Twenty-five University of California retirees receive more than $300,000 annually in retirement, the California Policy Center has learned. The information, contained in documents released to CPC through a public records request, comes amidst controversy over excessive compensation at the UC system and revelations of a secret slush fund at the system’s headquarters. CPC’s findings were broadcast by KPIX San Francisco and other CBS affiliates on May 5.
The highest paid pensioner is Professor Lewis L. Judd, a UC San Diego Psychiatry professor. He receives an annual pension of $385,765.
Lewis surpasses previous pension champion, Dr. Fawzy I. Fawzy, a UCLA Psychiatry Professor who retired in 2014 on a $354,469 annual pension. Assuming annual cost of living increases of 2%, Dr. Fawzy is now estimated to be receiving around $369,000 annually. But Fawzy also draws a UC salary, one of several hundred UC retirees brought back to teach after retiring. “Recalled” retirees, such as Fawzy, are eligible to draw both a salary and a pension. Fawzy’s total university income exceeded $650,000 in 2015.
Behind the shocking numbers is a six-month battle with university administrators who tried to block release of compensation. CPC Director of Policy Research Marc Joffe originally sent the UC president’s office a Public Records Act request for pension data in December 2016. After numerous delays and negotiations with CPC General Counsel Craig Alexander, the university released a limited amount of data to Joffe today. CPC made the request in connection with its 100k Pension Club project, a website database that contains a list of 50,000 retired California public sector employees who receive annual pensions greater than $100,000. That website is at http://www.100kclub.com.
Ultimately, UC provided a list of 2015 and 2016 retirees, eight of whom are receiving $300,000 or more. The remaining 17 names were included in UC’s previous pension disclosures, last updated for 2014. UC did not provide precise cost of living adjustments for each retiree. CPC estimated their current pensions by adding 2% per year since their date of retirement.
The complete list appears below:
|Retiree Name||Appointment Type||Last Employer||Annual Pension Benefit||Date of Retirement|
|JUDD, LEWIS L||Teaching Faculty||San Diego||$ 385,765||Jul 1, 2016|
|MATTHEWS, DENNIS L||Non-Teaching Faculty||Davis||370,880||2012|
|FAWZY, FAWZY I||Teaching Faculty||Los Angeles||368,790||2014|
|DE PAOLO, DONALD J||Non-Teaching Faculty||Lawrence Berkeley||359,922||Jul 1, 2016|
|HOLST, JAMES E.||Staff||Los Angeles||358,428||2006|
|RUDNICK, JOSEPH A||Non-Teaching Faculty||Los Angeles||344,925||Jul 1, 2016|
|VAZIRI, NOSRATOLA D||Teaching Faculty||Irvine||340,410||2011|
|GREENSPAN, JOHN S||Teaching Faculty||San Francisco||339,243||2014|
|GRAY, JOE W||Non-Teaching Faculty||Lawrence Berkeley||335,482||2011|
|SCHELBERT, HEINRICH R||Teaching Faculty||Los Angeles||333,247||2013|
|BRESLAUER, GEORGE W||Non-Teaching Faculty||Berkeley||328,476||2014|
|MARSHALL, LAWRENCE F||Teaching Faculty||San Diego||324,067||2010|
|KRUPNICK, JAMES T||Non-Teaching Faculty||Lawrence Berkeley||323,957||2012|
|DISAIA, PHILIP J||Teaching Faculty||Irvine||323,839||2010|
|GRUNSTEIN, MICHAEL||Teaching Faculty||Los Angeles||322,150||Jul 1, 2016|
|SIEFKIN, ALLAN D||Non-Teaching Faculty||Davis||322,101||2014|
|KENNEY, ERNEST B||Teaching Faculty||Los Angeles||320,608||2012|
|DARLING, BRUCE B.||Non-Teaching Faculty||Los Angeles||320,403||2012|
|DONALD, PAUL J.||Teaching Faculty||Davis||317,156||2011|
|CHERRY, JAMES D||Non-Teaching Faculty||Los Angeles||315,449||2013|
|ROLL, RICHARD W||Non-Teaching Faculty||Los Angeles||315,418||2014|
|TILLISCH, JAN H||Non-Teaching Faculty||Los Angeles||311,732||Aug 1, 2016|
|CYGAN, RALPH W||Teaching Faculty||Irvine||306,734||Jul 1, 2015|
|BRAFF, DAVID L||Teaching Faculty||San Diego||306,407||Feb 1, 2015|
|EISENBERG, MELVIN A||Teaching Faculty||Berkeley||305,012||Jan 1, 2015|
“We wanted flying cars, instead we got 140 characters.”
– Peter Thiel, in his 2011 manifesto “What Happened to the Future.”
