“Apres moi le deluge”
If accounting standards were peasants with pitchforks, then this quote from the last King of France to die with a head on his shoulders might well describe what lies before us. Because history may remember 2013 as the last year that public entities could hide their debts and deceive their taxpaying peasantry, so their unionized workforces might continue to live the lifestyles of French aristocrats.
Earlier this week the California Public Policy Center released a study that calculates California’s total unfunded pension liability using the new criteria proposed by Moody’s Investor Services for adoption in 2014. Since Moody’s is the largest bond credit rating service in the world, using their guidelines is not a mere academic exercise, at least not if California’s municipal governments hope to continue to issue bonds to cover their ongoing budget deficits.
The relevance of these calculations is compounded by the fact that GASB, the Government Accounting Standards Board, plans to require municipalities to include unfunded pension liabilities on their balance sheets starting in 2014. Moody’s and GASB: Unlikely sparks to fire a revolution.
How many billions are we talking about?
Using the data from a March 20, 2012 report from the California State Controller entitled “Public Retirement Systems Annual Report for the fiscal year ended June 30, 2010,” the CPPC study revalued the official unfunded pension fund liability – for all state and local government pension funds – exactly according to Moody’s proposed guidelines.
The result was dramatic. Instead of California’s total public employee pension plans being underfunded by $128.3 billion, which is the state controller’s official estimate, the amount of underfunding nearly tripled, to 328.6 billion.
In a UnionWatch editorial posted earlier this year “How Big Is California’s Wall of Debt,” we estimated the total debt facing California’s taxpayers at $872 billion, which equates to something like $87,000 for every household in the state. In that number we included $360 billion for the total unfunded pension AND retirement healthcare liability. This more recent and more comprehensive study merely confirms those numbers; if anything, they are still on the low side.
Skeptics are invited to read the study, entitled “How Lower Earnings Will Impact California’s Total Unfunded Pension Liability,” in its entirety. They are invited to download the spreadsheet made available so they may themselves replicate and validate the numbers. Pension finance may require a bit of browbeating, but it isn’t rocket science. Get informed, or get out of the way.
What is happening instead? Everywhere in California, unions are relentlessly pushing back against even modest reforms to pension benefits. With unlimited money and manpower, implacable resolve, and perpetual energy, they will prevail again and again – until the tsunami of financial reality finally hits the shore.
Spokespersons for public employee unions supposedly abhor the manipulations and machinations of finance capitalists. Pointing to examples ranging from Enron to Goldman Sachs, they claim the workers are fleeced and the rich get richer. But their own house is dirty. The public institutions they control, the cities and counties of California, indulge in financial chicanery in order to create an illusion of solvency. They fail to recognize unfunded pension and retirement health care liabilities on their balance sheets. They refuse to disclose total outstanding state and local government debt. They issue “capital appreciation bonds,” deferred payment scams that should be illegal. They mislead voters into believing government workers are undercompensated, when in fact they now earn total pay and benefits that are well over twice the average for the private sector workers they supposedly serve. They pretend budgets are balanced by offloading entire sections of government into “special districts,” playing a shell game of deception. They campaign for tax increases to “save our schools,” then instead give the money to their partners in oppression, the insatiable pension bankers.
A fair minded reader might protest that government workers should not be compared to the aristocracy of France in 1788. Fair enough. But the average pension for someone who works a full career in California’s state or local government is now nearly $70,000 per year. For a retiree to collect that much, risk free, in the private sector, requires millions (plural) in assets. And those multi-millionaires are precisely the people our public servants, through their unions, urge us to resent, to tax, to occupy, to overthrow. The language of revolt is theirs, not ours.
Filtered through the humble green eyeshades of proper accounting standards, shimmering in the Sacramento sunset, one does not see a skyline of government buildings staffed by benign bureaucrats. Rather one may see a Bastille, a Palace of Versailles, a Hall of Mirrors, the ornate furniture of an aristocracy ruled by the union noblesse.
2014 is going to be an interesting year.
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UnionWatch.org is edited by Ed Ring, who can be reached at email@example.com