Governor Brown’s proposal to borrow money to fund CalPERS is similar to a move by Puerto Rico in 2008. That step backfired and now Puerto Rico is bankrupt.
Retired LA schools chief Ramon Cortines received pension benefits totaling a remarkable $238,383.67 last year, possibly through a controversial pension-spiking practice known as “air time” – the purchase of credit for time not worked.
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|
Over a fourth of El Monte’s residents live in poverty, but, among public-sector workers poverty is unlikely. Retired City Manager James Mundessen told the LA Times that he personally receives $216,000 a year in retirement – an amount that finances a lavish lifestyle that includes golfing trips in Scotland. Mundessen is one of eight city officials collecting over $200,000 per year.
Leroy “Lee” Baca, the man served for 16 years as L.A. County’s top cop, has admitted to charges of lying to the FBI in a coverup of inmate abuse at the county jail. But even if convicted, the retired Los Angeles County Sheriff will continue to receive retirement benefits – today valued at more than $342,000 annually. A conviction would put him in a unique position to corner the prison commissary.
“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.
It is no secret that there are a record number of local tax increases on the November 2016 ballot, but the dirty little secret is that the strongest driving force behind these measures is “unsustainable” skyrocketing pension costs.
The specifics of each case need to be evaluated on a case by case basis, which I have done, but the simple conclusion remains a vote for local tax increases is essentially a vote for more government revenue to pay for an explosion in pension costs for public employees.
Each local story is different, and there maybe a few outliers that I have not found thus far, but if you examine the data closely the evidence is there to prove this assertion.
Most of these tax increases are sold as essential to provide some “essential” government function that polls well, such as roads, schools, or public safety, but the real effect is to allow the public agency to free up more funds to pay for the “crowding out effect” that pension costs are having on local budgets at all levels of government in California.
“There are more local revenue measures on California ballots this November than any of the five prior gubernatorial or presidential elections,” stated Michael Coleman, an expert in local government finance, who found that there are 427 measures proposed for the November 2016 ballot. This number is 40-60% higher than any other election going back to November 2006.
A review of the measures reveals that the proposed local tax increases are concentrated in the parts of the state that also have the biggest pension problems, based on my research.
Moreover, a significant number of measures are even proposed in areas such as the Bay Area which have significant economic growth, and therefore growth in tax revenues, but these localities still say they need more money to cover large baseline increases in the cost of government, mostly due to pension and benefit costs.
If you examine local agency annual budgets, more than 80% of their cost increases are driven by pension costs, and other employee compensation benefits costs, particularly health care.
In the Bay Area alone, there are a record number of measures, despite rapid tax revenue growth of 4-10% over the past several years. The growth in real gross domestic product has averaged just over 4% for the San Francisco—Oakland—Hayward metropolitan areas for 2014 and 2015, according to the U.S. Department of Commerce.
The biggest of these measures is the proposed $3.5 billion bond for the Bay Area Rapid Transit District (BART) which is paid for by parcel tax increases on homeowners in Alameda, Contra Costa and San Francisco Counties.
But a close analysis of the measure shows that $1.2 billion of the bond can actually go to pay for labor costs which are driving big budget deficits at BART, along with generous contract extensions approved in 2013 and 2016 that boost salaries by more than 30% for workers that were already the best paid transit workers in the nation.
Taxpayers in all three Bay Area counties taxed under the propose BART bond, also face a proposed 0.5%-0.75% sales tax increase for “transportation” and “general city services.”
There are a variety of other parcel taxes on the ballots in Alameda, Contra Costa and San Francisco Counties to pay for schools and school construction. Voters in Alameda County face a hike in the utility users tax to “modernize” the tax at a cost of $9.6 million.
Voters in San Francisco face a proposed increase in the real property transfer tax on homes sold to raise $45 million and another “grocery tax” to raise another $7.5 million.
Why are all these taxes necessary? Primarily to fund unsustainable benefit costs, not improvements in government services provided.
The City and County of San Francisco faces $16 billion in unfunded pension debt for all its public plans based on a “market rate” evaluation by Stanford University, and another $2 billion in debt for retiree health care.
Depite being one of the wealthiest cities in the state, San Francisco’s total net value (assets minus liabilities) is only $6.5 billion as of 2015, which is eclipsed by its pension debt by nearly three times. And this debt continues to grow.
Alameda County has several cities and the county itself, but pension debt continues to be a problem for most localities, particularly the City of Oakland.
The City of Oakland faces a $3.5 billion unfunded market rate pension liability, despite record revenue growth, according to Pensiontracker.org. In 2015, the city’s balance sheet went negative to the tune of $86 billion due to the inclusion of pension costs, down from a positive $1.2 billion in 2014.