Anyone living in California who’s paying attention knows what venture capitalist Thiel meant. While a handful of Silicon Valley social media entrepreneurs have amassed almost indescribable wealth, and fundamentally transformed how humanity communicates, investment in boring things like roads, bridges, tunnels, ports, aqueducts, reservoirs and railroads – the list is endless – has stagnated. Especially in California. Flying cars? Forget about it. Go tweet.
Why? Why the neglect?
(1) For starters, why invest in moving atoms around, which is messy and might incur the wrath of powerful climate change activists, when you can move electrons around in new and exciting ways and make billions? Silicon Valley entrepreneurs are making a rational choice to prefer manipulating characters to manufacturing cars.
(2) And when it comes to innovations that do involve atoms, that is, actual manufactured goods, Silicon Valley entrepreneurs are lobbying for mandates that force people to purchase internet enabled home appliances, connected to smart meters, that punitively bill consumers who, for example, operate their clothes dryer or dishwasher at the “wrong” times.
(3) Public money that might be used to backstop private investment in infrastructure is being used instead to pay over-market compensation to California’s state and local workers, who now receive pay and benefits that on average are twice what California’s private sector workers earn.
To justify this neglect, California’s governor Brown has been the cheerleader for a culture of austerity. But there is an alternative that would lower the cost of living for all Californians, and even make it possible to lower public sector compensation without lowering their living standards. That is a culture of abundance.
The culture of abundance used to be synonymous with the Silicon Valley. “Better, faster, cheaper” used to be the mantra that informed innovation in the Silicon Valley. And throughout history, the human condition has marched fitfully but inexorably upwards because human creativity and innovation made everything we needed better, faster, cheaper. So how can we invest public and private funds to create cheap and abundant water, energy, transportation and housing?
One untapped source of investment are California’s public employee pension funds, which collectively manage nearly $800 billion in assets. Investing just a fraction of these assets in revenue producing civil infrastructure could have a decisive positive impact. Using water as an example, along with a crumbling distribution infrastructure, there are well established water markets in California. Investing in sewage reuse, seawater desalination, and aquifer and reservoir storage for runoff could eliminate water scarcity in California.
There are several interlocking benefits to investing pension funds in California’s infrastructure. For the pension funds, these would be safe investments that over time would yield more than typical fixed income investments and in fact may exceed their target returns of 6.5% or more per year. For California’s workforce, building and operating these assets in water, energy, and transportation would create tens of thousands of high-paying jobs. For California residents, these assets would create abundance instead of scarcity, and lower the cost of living.
With respect to the environment, increasing the diversity and quantity of water and energy supplies would create climate resiliency, and in nearly all cases – since this factor is of great concern to many Californians – these operations would be either “carbon neutral” or very nearly so.
The challenge to rebuilding California’s infrastructure is not primarily financial. Attracting pension fund investment might be the centerpiece of finding the capital for these projects, but there are all the traditional sources of funds, namely bonds and private investment. The bigger challenge is cultural. Joel Kotkin, writing for the Orange County Register, vividly frames the cultural challenge we face:
“California is on the road to a bifurcated, almost feudal, society, divided by geography, race and class. As is clear from the most recent Internal Revenue Service data, it’s not just the poor and ill-educated, as Brown apologists suggest, but, rather, primarily young families and the middle-aged, who are leaving. What will be left is a state dominated by a growing, but relatively small, upper class, many of them boomers; young singles and a massive, growing, increasingly marginalized “precariat” of low wage, often occasional, workers.
This social structure can only work as long as stock and asset prices continue to stay high, allowing the ultra-rich to remain beneficent. Once the inevitable corrections take place, the whole game will be exposed for what it is: a gigantic, phony system that benefits primarily the ruling oligarchs, along with their union and green allies. Only when this becomes clear to the voters, particularly the emerging Latino electorate, can things change. Only a dose of realism can restore competition, both between the parties and within them.”
Californians must be convinced that the “better, faster and cheaper” mantra that used to define the Silicon Valley, and the cost-cutting virtue of innovations that have uplifted humanity throughout history, can again be our cultural guiding principle. They must be convinced that good jobs and affordable abundance are possible without overly compromising our culture that cherishes the environment. They must be convinced that these “green” values have been taken too far; that they are a cover for condescending, statist oligarchs.
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Ed Ring is the vice president for policy research at the California Policy Center.
This fall, voters in San Francisco, Alameda and Contra Costa counties will consider a $3.5 billion BART bond measure. Proponents argue that the measure is required to ensure the system’s safety and reliability. Critics are concerned that bond proceeds will be used to support excessive employee salaries and benefits.
