Daniel Borenstein: State retirement systems placing risky wagers at taxpayer expense

By Daniel Borenstein

Posted: 12/17/2011 04:00:00 PM PST

Updated: 12/18/2011 03:15:18 PM PST

California taxpayers should ask themselves, in the words of Clint Eastwood's famous movie character, "Do I feel lucky?"

We're not staring down the barrel of "Dirty Harry" Callahan's gun wondering whether there's a bullet in the chamber. Instead, we're gambling our financial future on whether public pension fund investments will surpass reasonable expectations.

If state Treasurer Bill Lockyer, union leaders and the state's largest government employee retirement funds have their way, they'll continue betting against the odds. It's not surprising. It's not their money at risk. They won't have to cover the losses. Taxpayers will.

Last week, a study led by Joe Nation, a Stanford public policy professor and former Democratic assemblyman from Marin County, made explicitly clear the magnitude of the risk. He found that there's a better-than-even chance we're going to lose the wager.

It was an insightful analysis of the high-stakes gamble we're taking by counting on unrealistic investment returns for the California Public Employees' Retirement System, the nation's largest government pension fund; the California State Teachers' Retirement System, No. 2 in the nation; and the University of California Retirement Plan.

If Californians understood their risk exposure, and Nation's findings, most would be outraged.

Here's how it works: Public-employee pension systems are supposed to be pre-funded. That means employees and employers should contribute enough money in advance, when combined with investment returns on those funds, to pay those workers in retirement.

The assumption about the investment returns is critical. The higher the expected return, the less money must be contributed now. But here's the kicker: If investments don't meet expectations, the employer -- the taxpayer -- must make up the entire shortfall. The employee has no risk.

http://www.insidebayarea.com/oaklandtribune/localnews/ci_19570039?source=rss

U.S. probe links Caltrans pair to thefts

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By Charles Piller
cpiller@sacbee.com

Published: Sunday, Nov. 27, 2011 - 12:00 am | Page 1A

Last Modified: Sunday, Nov. 27, 2011 - 9:25 am

A federal investigation has found that two Caltrans employees recently fired over problems in the agency's unit that tests underground foundations for bridges were involved in the theft of construction materials owned by the state and federal governments.

State Sen. Mark DeSaulnier, D-Concord, chairman of the Senate Committee on Transportation and Housing, said the report sheds new light on a possible nexus between the thefts, which benefited former unit chief Brian Liebich, and the handling of fabricated test results for three freeway structures by his subordinate, technician Duane Wiles. Both issues originally were reported in a recent Bee investigation.

"Criminal activity gave Wiles and maybe others the opinion that people in the (foundation testing) branch didn't need to do their jobs because their supervisor couldn't do anything about it," DeSaulnier said.

Read more: http://www.sacbee.com/2011/11/27/4082132/us-probe-links-caltrans-pair-to.html#ixzz1evl4Zr9a

LAO: CA Govt. Pensions ‘Generous’

NOV. 11, 2011

By JOHN SEILER

The California Legislative Analyst’s new report on state pensions is a thorough and sobering look at what’s really going on. The report points out that the plans are “Not Just One Pension System…But Many.” So generalizations are imperfect. Nevertheless, the LAO found:

* “Generous” pensions:

“We believe that the data shows that defined pension benefits offered to California’s state, city, county, and special district employees have been among the most generous in the country in recent years. While there have been some reductions in these benefits recently, some California governments still offer among the most generous defined pension benefits available anywhere in the United States public or private labor market today. In many cases, California public pension benefits for career public employees—coupled with other sources of retirement income—can replace far more than the 65 percent to 75 percent income replacement ratio described earlier.”

* $100K club growing:

“In recent years, there has been considerable public attention related to retired California public employees receiving annual pension benefits of $100,000 or more. These individuals are a small, but growing, segment of California’s public sector retirees. About 2 percent of CalPERS and CalSTRS retirees currently receive such payments. Payments to these retirees now equal around 7 percent to 9 percent of total pension payments from the two systems.”

