread and in-depth the coverage of it has become. But in recent weeks, I've noticed a counter-offensive from defenders of the status quo, especially from public-sector union officials who are trying to depict public concern as unfair attacks on public employees. Here are some questions journalists should ask as they consider these rebuttals:
Q. Is an unfunded pension liability really that significant?
Although some union officials recognize the problem, the vast majority of the ones that I’ve interviewed, debated and have heard testify in the state Capitol insist that there is no fundamental problem in the current system. In fact, organized labor’s allies in state legislatures continue to gut even the most modest reforms (such as a recent California bill limiting blatant pension-spiking abuses) and even push for retirement and disability expansions. These union officials would like the public to believe that pension funds that are only 70 percent or so funded are in perfectly good shape because the amount of debt is basically a guess -- based on assumptions about the rate of investment return in the future. When the rates of return go up, they say, all will be well and the pension systems will be fully funded -- which means that legislators won't have to increase contributions to make the systems whole.
It's true that financial assumptions are at play here. The retirement systems make investments and if the rate of return is high, then the debt is low and vice versa. But increasingly the systems are making riskier investments to cover up for all the enhanced pension promises made over the years. Politicians have repeatedly made the retirement formulas more generous, and often have done so on a retroactive basis. By "enhancing" the formulas mid-stream, the investment funds have additional pressure to take bigger risks, which explains in part why the California Public Employees' Retirement System invested in leveraged housing developments at the height of the housing bubble. If such "roll of the dice" investments pay off, then there's more money for public employees and less political pressure to reform the pension system, and if they don't, the taxpayers are on the hook. It's the ultimate privatization of gain and socialization of risk.
The unfunded liabilities have gotten so large, however, that it appears unlikely that a rebounding economy will provide high-enough rates to cover up the problem.
During Senate testimony regarding pension reform, California Gov. Arnold Schwarzenegger's chief pension adviser, David Crane, explained: "When the state makes a pension promise to a state employee, it is simply promising to pay money to the employee at points in the future. Thus, state pension obligations are no different than state debt obligations, which also are promises to pay amounts in the future. But they differ in two important respects: (1) voter approval is not required for pension obligations -- governors and legislators have all the responsibility in that regard, and (2) pension costs, unlike debt service costs, are neither capped nor precisely quantifiable in advance."
So while the amount of debt is not "precisely quantifiable in advance," these pension obligations are real debt that must be paid by taxpayers. Furthermore, as Crane noted, "Pension payments are senior obligations of the state to its employees and accordingly have priority over every other expenditure except Proposition 98 (i.e., K-14) expenditures and arguably even before debt service."
I'll deal with the significance of that point in the following question.
Q. Pension contributions only comprise a small percentage of any state's budget, so why is this debt such a major problem?
At the state level, the contribution is relatively low, but it's growing and should be much higher. CalPERS and other retirement systems nationwide have engaged in a process known as "smoothing," whereby they spread out the risks further into the future -- sort of like refinancing that Ford Focus for 20 years to keep the payment low. Their goal is to hide the amount of debt in order to avoid calls for pension reform, given that legislators will howl if they need to funnel additional billions of dollars in general fund revenue into the state pension systems.
Because pensions are senior obligations, as Crane noted, they must be funded before other programs: "All of the consequences of rising pension costs fall on the budgets for programs such as higher education, health and human services, parks and recreation and environmental protection that are junior in priority and therefore have their funding reduced whenever more money is needed to pay for pension costs. Thus those who should be most concerned about pension costs are families and businesses concerned about California's colleges and universities, recipients of the state's health and human services, users of state parks, citizens interested in environmental protection, and current and future state employees concerned about the potential for pay increases."
Hence, Crane and some other of California's progressive Democrats, such as San Francisco Public Defender Jeff Adachi, have joined fiscal conservatives in calling for reduced pensions or increased pension contributions by public employees. The progressives realize that rising pension costs are sucking the life out of the government programs they so strongly support.