BART management denies that claim. In an August 12 press release, BART management stated, “Not one penny, under any circumstance, can or will be used to pay for operating expenses, salaries, or benefits.” Indeed, using bond proceeds for such purposes would be illegal.
But there is an indirect way of using the bond to increase employee compensation. As Daniel Borenstein reports in The East Bay Times, BART currently devotes about 16% of its operating revenue to capital improvements. Once the bond measure passes, BART could reduce the amount of operating revenue it devotes to capital purposes, backfilling the shortfall with bond proceeds. BART management insists that it will not perform this sleight of hand, stating in its release:
To suggest we would use the money for salaries and benefits directly or “indirectly” is flat out wrong. Cutting spending from the Capital Investment Plan in order to increase salaries would undo decades of financial projections and do immense damage to BART’s capacity to improve in the future.
Borenstein is unconvinced, noting that BART directors and staff have refused to make a commitment to continue the 16% annual operating revenue transfers. And the Times editorial board shares their columnist’s concern: they have now advocated a no vote on the BART bond.
No one can be certain whether BART management or its critics will be correct, but it is useful to review the data on BART’s operating cost pressures. If BART management can’t restrain the growth in operating costs and are unwilling to offset these costs at the farebox, they will be obliged to skimp on capital investments.
As Chart 1 shows, BART labor expenses have risen sharply over the last five years. Budgeted labor costs have increased from $364.3 million to $499.6 million between FY 2012 and FY 2017, representing a constant annual growth rate of 6.52%. The amounts shown come from annual budget resolutions posted on BART’s web site.
Pension benefits are major sources of cost pressure. The system’s safety plan, administered by CalPERS, is only 63.3% funded. The employer contribution rate rose from 47.9% in Fiscal 2015 to 56.5% in the current fiscal year, and will rise again to 57.4% in Fiscal 2018. Most BART employees are in the system’s Miscellaneous employee plan. Contribution rates for this plan are lower but also escalating.
Chart 2 shows total BART employer pension contributions for the fiscal years ending June 30, 2014 through June 30, 2023 as projected in the most recent CalPERS actuarial reports. The projections beyond 2018 rely on optimist assumptions that CalPERS assets will return 7.5% and that BART’s covered payroll will rise by 3% annually. Still we see BART’s contributions rising from $35.7 million in Fiscal 2014 to $99 million in Fiscal 2023.
BART’s employer contributions are so high because benefits are generous and the retirement plan is carrying a lot of beneficiaries. BART police hired before December 30, 2014 are able to retire at age 50 with pensions of up to 90% of final salary. Newly hired PEPRA members must wait until age 57 and can only get up to 81% of final salary. PEPRA’s implementation for BART employees was delayed by the U.S. Department of Labor (DOL) because PEPRA interfered with collective bargaining. Citing Section 13c of the Urban Mass Transit Act, DOL refused to certify federal grants to BART if PEPRA was implemented. A Federal District Court overruled DOL, but the federal agency is continuing to challenge PEPRA on other grounds. (For more on this, see page 16 of BART’s 2017 Resource Manual).
As of June 30, 2015, the BART Safety plan had 275 beneficiaries – almost half again the number of active members. Many of the beneficiaries are under age 50, having earned retirement benefits due to disability.
Many retired safety and management employees draw very generous pensions. According to Transparent California data, 112 BART beneficiaries received $100,000 or more in 2015. Like many public employees, BART staff members are not eligible for social security, but unlike most agencies, BART provides an offsetting benefit. Employees can contribute to a 401(a) Money Purchase Pension Plan and receive an employer match. BART employees thus have a plan similar to a 401(k) on top of their generous defined benefit pension.
In addition to pensions, BART offers Other Post-Employment Benefits (OPEBs) including medical benefits to retirees and surviving spouses, retiree life insurance and survivor dental and vision benefits. According to its most recent audited financial statements, these benefits cost BART $26 million in Fiscal Year 2015. On the plus side, BART has pre-funded a large portion of its OPEB obligation. Further, BART’s actuary has found that an increasing proportion of eligible retirees and spouses are not participating in the OPEB plan, reducing the rate of cost growth. In fact, BART expects to pay less for OPEBs in Fiscal 2017 than it did in in Fiscal 2016. (For more on this, see page 19 of BART’s 2017 Resource Manual). But if medical cost inflation picks up in the years ahead and more beneficiaries take advantage of BART’s OPEB benefits, the system could experience rapid increases in its OPEB expenditures.
In summary, it is impossible to know whether BART will fulfill its stated intention of maintaining the current flow of operating revenues to capital needs, thereby avoiding a scenario under which bond proceeds are effectively diverted. We do know, however, that the system faces high and rising labor costs. Looking into the future, it is all but certain that pension costs will rise rapidly given current underfunding and the generosity of benefits. These escalating pension expenditures will be a source of pressure on the BART board to scale back much-needed maintenance expenditures.
