California public pensions are not bullet proof

July 7, 2017

Mike F. Brown

By MIKE BROWN

One of the paradoxes of current California state and local politics is the continuing support by public employee unions of left progressive candidates and their policies. This emerging and expansive Democratic Party faction has recently been restyled and consolidated nationally as the Alternative Left Progressives (in honor of Bernie Sanders) and locally as the SLO County Progressives.

Historic support of the progressive left by unions through campaign contributions, candidate endorsements and boots on the ground campaigning is certainly understandable. After all, the progressives have delivered decades of exponentially compounding “cost of living” raises and guaranteed retirement formulae, which often grace career employees with pensions that are equal to their highest lifetime salaries.

Until recently, the current employees working towards retirement and the current retirees, and their survivors, have believed that it is legally impossible for either the various pension systems (CALPERS, UC Retirement System, County 1937 Act, And CALSTRS for teachers) or the funding jurisdictions (the state, public university systems, counties, cities, public school systems, and thousands of special districts) to abridge or otherwise modify benefit levels once promised.

Recent efforts by the City of San Jose and Orange County to change promised benefit levels for currently working and as yet unretired employees survived legal challenges. However, both the city and the county then had to partially abandon the efforts because critically needed employees such as police officers simply quit and moved to other jurisdictions that have not imposed benefit reductions.

This is possible because the various pension systems and jurisdictions within California have adopted reciprocity provisions that transfer the accumulated years of service and blend the benefit levels, if in fact they are different, from the sending to the receiving jurisdiction.

For example, an acquaintance of ours, who is an outstanding executive manager, has worked for a city, two counties, and several public universities over his career. He has been actively recruited by the various entities and now serves in a very high level position with direct compensation approaching $300,000 per year. He could end up with 35 years of continuous public service (not counting the military, in which he served in a combat branch and which is not counted in his years). In any case, 35 years times 2.5 percent of final average salary of $290,000 equals $253,000. Since he has accumulated sufficient quarters, he will also be eligible for Social Security.

In this environment, public employees have had little reason to support reform and have only recently acquiesced, in some cases, to adoption of two-tier systems under which future hires will receive lower benefits and will contribute more to the cost than their currently serving colleagues.

Not so fast

Recently and with increasing frequency, retirees and current employees ask me about the risks to their pensions. They prudently sense danger. These informal inquiries are usually framed in terms of the fear that their former or current employer will become so hard pressed that it will discover or engineer a legal way to renege on retirement payments or previously promised benefits. Barring a significant and protracted public emergency, the chance of wide spread retroactive legal changes still appear somewhat remote, but not impossible.

The more likely scenario is the potential collapse of the pension funds and/or collapse (bankruptcy) of the funding jurisdictions. Unfunded pension debt; unfunded deferred maintenance on roads, bridges, prisons, university buildings, park facilities, aqueducts, dams, water and sewer systems and existing debt that has been already issued by all the government jurisdictions is approaching $1 trillion dollars.

On top of this, the Alternative Left Progressives, including the SLO County Progressives, are officially calling for single payer medical care, which will require hundreds of billions of dollars in new taxes. Similarly, they are calling for free public university education, which would require further tens of billions. Moreover, they are advocating that these benefits be provided to any resident of California regardless of citizenship.

In other words, the current retirees are not safe. The current working employees are certainly not safe. If the state, local governments, school districts, and universities flounder, the public could simply contract with private sector alternatives. For example, Cal Poly receives only about 33 percent of its revenue from the state. Most consists of tuition. In a pinch, it could evolve into a private university.

As things begin to collapse, voters will reject tax increase bailouts. You would think that these retirees and future retirees would wake up and endorse candidates and officials who support growing the economy, more private sector jobs, and vigorous private investment, all of which would make it easier to meet the existing pension obligations.

You would also think they would question the SLO Progressive platform and ask its officers and committee chairs how they will protect their pensions, deal with the existing debt structure, add a half billion in new programs, and not annihilate the private sector and drive it out of state. They might also inquire as to how they plan to work these policies while at the same time banning oil and gas production and development; socializing the stockholder owned utilities; banning nuclear energy; and imposing project killing fees, taxes, and regulatory hurdles on new home and commercial development.