Furthermore, the portion of the budget that goes to servicing pensions does not count the full cost of public employee pensions to the taxpayers -- the dollars that taxpayers put into the system in the form of compensation. It also doesn't consider the harsh effect of public pensions and pay packages on local governments. In the bankrupt city of Vallejo, Calif., approximately 75 percent of the city’s budget went to police and fire, which left little room for anything else. Because the union-dominated City Council would not reduce current pensions even in the face of bankruptcy, the city was left with slashed police and fire budgets – even as police captains earned $300,000 compensation packages. Pension debt is indeed crippling local governments' ability to provide other services. The Sacramento Bee recently opined that "this year, the city of Roseville will spend as much to fund its pension plan as it does on parks and recreation. San Luis Obispo will spend six times as much on pensions as it does prosecuting criminals."
The Bee also opined: "County government is becoming a pension provider that provides government services on the side."
Cities across the country, such as Evanston, Ill., are having to drop more money into their pension funds to keep them afloat. That means less money for public services or higher tax rates.
Q. Police and firefighters put their lives on the line and they die soon after retirement, so why are critics giving them such a hard time for their generous pensions? And they have a high disability rate, making them more deserving, right?
Public safety and firefighter unions argue that they deserve their “3 percent at 50” (3 percent of their final year's pay times the number of years worked, available at age 50) pensions because they die shortly after retirement -- some claim that the typical cop or firefighter only lives five to eight years after retiring. CalPERS has debunked this myth (as has the Oregon retirement system) and finds that the longest living categories of public sector employees are police, followed by firefighters. They live on average into the low- to mid-80s. According to the Bureau of Labor Statistics, neither police nor firefighting are in the top-10 most-dangerous jobs. And the high disability rate is evidence mainly of abuses in the system. The Sacramento Bee reported a few years back that 82 percent of manager level officers in the California Highway Patrol retired on disability -- a number that spiked after CHP shut down its fraud division.
Q. The average public employee pension is less than $30,000 a year. So aren't critics only "scapegoating" public employees because of the current tough times?
These averages are misleading given that they include all the many people who have worked in the public employee system over the years, many of whom worked for short periods of time. The massive pension increases have taken place over the last decade, so that amount is higher for newer employees. The average new CHP employee has a pension of almost $90,000 a year. Even the lowest number is far higher than the average pension for private-sector workers. And the number of $100,000 Pension Club members in California is at 15,000 and growing by 40 percent a year. The formulas are the formulas. If a person starts work in an agency that offers "2.7 percent at 55," that person will retire with 81 percent of their final year's pay after 30 years, period. That's far more generous than what's available to most private-sector workers. Reporters need to do more comparisons between private-sector and public-sector benefits.
Q. Everyone who was anyone said it was OK to increase pensions for public employees, so shouldn't we just blame the economy?
The bad economy has reduced revenues and forced governments to deal with a problem they have created over many years. Now people are saying, "Everyone said it was OK." But that's not true. There were many voices warning against the massive pension increases that took place over the past decade. In California, the SB400 legislation that allowed and encouraged municipalities to adopt "3 percent at 50" was rammed through the Legislature without full analysis and oversight -- given that almost everyone involved stood to gain under the enhanced formula.
During the debate over SB400, CalPERS did not reveal its own internal memo showing the mess that the enhancement could cause if the economic scenarios were not so rosy. Here is blogger Ed Mendell, who covers pension issues:
"As CalPERS publicly said a decade ago that a major pension increase, now targeted for rollbacks, could be paid for with investment earnings rather than higher state costs, its actuaries made a startlingly accurate forecast of the impact if earnings fell short. The actuaries said the annual state payment to CalPERS, $159 million in 1999, could soar to $3.954 billion in fiscal 2010-11 -- a long-range forecast that scored a near bull's-eye on the $3.888 billion state payment for the fiscal year that began this month.
"Legislators were told in a 17-page CalPERS brochure that the pension increase, SB 400 in 1999, would not increase state costs. And as critics have pointed out, the brochure did not mention the state would have to pay if investments faltered."
Q. Aren't public employees' leaders working on a solution? Can't these matters be fixed at the negotiating table rather than through state-imposed reforms?