“The state shall not have any liability for the payment of the retirement savings benefit earned by program participants pursuant to this title.” – California State Senator Kevin De Leon, August 7, 2016, Sacramento Bee
This quote from Senator De Leon, one of the main proponents of California’s new “Secure Choice” retirement program for private sector workers, says it all. Because De Leon’s comment reveals the breathtaking hypocrisy and stupefying innumeracy of California’s legislature.
Let’s start with hypocrisy.
De Leon is careful to protect private sector taxpayers from having to bail out their new state administered “secure choice” retirement plan, but no such safeguard has ever been seriously contemplated for the state administered pension plans for state and local government workers. These plans, using official numbers, are underfunded by about $250 billion. If you don’t assume California’s 92 state and local government worker pension systems can earn 7.5% per year, they are underfunded by much more – at least a half trillion.
Underfunded government worker pensions are the real reason why Prop. 55 is offered to voters to extend the “temporary” “millionaires tax” till 2030. That will raise about $6 billion per year. Underfunded local government worker pensions are also the reason for 224 local tax increases proposed on this November’s ballot, which if passed will collect another $3.0 billion per year. And it isn’t nearly enough.
The following table, excerpted from a recent California Policy Center study, shows how much California’s state and local government pensions systems have to collect per year based on various rates of return. At the time of the study, the most recent consolidated data available was for 2014. As can be seen – at a rate of return of 7.5% per year, state and local agencies have to put $38.1 billion into the pension funds. And at a rate of return of 6.5% per year, which CalPERS has already announced as their new “risk free” target rate, they have to turn over $52.3 billion per year. How much was actually paid in 2014? Only $30.1 billion.
To summarize, in 2014 the pension funds collected $8.0 billion less than they needed if they think they can earn 7.5% per year. But following CalPERS lead, they’re lowering their projected rate of earnings to 6.5%, which means they were $22.2 billion short. There are 12.8 million households in California. That equates to at least $1,734 in additional taxes per household per year just to keep state and local pensions solvent.
And it gets worse. Because in order to ensure this new “Secure Choice” program doesn’t get into the same financial predicament that California’s government pension systems confront, the “risk free” rate of return they intend to project is not 7.5%, or 6.5%, or even 5.5%. No, they intend to initially invest the funds in Treasury Bills, which currently pay at most 2.5%. In an analysis of Secure Choice’s proposed costs and benefits performed last April, we express what using a truly “risk free” rate of return portends for California’s private sector workers vs. public sector workers. These estimates are based on all participants, public and private, contributing 10% to the fund via withholding.
Public sector: Teachers/Bureaucrats, 30 years work – pension is 75% of final salary.
Public sector: Public Safety, 30 years work – pension is 90% of final salary.
Private sector: “Secure Choice,” 30 years work – pension is 27.6% of final salary.
There are two reasons for this gigantic disparity. First, public pension funds collect far more than 10% of salary. While the employee rarely pays more than 10% via withholding, the employer – that’s YOU, the taxpayer – typically kicks in another 20% to 40% or more, that is, a two-to-one up to a four-to-one employer matching contribution. Second, to justify the optimistic projections that make such generous pensions appear feasible, public pension funds have assumed a “risk free” rate of return of 7.5% per year.
Which brings us to innumeracy.
During the fiscal year ended 6/30/2015, CalPERS earned a whopping 2.4%. That stellar performance was followed in fiscal year ended 6/30/2016 by a return of 0.6%. It doesn’t take a Ph.D economist to know that California’s pension funds are going to need to greatly increase their annual collections. It only takes horse sense. But even horse sense eludes California’s innumerate lawmakers.
So here’s a modest proposal. Why not freeze the employer contributions into California’s state and local employee pension funds at 20% of salary (that’s a two-to-one match on a 10% contribution via withholding), and then, constrained by those fixed percentages, lower all benefits, for all participants, on a pro-rata basis to restore solvency. Better yet, why not enroll every state and local government employee in the Secure Choice program? Either way, “the state shall not have any liability for the payment of the retirement savings benefit earned by program participants.”
Along with this modest step towards dismantling the excessive privileges of these unionized Nomenklatura who masquerade as California’s public “servants,” why not enroll all state and local government employees in Social Security? Because California’s public servants make far more, on average, than private sector workers, and because Social Security benefits are calibrated to pay relatively less to high income participants, this step will financially stabilize the program.
Senator De Leon, are you listening? When it comes to state administered programs, all of California’s workers, public and private, should get the same deal.
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Ed Ring is the president of the California Policy Center.