What current retirees and current vested working public employees need to understand is that all boats rise with a vigorous and growing economy. The historically accumulated and continually growing avalanche of state and local regulations, fees, and taxes undermine investment, job creation, and the generation of state income tax, corporate income tax, sales taxes, and property taxes.

This reduction in resources will in turn increase the pressure for the state, cities, counties, school districts, and special districts to find ways around the pension cost dilemma. Voter initiatives and legal remedies will be attempted. In the face of this growing and necessary pressure, if public services and education are to be preserved, it would be prudent for public employees and public retirees to reject the neo-progressive status quo and to elect officials who will ease the problem by enabling a better economy and a naturally growing revenue base.

Mike Brown is the Government Affairs Director of the Coalition of Labor Agriculture and Business (COLAB) of San Luis Obispo County. He had a 42-year career as a city manager and county executive officer in four states including California. He can be reached at mike@colabslo.org.







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37 Comments

  1. womanwhohasbeenthere says:

    San Luis Obispo (city) owes CalPERS over $152,000,000 for its public pensions. Measure Y and Measure G, the 1/2 cent sales tax increases, were not made for “extras” as they were sold but rather to create a steady income stream to enable the city to continue its profligate spending for stupid programs (trash can police, anyone?) and especially overpriced staff. Are Katie Lichtig, city attorney Dietrich, and other top staff worth $1000 a day? That’s $5000 a week, the same as the San Luis Coastal Superintendent makes who cannot afford to buy a home here without taxpayer help.
    Government jobs are just welfare for the middle class.
    There should be a cap on salaries and a cap on pensions as well. People in the private sector fund their own retirements with 401-K plans or IRAs and if you are self-employed, you pay for your Social Security twice, as the employer and employee.
    The current system is unsustainable. Perhaps some of these people could be bought out early, before it collapses; pensions could be capped at a percentage or maximum benefit, whichever is less; or they could be eliminated entirely or replaced with a 401-K style plan. No private sector pension is guaranteed; companies go bankrupt and retirees get pennies on the dollar from the Pension Benefit Guarantee Fund (like the FDIC that insures bank deposits but only to a limited amount of money). What makes pensions for government jobs so sacrosanct?

    (2) 4 Total Votes - 3 up - 1 down
  2. obispan says:

    Does this include Mike Brown’s fat Katie Lichtig-level public pension or just those of the hard-working public sector employees he demonizes?

    (5) 7 Total Votes - 6 up - 1 down
  3. wolfhound says:

    Define Inevitability,

    (-3) 5 Total Votes - 1 up - 4 down
  4. phoenix.rising says:

    Instead of hitting Mr Brown look at the problem that is going to impact us all.

    Mr Brown has a retirement and killing his retirement does not fix this problem.

    We must renegotiate all of our gov retirement programs.

    Where is the will to do that????

    (16) 20 Total Votes - 18 up - 2 down
    • DocT says:

      Oh there’s a will to do that. Not political will…..but the people. People react in one of two ways when they are forced to work for someone else’s benefit:

      1. The move and take their business elsewhere
      2. They stop working and go on government programs, becoming the receivers instead of the producers.

      Both actions hasten the demise of these pensions. The vast majority of people understand that government folks have been riding on the backs of taxpayers and they’re quite sick and tired of it.

      It’s only a matter of time till either the pensions collapse, or the people finally rise up and fight back against theft.

      (12) 24 Total Votes - 18 up - 6 down
      • phoenix.rising says:

        All of your points are well taken.

        1. Toooooo much government
        2. Overpaid workers
        3. Set up an account that the worker pays into for their retirement
        4. If they want the gov to create their retirement for life then the formula needs to be drastically changed.
        5. My husband retired from a big company and is receiving 1/3 of what he made while working for 30 years. This formulas has been reduced further since he retired. But he paid into a 401K for 25 years to supplement his retirement.
        6. Being self employed or working other than government jobs puts the burden on the individual where it should be.

        Government workers not only get high pay and can be hard workers but they develop a political will that overrides all of this. They have been culled and cleansed to be mostly leftists and progressives that would never help end this raping of the taxpayer. They must look the other way because they have families to raise and you can’t turn it off willingly….