Many public employee unions are claiming that they want reform even as their lobbyists and legislative supporters stifle every modest reform -- even reforms that would leave current retirement benefits untouched while instituting a second-tier retirement formula for new workers, and reforms that help cities get out from under crushing pension obligations. When unions squelched a recent proposal in the California Senate, the Democratic and union mantra was that these matters can be fixed at the negotiating table. But it's at the negotiating table, where those who negotiate on behalf of the taxpayer often stand to benefit from any pension increase, that the unions are the strongest. No serious reform will come from there.
08/27/2010, 11:36 AM
Here in Pacific Grove,the city council just enacted a citizens pension reform initiative into law. It applys to CURRENT employees and has rec'd solid legal approval. The reform limits the Citys' pension contribution AND its' liability to 10% of salary. That means,if employees want a defined benefit ,they must pay all costs exceeding 10%. If the plan administrator fails to meet the plans actuarial goals,pensions will be reduced pro rata. Pacific Groves Charter provides that all employees are at will and have no vested rights,so its' reform may not be doable for many other cities,unless they first adopt a similar charter
08/27/2010, 04:21 PM
Pensions and OPEB are huge, but only part of the problem. The global report by Arnaud Mares and GAO-10-899 on state and local governments provide one clear bottom line: Reform now or lurch into a fiscal event horizon from which there is no return.
08/27/2010, 04:40 PM
Steve, First let me say...Keep Up ypur good work !
For some time, I have strongly advocated for reducing pension formulas for FUTURE years of service for CURRENT (as well as new) workers.
I now believe the likelihood of this happening (soon enough and with sufficient formula reductions) is so low that a much better direction, and perhaps the ONLY way to avoid the financial disaster bearing down on communities throughout the nation is to OUTSOURCE 90+% of all Civil Servant positions.
The CRITICAL CRITICAL CRITICAL need is to STOP the further growth of the pension liability from the excessive pension formulas granted EXISTING employees, and the ONLY way to do this quickly and VERY effectively is OUTSOURCING.
It's ALREADY been tested … and the sky didn’t fall in … and the residents of Maywood, CA seem very pleased with the results of outsourcing 100% of their employees.
08/31/2010, 05:37 AM
Retired in November I paid while I was active. I hope they will not mock us and we will not receive anything. We need to enjoy retirement.piese auto online
La mirada city officials
11/01/2010, 05:33 AM
To whom it may concern
From: Buddy George (562) 201-9126
12016 gladhill ave. (562) 947-7356
La mirada ca 90638
(1) I was robbed and kidnapped 3 times behind sheriff deputies.
$80 million dollar claim is what to file for damages. Against the city of la mirada
Enclosed in this writing is information
Regarding my state and federal rights
Being violated. The following needs investigated to the full extent of the law.
0) deformation of character
1) a wrongful conviction that I can prove.
2) false imprisonment.
3) a right to a fair trial.
4) denied my due process.
7) officer misconduct.
9) cruel and unusual punishment.
10) all my constitutional rights both state and federal were violated.
11) the email enclosed in this writing is were evidence was destroyed 3 to 5 months before my trial. A case were three empty baggies were planted in our home.
12) I was denied to face my adverse witnesses we subpoenaed 5 officers only one showed up hakala was the head detective and the expert witness
Of course he also destroyed evidence 3 to 5 months before the trial.
13) the district attorney never perjured the detective when he lied.
14) the district attorney had me charged with strikes and prison priors that I did not have and it wasn't until after the verdict did she admit her mistakes.
15) I suffered the burden of a long trial based on false allegations
16) our home was raided regularly practically daily.
17) the city of la mirada contracted a couple of deputies named Morris and tousey that ran around spreading rumors about me saying I was a drug dealer and a kingpin.
18)Morris and tousey stalked me.
19) Morris and tousey coaxed people on what to say in there police reports
All saying I sold them drugs.
20) hakala stated during trial he removed the drugs befor the pre search
Video because he had a dog when there was no dog.
21) the city of la mirada played a major role with all the corruption involved in a criminal proceeding.