* Pensions still high:

Despite changes since 2005, the LAO notes, “Nevertheless, some local governments have continued to offer particularly generous pension benefits, including ’2.5 percent at 55,’ ’2.7 percent at 55′ and ’3 percent at 60′ for miscellaneous employees, as well as ’3 percent at 50′ benefits for public safety employees. In pension parlance, for example, 2.5 percent at 55 means—in simplified terms—that a retiree can receive a benefit equal to 2.5 percent (the benefit factor or multiplier) of his or her final compensation multiplied by the number of years of service if retiring at 55.”

* Above replacement level:

“As we suggested in our 2005 report, these kinds of generous benefit levels result in some career public service workers receiving pension benefits above—and in some cases, well above—the 65 percent to 75 percent replacement ratio described above, particularly when Social Security and other sources of retirement income are considered.” The replacement level is the amount of retirement income it takes to replace a salary during one’s working years.

* Benefit formulas still generous:

“While the state and some other public entities have negotiated with employees for reductions in these generous benefit formulas, CalPERS’ most recent annual report shows that a few governments were still switching to some of these particularly costly benefit packages as recently as 2009–10.”

http://www.calwatchdog.com/2011/11/11/lao-ca-govt-pensions-generous/

S. Diego Pension Reform Makes June Ballot

NOV. 10, 2011

By JOHN HRABE

It’s official. San Diego’s Comprehensive Pension Reform measure has qualified for the June 2012 ballot.

It’s dubbed “CPR” from the initials of the measure, but also from the CPR medical procedure for reviving a nearly dead patient. The ballot CPR would bring San Diego’s finances back from cardiac arrest.

“According to the official count by the City Clerk, a total of 115,991 valid signatures were contained on our petitions — well in excess of the required 94,500 signatures necessary to force an issue on the ballot,” Councilman Carl DeMaio announced in an email blast to his supporters on Nov. 8. “After years of fiscal crisis, service cuts, and higher fees, voters can now impose a comprehensive solution to end unsustainable pension payouts in city government.”

For those keeping score at home, that’s 21,491 more signatures than were needed to qualify the city-charter amendment for the primary ballot. The campaign’s meticulous internal verification process produced a valid signature rate of 80 percent.

It hasn’t been an easy road for proponents of the measure, who spent more than $1.1 million to qualify the measure for the ballot. They also faced what can only be described as a signature-gathering street fight.

A Competitive Edge Research poll from earlier this year showed 70 percent of San Diego voters supported major changes to the pension system. But leaders of the pension reform coalition aren’t taking any chances. They’ve invested too much sweat equity into the campaign to become overconfident or complacent.

During my weekend shadowing the initiative campaign, Tony Krvaric, the chairman of the San Diego County Republican Party, and Tom Sudberry, the past president of the San Diego County Lincoln Club, both went door-to-door to collect signatures.

http://www.calwatchdog.com/2011/11/10/s-diego-pension-reform-qualifies-for-june-ballot/

Public pensions are protected in Constitution

But some believe the contracts clause doesn't prevent the state from changing costly retirement plans.

By George Skelton Capitol Journal

November 14, 2011

From Sacramento

In Philadelphia, 224 years ago, some men tucked these words into the nation's new Constitution: "No state shall … pass any … law impairing the obligation of contracts…"

Those words, squeezed into a very long sentence in Article 1, Section 10, listing powers denied the states, became known as the "contracts clause." And it is playing havoc with modern-day public pension reformers, including Gov. Jerry Brown.

As widely interpreted — most importantly by the courts (or so we laymen are told) — the clause means that pensions promised state and local government workers on the day they were hired cannot be reduced without giving them a new compensating benefit.

In other words, some kid walks into a state office seeking a junior clerk job. He lands it. That constitutes a contract. The new hire is entitled to the pension benefit then in effect if he sticks around long enough to collect it — even if the subject of retirement perks never was discussed, as it surely would not have been.