Voters in Oakland also face the “grocery tax” on sweetened beverages to raise $10 to $12 million that is sold as being for “health and education programs” but the revenue can in effect be used to help pay for pension cost overruns.
Contra Costa County is another wealthy Bay Area County with surging revenues, but on paper the county is dead broke due to huge pension liabilities. The market value of the county’s pension debt is $6.5 billion, which helped sink the county’s balance sheet in 2015 to a negative $192 million net value, down from $852 million in 2014.
Contra Costa County’s balance sheet will take another $500 million hit in 2017 when its unfunded retiree health care liabilities come onto the books.
San Francisco, Alameda, and Contra Costa are some of the wealthiest and fasted growing in the state in terms of economic and revenue growth, yet they a seeing a continued decline in their balance sheets due to an unchecked explosion in the cost of government, particularly due to pension and other employee benefit costs such as health care.
Politicians who govern these counties and many others in the state, which are even in worse shape, are turning to voters to increase taxes for “essential” or popular government programs.
But the unspoken true is that the underlying cause of the record number of proposed tax increases is the inability of local governments to effectively manage their budgets, particularly with regard to “unsustainable” pension costs for public employees.
Don’t be fooled this November. Every vote for a local tax increase is essentially a vote to reward bad behavior, poor fiscal management, mounting debt, and the state’s unsustainable system of public finance.
The whole system is propped up by powerful public employee union interests both in Sacramento and at the local level, so the only thing “essential” about these measures is that they are needed to continue to fund unaffordable benefit costs for a privileged class of public employees.
About the Author: David Kersten is an expert in public policy research and analysis, particularly budget, tax, labor, and fiscal issues. He currently serves as the president of the Kersten Institute for Governance and Public Policy – a moderate non-partisan policy think tank and public policy consulting organization. The institute specializes in providing knowledge, evidence, and training to public agencies, elected officials, policy advocates, organization, and citizens who desire to enact public policy change.
It’s been 19 months since the U.S. Department of Justice released its scathing report on the Ferguson Police Department. Chief among the DOJ’s findings: Ferguson’s law enforcement practices were “shaped by the city’s focus on revenue rather than public safety needs.” Nearly every policing activity – including tickets, misdemeanor fines and court fees – was seen as an income opportunity.
That model led to tension between police and citizens, disrupting families and the community. When a white police officer shot and killed Michael Brown, a black 18-year-old, on August 9, 2014, a city balancing on a knife’s edge toppled quickly into chaos.
Now what might be called Ferguson’s worst practices have been brought to Huntington Beach.
Last month, as the Orange County Register reported, the City Council approved a plan to hire a city prosecutor to handle misdemeanors.
“A significant number of misdemeanors go unprosecuted,” City Attorney Michael Gates told the Register, adding that the prosecutor will “add a lot of teeth to our laws.”
“There will be a whole class of crimes that will now be prosecuted where the DA may not have gotten to them,” Gates said. “We will prosecute every one of them until conviction.”
This comes on the heels of a proposal pushed through the council last year to substantially raise city fees and fines. Confronting a rising price tag for compensation for police and firefighters, then councilman, now mayor, Jim Katapodis put forward the plan as a means to cover the cost, and additional police officers.
Parking in front of a handicapped ramp will now cost you $356, an incredible jump from its former cost of $55. A glass container on the beach? Skateboarding? They’ll cost you $175 each, up from $125. There are others.
It’s not entirely surprising that Katapodis’ main public policy objective has been to increase the number of law enforcement officers to pre-recession numbers. He has spent his professional career in and around law enforcement. Police and fire unions have been staunch supporters, first backing Katapodis in 2010, when he ran for City Council while still an LAPD sergeant. According to Katapodis, adding more sworn officers is essential to ensure a safe city and should come at whatever cost necessary.
But over the last few years violent crime has been falling. And suspending basic accounting – adding more officers at higher pay – has driven Huntington Beach’s finances into the red.
City Council member Erik Peterson, who voted against the fee increases, said he didn’t understand how the city can start paying salaries without knowing how much they’ll receive from the increased fees.
In fact, H.B. owes $300 million on pensions for its retired city workers. That number was high enough to warrant a 2013 Moody’s investigative review. That review didn’t lead to a downgrade, but it’s a red flag.
In H.B., the Police Department is being expanded literally at the expense of the public, setting police against residents in a struggle not for public safety but for revenue. Critics say the mayor and City Council majority don’t even know how much revenue that parasitic system will generate. It’s equally clear they haven’t considered its costs. It cost Ferguson almost everything.