22) I was robbed a kidnapped 3 times due to Morris and tousey telling everyone I was a drug dealer and a kingpin.
23) Morris and tousey and every cop that works for the city of la mirada instead of working any where els the city paid them to harass me.
24) I was not on parole nor probation when this case started.
25)the detective dident even have the evidence he claimed to have to get the search warrant on the first one.
26) there was a type-o- error in the second search warrant.
27) the detectives used the name of Walter Eugene Farris to get the 2nd search warrant and that guy has never been in our home.
28) Detective hakala broke state and federal laws by going through my confidential legal mail if you look in the minutes of my trial that the document
He used to identify me as living here was a document from a lawsuit not just a regular law suit it was a federal lawsuit and it was part of a u.s.c $1983 that was filed in the united stAted district court for the eastern district of california located at
501 'I' St.
Sacramento, ca 95814
The proceedings of
Buddyleegeorge v.s copely.
United states magistrates judge
Peter A Nowinski
This legal mail he went through makes him committing a federal crime not even prison guards can even read it
Hakala admitted to it he clearly stated a lawsuit involving copely.
29) Henry salcido attorney at law out of long beach California had two retired district attorneys working for him that were overfimilararity with sheriffs and narcotics involved in my case that also had a secret meeting with the city of la mirada without our approval nor knowledge violating client and attorney privilege rights.
30)the city of la mirada was 100%
involved in my criminal case and I have evidence of it.
31) All of this happened after a incident involving a parole officer named verimontes that worked for public safety for the city of la mirada as well for the Santa fee springs parole department in the year of 2001.he was contracted by both at the same time.
32) this parole officer on a hearsay driving without a license that involved no police contact went around to every one of my neighbors showing them first my criminal past then my mug shots during my board of prison terms hearing he got caught lying 12 times under oath he was so pissed that after the commissioner let me come home
And I reported to parole he said your packing your **** your going back to Sacramento I wrote a 602 inmate appeal demanding that it be exhausted
The 602 charged him of deformation of character and racial profiling negligence harassment and more he was involuntarily moved from both jobs. He told me he would retaliate against me if I appealed him. he stated I work for la mirada public safety and the parole department I will use both jobs to get a petition with your neighbors to have you moved from la mirada.
33) there was so much evidence recorded against this agent were he lied under oath the bpt denied me a copy of the recorded hearing the tape was not suppose to be damaged for 120 days It was damaged in 3 days
He had no idea that I studied criminal and civil law for about 5 years specializing in u.s.c $1983"s
And writ of petition of habeas corpuses
And state and federal constitutional rights I was in the federal courts under pro per for 3 to 4 years I studied writs
And tort claims and ethics and regulations and penal codes even the rules and regulations CCR title 15. Including ADA and anything to do with civil litigation. Including criminal law.
34) I have evidence were the city of la mirada violated my state and federal constitutional rights by discrimination and harassment.
35) I have evidence that the detective staged a sales case. their was a cell phone on table that recorded the whole raid due to the fact steve out of la habra who's mom is a commissioner recorded it.
36) I have proof of stalking involving sheriffs and detectives.
37) I have evidence were Morris and tousey and other law enforcement coaxed people on what to say in there police reports and I have a copy of all of them.
38) I have evidence were la mirada offered to buy our home at cost.
39) I have evidence were the city officials harassed me in every way involving everything from sheriffs to code enforcement and neighbors i know of every neighbor that called in with the intention to harass me.
40) there's evidence of 2 narc cars parked in the front of the neighbors house that lives behind me and evidence
Of Morris and tousey in her back bedroom window stalking me.
42) there's evidence were our car was impounded about 3 to 4 times costing us $1300 every time to get it out.
43) theirs evidence were law enforcement endangered children by their reckless driving especially Morris and tousey flying 60 miles an hour with the doors flung open just so they could rush the car only to find nothing because their never was anything.
44) law enforcement that worked in the city of la mirada along with detectives were only worried about keeping their contracts with the city.