"Employees are entitled to benefits in place during their employment," asserts the California Public Employees' Retirement System in a recent report.

"Promised benefits may be increased during employment, but not decreased, absent the employees' consent.... The courts have established that this rule prevents not only a reduction in the benefits that have already been earned, but also a reduction in the benefits that a member is eligible to earn during future service."

That's a jaw-dropper, I suspect, for most private-sector workers. They don't enjoy such constitutional protection. They're covered by a federal law that basically guards only the pension benefits they've already earned.

As too many of us know, there has been an epidemic of private pension butcheries in the last decade. Companies simply have announced that they're freezing benefits. Employees will get what they've accrued — what they're vested in — but will earn no more in the future.

The company's new retirement plan will be a 401(k), where the financial risk is borne by the employee rather than the employer. Forget what, if anything, the worker was told when hired. The world has changed.

Naturally, this has created a great deal of pension envy among the vast majority of voters who don't work for a state or local government.

And it's at the heart of voter demands for public pension reform — with plenty of legitimate justification: The future liabilities of public pension systems are underfunded by hundreds of billions of dollars.

The deficit-ridden budgets of state and local governments need immediate relief from the escalating cost of pension contributions for current employees. And the long-term fiscal health of these governments requires a significant reduction in retirement benefits for future hires.

http://www.latimes.com/news/local/la-me-cap-pensions-20111114,0,1935002.column

Law seeks to protect teacher jobs
School districts uncertain of impacts

By Karen Kucher & Maureen Magee • U-T
7:29 p.m., June 30, 2011
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San Diego County school districts on Thursday were assessing surprise state legislation that could prompt some teacher layoffs to be rescinded and throw budgets into disarray.

The last-minute school legislation emerged publicly less than an hour before lawmakers approved it in a late-evening Tuesday session as part of the budget package approved by the Legislature.

Assembly Bill 114, pushed by the powerful California Teachers Association, was signed by Gov. Jerry Brown late Thursday.

Representatives of San Diego County districts, like their counterparts across the state, were caught off-guard by the bill and uncertain about whether it would force them to undo recent budget actions.

On Tuesday, for example, the San Diego Unified School District board adopted an austere budget that included eliminating 750 teacher positions and 600 other positions. Officials said it will take time to figure out how to respond to the legislation, which as if not yet been signed by the governor.

Monica Henestroza, director of governmental relations for the San Diego Unified School District, has been working to figure out what the budget could mean. San Diego Unified authorized layoffs to help offset a $114 million deficit to its $1.04 billion operating budget.

“From a state perspective, this is a source of a lot of contention,” she said. “There are a lot of different interpretations right now... There will be some time until there is consensus — if there ever is. There are also questions about enforceability.”

Linda Zintz, spokeswoman for San Diego Unified, fielded emails and calls from teachers and others on Thursday who wanted to know if the state budget deal would cancel layoffs.
http://www.signonsandiego.com/news/2011/jun/30/law-seeks-to-protect-teacher-jobs/

