How paid sick leave can be healthy for pensions

President Obama said during his State of the Union address last week that 43 million workers have no paid sick leave, forcing “too many parents to make the gut-wrenching choice between a paycheck and a sick kid at home.”

The president wasn’t talking about government employees.

Most of them not only have paid sick leave, but also an incentive not to use it. When they retire, their unused sick leave can be converted into “service credit” for time spent on the job, which increases the amount of their pensions.

Is this “spiking,” the improper boosting of pensions by manipulating the final pay or time on the job used in the formulas that set monthly pension amounts?

Many do not think so. The higher cost of pensions presumably is paid for in advance by rate increases resulting from what the actuaries assume will be the cost of converting unused sick leave to service credit.

California Public Employees Retirement System actuaries assume, when calculating future costs, that service credit for unused sick leave will increase pensions and other benefits by 1 percent for state workers and non-teaching school employees.

Actuaries for the California State Teachers Retirement System, making the calculation in a different way, assume that unused sick leave will increase the service credit for educators by 2 percent.

An analysis by the CalSTRS actuary, Milliman, issued in 2010 found that the average amount of unused sick leave converted to service credit was 0.5 years for members retiring after 26 years on the job.

Unused sick leave was not considered in the development of the anti-spiking provisions in Gov. Brown’s pension reform (AB 340 in 2012). The bill barred final pay boosts through overtime, bonuses, one-time payments or terminal pay.

Sick leave can vary through labor bargaining or for other reasons. State workers in CalPERS get eight hours of sick leave per month. CalSTRS members get one day of sick leave per pay period, and employers are charged more for exceeding a limit.

In the Vallejo bankruptcy, the lack of a cap on unused sick leave was an issue. A city consultant, Charles Sakai, said in a court filing that a firefighter working 20 years could accumulate up to 5,760 hours of sick leave worth nearly three years of service.

Vallejo firefighters retiring after 20 years on the job could take half of the unused sick leave in cash, Sakai said, and use the other half to boost their CalPERS pensions by adding 1½ years of service credit.

Unused sick leave helped give a San Ramon Valley Fire Protection District chief a pension far exceeding his salary, one of the cases reported by Daniel Borenstein of the Contra Costa Times that prompted the introduction of anti-spiking legislation.

The fire chief, Craig Bowen, age 51, with a salary of $221,000, retired in December 2008 after 29 years on the job with an annual pension of $284,000. Unused sick leave boosted his service credit to 30.3 years, adding $10,700 to the pension.

Bowen is in the Contra Costa County Employees Retirement Association, one of 20 independent county pension systems operating under a 1937 act. After anti-spiking legislation for CalPERS was approved in 1993, similar legislation for counties in 1994 cleared the Senate but died in the Assembly.
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The conversion of unused sick leave to service credit began for both CalPERS and CalSTRS with legislation in 1973-74. The reason for the CalPERS change, modified several times since then, was not readily available last week.

Why CalSTRS members were allowed to begin converting unused sick leave into larger pensions was explained in a later bill analysis.

“It was anticipated that this benefit would reduce sick leave usage and enable employers to achieve some salary savings from not having to hire substitute teachers to replace teachers who might otherwise have been absent from the classroom,” said a CalSTRS analysis of AB 1102 in 1998.

“However, the anticipated reduction in sick leave usage and the projected salary savings were not realized. Consequently, employer costs increased as employers continued to pay salary for teachers who were absent from work because of illness, covered the cost of substitute teachers, and also paid STRS for the cost of the additional benefit at retirement.”

The costs were capped by legislation in 1979 that limited the conversion of unused sick leave to persons hired before July 1, 1980. Legislation in 1985 paid for the conversions by raising the CalSTRS employer contribution from 8 to 8.25 percent of pay.

Then in 1998 the unused sick leave conversion was reinstated by AB 1102 for those retiring on or after Jan. 1, 1999. Backers said the bill was needed for “equity” with CalSTRS members hired before July 1, 1980.