45) their core values are suppose to be to serve and protect honesty and fairness integrity and respect but instead the all mighty dollar had them lying stealing cheating and abandoning their own self worth by breaking laws them selves if you don't believe me look in their book on ethics trust me they violated their own rules including the laws that govern California.
The guilty parties involved.
1) The city of la mirada including mayor and other city counsel members and I have proof of that as well.
2) La mirada law enforcement that worked for the city the whole time this was all going on.
3) detective hakala. Out of Whittier police department.
4) detective Jerry Reyes out of Whittier.
5) district attorney kang that represented the people during my trial.
6) Morris and tousey out of Los angeles county sheriffs department
7) theirs pictures of Joe one of the retired district attorneys that work for Henry salcido attorney at law out of long beach shaking hands with narcotics department and sheriffs that were involved in my trial.
8) Henry salcido told me he doesn't care if I was innocent or guilty give me $180,000 and sign over the deed to your home I'm best friends with steve Cooley I can make this case disappear
But if you don't you should take a prison deal under the condition you move when you get out.
9) the la mirada sheriffs had knowledge of our home being broken into and vandalized on many different occasions and at one time some one drove a car through our garage door and we reported it the deputies showed no interest in the damage done to our home only had interest in my whereabouts with interest of harassing
Me some more.
City members involved address and names and contact information
1) mayor Pete dames
2) mayor pro tem Steve jones
3) council-member. Gabe Garcia
4) council member. Hal malkin
5) council member. Susan Tripp
Email address email@example.com
City of la mirada.
13700 la mirada blvd
La mirada ca 90638
City phone number (562) 943-0131
10) this has been sent to the following
3) white house
4) state Capitol Sacramento
5) ethics committee
6) california state BAR
7) president of the united states
8) all California state and federal government including
2) internal affairs
5) board of supervisors
These matters need to be investigated to the fullest extent of the law including state and federal regulations including ethics I guarantee everything enclosed is true and correct and if you take time to investigate you will find everything that is mentioned is true and correct.
Email below is from detective hakala to district attorney kang were the evidence had been destroyed 3 to 5 months before trial. Please consider thanks.
Buddy George - VA107160From: joanne alberry
View Contact To: LAURIE YTARTE -----------------
-- Laurie,here is the email from the Detective
telling the court that all the property was
destroyed. Sorry about all of it. Feel free to mail
me any payments you can at my office address
4229 Main St Suite 4 Riverside CA 92501 I will
let you know when I find an attorney who will
take on a governemtn entity. good luck to you
and Buddy,Joanne ---------- Forwarded message
----------From: Date: Fri, Sep 25, 2009 at 7:23
AMSubject: Fw: Buddy George - VA107160To:
firstname.lastname@example.org Hi Joanne, Per our
conversation, here is the email from Detective
Hakala confirming that the evidence was
destroyed. I will request that our matter be taken
off calendar today. Thanks. ----------------------
Forwarded by Miriam Kang/DAUsers/NLADA on
09/25/2009 07:22 AM --------------------------- To:
cc: Subject: RE: Buddy George - VA107160 I
contacted our central property and the items
seized in the Buddy George case (408-15814-
0460-184) were dispoed on 05-29-09. Any other
questions just let me know. Eric ---------------------
9/24/2009 2:49 PMTo: Hakala, Eric J.Subject:
Buddy George - VA107160 Hi Detective Hakala,
Just as a reminder, please email me a letter
confirming that the the property booked into
evidence for this case has been disposed of and
the date of disposal. Thanks so much!
Sincerely,Miriam KangDeputy District
In regards to who ever reads this know that I'm not prejudice against law enforcement I believe and respect in there core values to serve and protect.
When I was younger I wanted to be apart of law enforcement if I had it my way I would serve in active duty
And participate with making the streets safer for communities and society at large. unfortunately due to my childhood past I am unable to do so
And my childhood dreams were ruined
Everyday I pray for the men and women who serve in active duty either law enforcement or military they have my commend them for their bravery and integrity I fully believe in what they stand for and respect their duties and I'm far from prejudice against them.
For information regarding the enclosed information contact la mirada city mayor and council members mentioned above.
If you can not assist me please pass this on to some one that can
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