The People’s Republic of Kalifornia: Unions’ Takeover Nearly Complete Posted by LaborUnionReport (Profile) Wednesday, June 29th at 8:00AM EDT 3 Comments It was only a matter of time, you know. As unions in California have long placed their cronies into political office from San Francisco to San Diego, their control over the state legislature in Sacramento is nearing final completion. What little Republican resistance there is will likely be decimated in the coming years as the SEIU’s plan to mate liberals with RINOs comes to fruition. Now, though, the unions have a plan to complete their takeover of the state entirely. Sponsored by AFSCME and introduced earlier this year by Democrat assembly member Nora Campos (whose husband is the CEO at Santa Clara & San Benito Counties Building & Construction Trades Council), California Assembly Bill 455 provides the following: …when a local public agency has established a personnel commission or merit commission to administer personnel rules or a merit system, the governing board of the public agency would appoint 12 of the members of the commission, and 12 of the members of the commission, nominated by the recognized employee organization, would be appointed by the governing board of the public agency . Whenever multiple bargaining units are represented by different recognized employee organizations , the employee organization representing the largest number of employees would designate commission members pursuant to that provision. In sum, if AB 455 passes, it will give unions all across the state the power to… …directly nominate half the members of the bodies that establish wages, work rules, and benefits; adjudicate workplace disputes; and set minimum qualifications and standards for job examinations. In certain cities, like San Francisco, the civil service commissions even set the salaries of the public officials. San Jose Councilmember Pierluigi Oliverio, a critic of AB455, says the bill would give unions too much power. [Ya think?] “The way it’s done now, the whole council selects members from San Jose to the civil service commission, which is better than the unions appointing only people they like,” he said. “I can see nothing but skewed outcomes.” [snip] “Its pretty clear that certain assembly members are aligned with certain groups,” Oliverio said. “And it’s no surprise Assembly Member Campos is a big supporter of and supported by unionized groups. “It’s a business model, because if the work is not done by union workers, there’s no dues. When we outsourced the graffiti program, they lost those union dues.” Even as Marxist “progressive” as San Francisco is, AB455 also has its critics: “Were the Board of Supervisors to appoint members of the Civil Service Commission, all of its direct appointees, it’s safe to say, would be pro-union,” says Don Casper, a commissioner for 11 years. “The members nominated — that is, appointed — by SEIU would be union advocates.” Of course, the check and balance to AB 455 is that the unions would only get to seat one half of the public agency. Presumably, elected officials would appoint the other half… Oh, wait… If the unions are the ones who get those public officials elected, then… Never mind. Let the exodus of the sane continue.

Californians are abandoning public education
Larry N. Gerston
Thursday, May 26, 2011
Gov. Jerry Brown and public education leaders now warn that failure to extend the temporary taxes on income, sales and motor vehicles could reduce the school year by as much as 20 days. As it is, only four states now have shorter attendance requirements than California. In the past, such admonition might have galvanized public support. But this time around, growing numbers of Californians seem to be saying, so what? Instead, Californians should be outraged.
With the latest round of cutbacks enacted by the Legislature a couple of months ago, California is slated to spend about $7,000 per student in the upcoming year, leaving the state ranked at 48th among the 50 states. That amount is about $3,000 per student below the national average, and less than half the per-student expenditures of New York, New Jersey and Connecticut. Even Texas spends $11,000 per pupil. And California's figures don't include the new cuts now on the table.
So, why the blase attitude? Because people are abandoning public education.
Large numbers of Californians are moving their children from public to private schools. Meanwhile, incomes have gone in two different directions. Whites had median personal incomes in 2006 of $35,000, significantly higher than Asians ($27,862) and African Americans ($26,000), and nearly double the median incomes of Latinos ($19,000).
Clearly the "haves" are doing fine, thank you, so much so that many are placing their kids in private institutions. With that done, why should they worry about spending in an area that consumes 40 percent of the state budget? Another reason for muted clamor may relate to the nature of the electorate. Although the state is now 42 percent non-Hispanic white, this same group amounted to 65 percent of the voters in 2010. At the same time, 50 percent of all public school students are Latino, compared to 25 percent who are white - far different from the composition of private schools. So the folks who need public benefits the least have the votes to impact the folks who need public benefits the most.
None of this is to suggest that all wealthy white people are withdrawing from public institutions and leaving poor minorities holding the bag, or that poor kids never go to private schools. But the combination of wealth differences, voter distributions, racial compositions in public schools, and the spike in private school interest is hard to ignore. California no longer carries the same promise for some as others, and as the state continues to desert public education, many are bailing out.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/05/25/EDCH1JJQSP.DTL#ixzz1NTn2VK2R

update: CTA STILL EXTREME
Last Updated on Friday, 15 April 2011 11:10
Friday, 15 April 2011 10:56

UPDATE: CTA Pulls Back on some extreme ideas…

By Ron Nehring

The militant “community organizers” who run the California Teachers Association union have been forced to pull back on some elements of their controversial plan for a Wisconsin-type takeover of the state capitol after it was exposed here on BigGovernment.com.