The bill was part of a package of increased pension benefits enacted as the funding level of CalSTRS, which was about 30 percent in the 1970s, climbed toward 100 percent under the Elder full-funding plan enacted in 1990 and a booming stock market.

An Assembly analysis of AB 1102 said supporters believe the bill and others in the package are “a fair compromise on the use of the Elder full funding money and will encourage teachers nearing retirement age to postpone retirement and stay in the classroom a little longer.”

Much of the current CalSTRS funding gap, which a $5 billion rate increase being phased in over the next six years is intended to close, is due to state and teacher contribution cuts and benefit increases enacted around 2000. Finally reaching the long-sought full funding was treated as a windfall to be spent.

The state CalSTRS contribution was cut from 4.6 percent of pay to 2 percent. For 10 years, a quarter of the teacher contribution to CalSTRS, 2 percent of pay, was diverted into a new individual investment plan. A half dozen small increases included the unused sick leave conversion and a longevity bonus.

CalSTRS would have had a funding level of 88 percent if it had not made the contribution and benefit changes around 2000 and continued to operate under the 1990 structure, a Milliman report said in 2013 when the funding level was 67 percent.

Last week President Obama called on Congress to “send me a bill that gives every worker in America the opportunity to earn seven days of paid sick leave. It’s the right thing to do.”

The president said the U.S. is “the only advanced country on Earth that doesn’t guarantee paid sick leave or paid maternity leave to our workers.” California has been in the vanguard of change.

Gov. Brown signed legislation last September requiring businesses to give employees at least three days of paid sick leave each year. In 2006, San Francisco required employers to give workers paid sick leave.

The president expanded paid sick leave for federal workers this month by adding six weeks to care for a new child or ill family members. And during his first year in office he expanded the conversion of unused sick leave to boost pensions.

Only federal workers hired before a cost-cutting pension reform in 1987 had been allowed to convert unused sick leave to pension service credit. In October 2009, Obama signed a bill giving a similar benefit to federal workers hired after the 1987 reform.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 26 Jan 15

Originally published by CalPensions.com

Public Sector Pay: Transparency and Perspective

Public sector labor leaders in California would rather that the public remain relatively ignorant about how well their members are compensated. But they are fighting a losing battle.

Because of California’s massive unfunded pension liability and other scandals, the public is demanding answers. Interests as diverse as taxpayer groups, business organizations, the media and some elected officials have moved aggressively, not only to address these problems, but also to ensure that there is much greater transparency about public sector compensation than we have seen in the past. For example, attorneys at Howard Jarvis Taxpayers Association won several Public Records Act lawsuits against government interests — mostly at the local level — who were attempting to shield their compensation data from the public. And PensionTsunami.com is a website which for years has been a clearinghouse for articles on pension abuses.

california spending transparencyBut it is not just conservative interests who are shining the light. Left of center newspapers like the Sacramento Bee and San Jose Mercury News, have fought very hard to expose the truth on employee compensation. Self-styled progressive John Chiang developed a powerful data base open to the public about state worker pay when he was California’s Controller. He is now the State Treasurer and we hope he continues his efforts.

Public sector labor is pushing back against all this disclosure asserting that compensation is not excessive in California. For example, they recently claimed that pension benefits are comparable to Social Security payouts. But a new study by Robert Fellner, Research Director for TransparentCalifornia.com, shows that some retired public employees are receiving five times as much in pension benefits — mostly at taxpayer expense — as comparable private sector retirees receive from Social Security. The objective here is transparency, not a war against public employment. We all know someone who works for government and many are extremely competent in their jobs and deserve the pay they get. But there are several aspects of public sector compensation that aggravate taxpayers.

First is the lack of accountability. Taxpayers would gladly pay the highly competent more if government managers were empowered to fire the incompetent, indolent and criminals. Taxpayers and parents chafe at the fact that school districts can’t even fire child molesters without jumping through bureaucratic hoops costing much in both time and money.