        (4) 18 Total Votes - 11 up - 7 down
        • Thorsmagni says:

          Over paid Government workers???? I worked BELOW the level of livable wage. I notice everybody thinks that all state or government workers make all this damn money? Well WRONG. I notice they only quote high price management, when custodians make maybe $2200/month gross, I only made as as admin worker $3,000/month gross. So please give it a break. What I do BELIEVE in is a cap. Once they hit $100,000 I really think there needs to max out. Look at the feds, same thing. There should be caps.

          (1) 1 Total Votes - 1 up - 0 down
  5. Liberty1948 says:

    Well written article, Mike. The tenor of your article seems to be you are trying to save public pensions, not destroy them. You and others on a pension will benefit from these actions. The attacks on you at this site are weird.

    (10) 30 Total Votes - 20 up - 10 down
    • DocT says:

      Save public pensions? I hope that’s not what he’s advocating.

      What about saving my pension and other people like me who are self employed? Why should I be forced to save their pension and struggle to fund my own?

      Why is theirs guaranteed and mine is not? Why do they have a “right” to protect their pensions and I have no such “right?”

      This is why public pensions are not sustainable. They are, at their core immoral.

      (18) 38 Total Votes - 28 up - 10 down
      • Ricky2 says:

        “Why should I be forced to save their pension and struggle to fund my own?”

        Seems to me you conceptualize this incorrectly. Perhaps the question is “Why shouldn’t everyone who works have a defined benefit pension?” A generation ago, that was the American expectation. That’s how it works in almost every other Western democracy. We are exceptional in that we now expect the individual to take care of himself. Of course, that’s easy for the rich, not so much for most of us.

        Maybe the problem is we’ve become too mean to each other?

        (2) 4 Total Votes - 3 up - 1 down
        • Slosum says:

          Ever heard of a 401K Ricky2? Defined benefits are not sustainable. And isn’t sustainability what the progressives love to preach?

          (-1) 3 Total Votes - 1 up - 2 down
  6. Truthsayer says:

    The reality is that these inflated public pensions at all levels of the state, counties, and cities are not sustainable and bantering rhetorics will never change this simple fact. They will go broke and those affected will be lucky to see cents on the dollar, if anything…

    (27) 41 Total Votes - 34 up - 7 down
    • DocT says:

      You speak truth, Truthsayer. Government pensions are not sustainable and never will be sustainable, regardless of personal preference for rhetoric.

      With any luck, this stuff will crash and burn in a spectacular meltdown in the near future. We’d all be so much better off if people didn’t see being a cop or government worker as a wise financial choice. We need far fewer of both cops and bureaucrats.

      Perhaps a total bankruptcy and collapse of the pension system—while painful in the short term and even tragic for some—-will help restore our freedom and reduce the boot of government on our necks.

      I’m responsible for my own retirement savings. 100%. I’m self employed. I’m sick having to be responsible for my own AND someone else’s retirement, especially when the other people come before me, and I’m the one doing the work and paying the taxes.

      (16) 36 Total Votes - 26 up - 10 down
      • rukidding says:

        You are absolutely correct. Anyone, most politicians, that tell you it’s sustainable is just not telling the truth. So what’s new?
        Unfortunately we the taxpayers will be the ones who really will suffer. Before they ever consider doing anything with these pensions their first act will be to reduce services to the taxpayers in order to keep paying themselves. It’s the same old ball game, first reduce police and fire services so that the people will panic and submit to higher taxes. But this time they are getting too close to the bottom of the tank.
        If you look at any of the local budgets you will see that close to 75% of the budgets goes towards employees but at the same time never mentions the unfunded accounts that they have which is in the millions.
        These local jurisdictions should start posting tsunami signs so when the tidal wave of financial disaster arrives the people can run for their survival.

        (6) 24 Total Votes - 15 up - 9 down
  7. c.d.cox says:

    As congress and SCOTUS told military retirees promises are meant to be broken.

    (0) 14 Total Votes - 7 up - 7 down
  8. Ricky2 says:

    Hey Mike, does that mean you anticipate losing your $132,000 public pension? Fear, fear, fear. Sweat, sweat, sweat. No wonder you’ve found a new occupation.

    (1) 27 Total Votes - 14 up - 13 down

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