The Sacramento Bee reports that once the news media and the public got to see just how extreme the union’s plans are, leadership decided to pull back on some of the more “creative” (read: kooky) elements of the plan set to be implemented the week of May 9 – 13.

“Some of the union’s ideas went beyond the usual letter-writing and rallying,” the Bee reported this morning, but, “By Wednesday, the more creative ideas on the list had been removed.”

The union’s plans to provoke a major confrontation in the state capitol to force the legislature to raise taxes were exposed in this 10-page plan, which contains instructions for using public school facilities and children to which the union has direct access in the campaign culminating in a takeover of the capitol in Sacramento.

While union officials have not backed down on their plans to take over the building and yank thousands of teachers out of classrooms and put them into protests, they are awkwardly running away from plans to use the kids.

The Bee reports a CTA spokesman “said the list was ‘brainstorming’ from the union’s 800-delegate state council, and that CTA is not suggesting students be used as props.”

Really? That’s exactly what they were suggesting throughout this published plan. In “State Council Ideas for Potential Activities” the CTA document suggests: “Take mug shots of teachers and students to make point that prisons receive better funding.” Taking photos of students and use them in the campaign — How is that not “suggesting students be used as props.”?

http://biggovernment.com/rnehring/2011/04/14/update-california-teachers-union-pulls-back-protest-plans/

‘Second pension’ payments have cost $4.3 million
The checks come from a separate fund because they exceed IRS limits
BY KELLY THORNTON, WATCHDOG INSTITUTE
SUNDAY, APRIL 17, 2011 AT 4:04 A.M.
Second pension
Payments from the excess pension fund:
2007: $12,596 to two retirees
2008: $1.6 million to 63 retirees
2009: $1.15 million to 43 retirees
2010: $1.52 million to 69 retirees
2011 (projected): $1.5 million
2012 (projected): $1.6 million

San Diego has used general tax money to make $4.3 million in supplemental payments over the past three years to retirees whose pensions cannot be funded by the city retirement system because they exceed IRS limits.

Because the IRS does not allow the supplemental payments to come from the pension portfolio, city taxpayers and ratepayers fund the entire amount, not sharing the burden with employee contributions or interest earnings.

Congress set limits on benefits to keep pension funds from becoming tax shelters for the rich, but the IRS has set up ways for public employers to legally pay what it calls “excess benefits.” The limits vary depending on age; the maximum for a retiree age 62 to 65, for example, is $195,000.

The payments are most likely required as a vested benefit promised to employees, and pension officials say there is no more cost than $15,000 a year for extra bookkeeping for the supplemental fund.
Still, with policymakers increasingly looking for ways to lower pension costs, some are examining whether the IRS limits provide a justification for ceasing the payments, which go only to the city’s highest-paid pensioners — who top out around $300,000 a year thanks to this program
http://www.signonsandiego.com/news/2011/apr/17/second-pension-payments-have-cost-43-million/

Ethics panel fines labor union, three lobbyists
BY CRAIG GUSTAFSON
FRIDAY, APRIL 15, 2011 AT 3:16 P.M.
The San Diego Ethics Commission has levied fines totaling $5,000 against a labor union and three lobbying groups for not properly disclose their activities at City Hall.
The International Brotherhood of Electrical Workers Local 569 received a $3,000 fine for failing to timely disclose roughly $10,600 it spent last fall on behalf of Democratic candidate Howard Wayne’s failed bid for City Council, a seat that went to Republican Lorie Zapf. Two expenditures were never reported and a third was three days late.
A $1,000 fine was levied against Gerding Edlen, the Portland, Ore.-based developer that sought to build a new $293 million City Hall in downtown San Diego, for disclosing its lobbying activity from July through September a month later than the required deadline.
This was the developer’s third such violation, resulting in a larger fine than is typical.
The City Hall project, which would have replaced the current version built in 1965, was abandoned by city leaders late last year as they focused their efforts on a proposed sales tax increase, which voters rejected in November. There are no plans to resuscitate the project despite widespread agreement that the existing structure is inefficient and requires millions in repairs.
http://www.signonsandiego.com/news/2011/apr/15/ethics-panel-fines-labor-union-three-lobbyists/