Second, citizens are very concerned about how much of public sector compensation will be assumed by future generations, especially pension benefits and guaranteed health care for life. This is not a legacy of which we should be proud to leave our children.

Third, the personnel practices in government are totally out of sync with the private sector.  Just last week, theCenter for Investigative Journalism reported that thousands of state workers are hoarding vacation time. Unlike the vast majority of workers in the real world, some state employees will be able to cash out their vacation time worth hundreds of thousands of dollars when they retire.

Fourth, generous compensation for public employees would be far more palatable if others were doing well. But they aren’t. California continues to have one of the highest unemployment rates in the nation and we rank number one in poverty. The economic recovery, trumpeted by political leaders in Sacramento, is shaky at best as many have simply given up looking for work. While so many Californians have seen a decrease in income and opportunity, businesses large and small continue to flee the state to escape high taxes and costly regulations.

Transparency and a more realistic perspective toward public sector compensation will be critical to California’s future. It is simply not healthy to have one segment of the citizenry treated as a protected class to the detriment of everyone else.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

WHICH SIDE ARE YOU ON? Mandatory Union Membership Hurting Workers

When workers are forced to join a union in order to work, it hurts workers pretty much the same way as business monopolies hurt consumers, according to a report released Monday by conservative think tank The Heritage Foundation.

According to the report, in those states where union membership is required in order to have a job, unions will have higher dues and be far less efficient than in states that don’t require union membership as a condition of employment. The report argues that these negative outcomes are likely caused by unions not having to worry about proving their worth in order to keep their members.

“Businesses with monopolies charge higher prices and operate less efficiently than they would facing competition,” the report argues. “Labor unions operate no differently.”

In business, a monopoly occurs when there is only one supplier of a particular commodity. When this happens, the one company can control prices while also delivering a subpar product because the consumer doesn’t have the choice to go elsewhere. Recognizing the potential harm this may have on consumers, lawmakers have passed several laws to prevent monopolies over the years. And as the report argues, laws in compulsory-union-membership states legally cause union monopolies that are prone to the same negative behaviors business monopolies are.

“Union financial reports reveal that they charge workers roughly 10 percent higher dues and pay their full-time top officers $20,000 more annually in states with compulsory dues,” the report found.

James Sherk, the Heritage scholar who wrote the report, told reporters at a policy forum that the findings aren’t at all surprising, though the subject hasn’t yet been thoroughly studied before then.

“No one’s taken a look at this yet, and I realized the reason no one has taken a look at this yet is it’s only recently the data has become available,” Sherk noted. “In the 2000s, Elaine Chao when she was labor secretary modernized the union financial reporting information. She required the unions to itemize all their expenditures over $5,000 and she basically made all these reports available online.”

“We summarize in the report, it’s roughly 10 percent… higher dues that the unions charge when they can force you to pay dues,” Sherk continued. “When the unions can force you to pay dues they maximize their revenue.”

Sherk argues that the higher dues go to pay the union officers, instead of benefiting union members.

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Originally published by the Daily Caller News Foundation

What’s the Real Reason for Police Understaffing in San Diego?

Whenever there is a shortage of police personnel in a California city, a common reason cited is inadequate pay. When officers at a particular agency are paid less than their counterparts at some other agency, so the theory goes, they quit in order to start working where they can make more. This seems to be sound logic. But is it supported by facts? According to a new study “Analysis of the Reasons for San Diego Police Department Employee Departures,” released last week by the California Policy Center, the answer to that question is a resounding “no.” Authored by Robert Fellner, research director for the Transparent California project, the study’s findings contradicted the conventional wisdom. They were:

  • Claims that SDPD officers were leaving to join other departments misrepresented the data on attrition, by focusing on the 10% who left to join other departments, instead of the 60% who retired.
  • These claims also misrepresented the overall data regarding staffing and recruitment, focusing on approximately 20 people leaving in a department of nearly 1,800 while ignoring the fact that there were 3,000 applicants for open 25 positions.
  • In support of these claims, a misleading study, funded by the city of San Diego, only analyzed base pay, the only category of pay San Diego didn’t boost in their 2014 pay raises for the SDPD.
  • This same study compared San Diego to one of the most expensive cities in the world – San Francisco and other totally different markets, instead of comparing SDPD pay to rates of pay in neighboring cities.