Matt Smith is a graduate student at Princeton Seminary, and a Journalism Fellow at the California Policy Center in Tustin.
New local taxes and new local borrowing are a regular phenomenon in California elections, but this year our government union controlled politicians have outdone themselves. Let’s compare:
November 2014 – $11 billion in new borrowing proposed via 118 local bond measures, 81% passed. Of the 117 local proposals for new taxes, 68% passed.
June 2016 – $6.2 billion in new borrowing proposed via 48 local bond measures, an estimated 93% passed. Of the 42 local proposals for new taxes, an estimated 66% passed.
November 2016 – $32.2 billion in new borrowing via 193 local bond measures, and 224 local proposals for new taxes!
Not only do these general and primary and special election tax and bond measures accumulate year after year, but they nearly always pass! The primary source for this information is the California Tax Foundation, who have just produced another excellent guide “Local Tax and Bond Measures 2016.” This time, they have not only compiled a list of all of the proposed local taxes and bonds, but for each of the proposed new local taxes, they have compiled the projected annual collections. The result is stunning.
2016 California Local Tax and Bond Measures
As this table reports, $32.2 billion in new borrowing is being proposed, nearly all of it for schools and colleges. At 5.0% annual interest with a 30 year repayment plan, this borrowing will cost property owners another $2.0 billion per year in increased property taxes. If over 90% of these bonds are approved by voters, as recent history indicates is likely, California’s taxpayers will suddenly have saddled themselves with nearly $30 billion in new government debt.
Also as reported on the above table, the 224 proposed tax increases are estimated to cost taxpayers at least $2.9 billion per year. “At least,” because CalTax was unable to find revenue projections for 29 of them. And while “sin taxes” on marijuana and soda promise to bring in $58 million and $18 million, respectively, it is sales tax, that everyone pays, that will bring in most of the revenue, over $2.3 billion.
Because local taxes are numerous and dispersed onto hundreds of differing ballots across the state, they don’t get the visibility that state tax increases generate. But collectively they are just as significant. California’s Prop. 30, passed by voters in 2012, generated about $6.0 billion per year. That same tax, which was supposed to be temporary, will be extended through 2030 if voters approve Prop. 55 this year. But if you compare this statewide tax to the proposed local taxes, $2.9 billion per year, along with required payments on the local bonds, $2.1 billion per year, you are adding another $5.0 billion annual burden to taxpayers.
Passing Prop. 30 was a major fight. Similarly, Prop. 55 has huge visibility with voters. But because nearly all of the local measures pass, and because dozens if not hundreds of them appear on the ballot every election, local taxes and bonds matter more. Invisible, ongoing, and ever expanding, they are silently elevating the cost-of-living for ordinary Californians as much or more than state taxes.
Where does this money really go? Why is there an insatiable thirst for more taxes and more borrowed funds?
One word: Pensions. One cause: Government unions and their allies in the financial community, who together comprise what is by far the most potent political lobby in California.
A May 2016 analysis by the California Policy Center, using the most recent data available from the U.S. Census Bureau, estimated that during 2014, California’s 80+ independent state/local government employee pension systems received $30.1 billion in contributions (ref. table 2-A). Later in that same report, on table 2-C which is displayed below, one can see how much these pension systems actually need to remain financially healthy. At a minimum, they are collecting $8.0 billion per year LESS than they need. And that is if the investments they’ve made yield an annual return of 7.5% per year for the next 30 years. At the modest reduction of that projection to 6.5% – which even CalPERS has announced they are going to phase in as their new projection for calculating required annual contributions, these pension systems are collecting $22.2 billion per year LESS than they need.
California State/Local Pension Funds Consolidated
2014 – Est. Funding Status and Required Contributions at Various ROI
If California’s state and local government workers participated in Social Security like the rest of California’s workers, instead of receiving guaranteed defined benefit pensions that on average pay FOUR TIMES what Social Security recipients can expect, there would be no insatiable need for more money for the pension systems. Even if California’s state and local government workers merely received defined benefits that paid, on average, TWICE what Social Security recipients can expect, these pension funds would currently have surpluses. Moreover, there would be money left over in local municipal and school district operating budgets to maintain facilities, instead of having to perpetually borrow.
Six billion per year ala Prop. 30 and Prop. 55. Another five billion per year thanks to new proposed local taxes and borrowing just this November. And it’s not even close to enough. California’s state and local government pension systems are going to need somewhere between $50 to $60 billion per year to stay afloat, and currently they’re collecting barely more than half that much.
No wonder there’s the perennial scramble for more. More. MORE.
* * *
Ed Ring is the president of the California Policy Center.