Convicted city workers keep pensions
In some other states, work-related crimes can mean revoking retirement
BY CRAIG GUSTAFSON
ORIGINALLY PUBLISHED MARCH 19, 2011 AT 6:24 P.M., UPDATED MARCH 19, 2011 AT 7:32 P.M.
A San Diego city parks employee convicted of stealing nearly $74,000 from a South Bay recreation center. A councilman convicted on felony corruption charges for accepting campaign contributions and then trying to lift a “no touching” ban at local strip clubs.
In many parts of the country, such public employees face the loss of part or all of their taxpayer-funded pensions as a result of their misdeeds. Not in San Diego, where no city employee has ever had a pension taken away or reduced because of wrongdoing.
The ex-parks worker, Helen Ferrell, collects an annual pension of nearly $30,000 while Ralph Inzunza, the former councilman who resigned in disgrace in 2005, receives about $24,000 each year.
The expected lifetime pension benefits for Ferrell and Inzunza — $710,000 and $1.1 million respectively — is a pittance compared to the $6.5 billion promised to the city’s current and retired workers. But the payouts raise questions about a pension system that doesn’t give taxpayers any recourse when an employee violates the public’s trust in such a profound way.
http://www.signonsandiego.com/news/2011/mar/19/revoking-pensions-is-not-an-option-for-convicted/

NASSCO issues layoff notices to 350 workers

By Gary Robbins

Originally published March 25, 2011 at 3:19 p.m., updated March 25, 2011 at 4:39 p.m.

NASSCO is almost finished with $72 million in repairs and upgrades to the amphibious assault ship Bonhomme Richard.

For the second time in less than a year, economic problems will force major lay-offs at General Dynamics-NASSCO, one of nation’s largest ship repair and shipbuilding companies.

NASSCO said Friday that it is notifying 350 of its 3,600 employess in San Diego that they will be laid off indefinitely in late May or early June “due to the federal budget stalemate and lack of recovery in the commercial shipbuilding market."

Congress has yet to approve the fiscal 2011 defense budget, which is leading to the delay of many major projects, including $24.7 million in repairs and upgrades NASSCO was scheduled to make on the amphibious assault ship Peleliu, starting in May.

Click Here for rest of Article

GOP Foolishly Ignores Recall Battle in Wisconsin

Salena Zito | Townhall.com

For weeks the national media focused on union protests in Wisconsin.

Aging hippies trashed the state capital, union members were bused in from across the country in color-coded T-shirts, and Democratic state senators hid in an Illinois motel.

Each little drama was an organized response to Republican Governor Scott Walker’s budget-repair bill that negated labor’s influence with state employees.

You could not turn to any cable or network newscast without seeing Walker, or see other states’ Republican governors and legislators copying him.

Then, through a legislative maneuver, Walker outfoxed the Democrats and passed his budget bill.

The TV crews’ klieg lights went out. The political circus packed up. Our attention turned to Japan and Libya.

Perhaps we all looked away too quickly.

The story that no one talks about, that has the biggest impact on the 2012 election, is slowly brewing – with Republicans barely paying attention.

Click Here for rest of Article

FL - House votes to end pay deductions for union dues

Posted on Friday, Mar. 25, 2011

By BILL KACZOR | MiamiHerald.com

In a blow to public employee unions, the Republican-controlled Florida House passed a bill Friday that would ban payroll deductions of dues and require labor organizations to get individual members' OK before using their payments for political purposes.

The Florida legislation, which still needs Senate approval, is part of a Republican push in several states to curtail the power of public-sector unions that generally support Democratic candidates. The efforts follow GOP election gains in November.

Republicans insisted in floor debate that the bill's intent is not to harm unions but to empower public employees by giving them more control over how their dues are spent and to separate government from politics.

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