One thing that is not in serious debate is the fact that the San Diego Police Department is understaffed, like many other police departments in California. But the reason they are understaffed is a result of poor recruitment efforts. Fellner writes:

“The City’s ability to recruit new candidates would be seriously compromised when budget decisions in FY 2009 and FY 2010 resulted in the City cutting its quarterly academy class sizes from 50 to 25. In FY 2011 the City cancelled all but one academy class, a decision that ‘resulted in a lost opportunity to add approximately 57 additional recruits.’ And what did happen after the hiring freeze of 2011 ended? The SDPD received over 3,000 applicants for just 25 positions in its first academy class of 2012, according to 10News. This is symptomatic of a larger trend – a tremendous, unmet demand to work in law enforcement in the San Diego area. For example, the following year the nearby San Diego County Sheriff’s Department received over 4,000 applicants for their 275 deputy positions.”

There is no shortage of people who want to work in law enforcement in San Diego. Surely a few hundred of these many thousands of applicants are qualified to do the work.

While the facts don’t support the assertion that San Diego is losing police officers to other departments, the facts do support an alarming loss of officers to retirement, a problem that is getting worse. But if recruitment isn’t a problem, what difference does it make if officers retire in great numbers? The problem is the cost for these retirements take away funds that could be used to pay for more police academy classes, and more active officers on the force. To fund an adequately staffed police force, San Diego could have reduced retirement formulas to the levels they were back in the 1990’s – i.e., reducing them back to levels that are fair and financially sustainable. Instead, to induce veteran officers to delay retiring, San Diego joined several other California cities in implementing “DROP,” which stands for “Deferred Retirement Option Program.”

In general, the way DROP works is this:  A retirement eligible employee agrees to freeze their retirement benefit accrual and continue to work, usually for five more years. Then, while they continue to work for the city and get paid as an active employee, the pension they would be earning if they had retired is paid into an interest bearing account. When they retire, the entire amount accrued in that pension account is paid to them in a lump sum, and from then on they begin to directly collect their pension.

Take a look at Transparent California’s listing of San Diego’s pension payouts in 2013. Nearly all of the top pensions are police and fire personnel who received massive lump sum payments under the DROP program. This is a scandalous waste of money. The primary reason SDPD officers leave their department is to retire. So instead of investing in recruitment efforts to replace retirees, the San Diego implemented the DROP program, at staggering expense, to retain veterans a little longer.

As always, the power behind these distortions of logic and perversions of policy are the government unions. Unlike the police officers themselves, who almost invariably want to serve their communities and make a positive difference in people’s lives, government unions thrive on fomenting resentment and alienation. The more anger they can manipulate their members into feeling, the more righteous indignation those members will bring to city council meetings, and the more dues they will willingly pay to purchase candidates for local office. Ultimately, what government unions thrive on is the failure of government, because the worse things get, the more money they will demand to fix the problems.

Inadequate pay is not the reason SDPD has a staffing shortage. Excessive pensions, the staggering expense of DROP, and a failure to fund recruitment efforts are the reasons why. The unions would have you think otherwise.

Ed Ring is the executive director of the California Policy Center.

Sad End For CalPERS Private Equity ‘Golden Years’

The apparent suicide last week of Alfred Villalobos, who faced a bribery trial next month, is a sad end for a former CalPERS board member paid more than $50 million by firms seeking money from the big pension fund.

Most of his fees came from private equity firms during the years leading up to the financial crisis in 2008. Some call the period private equity’s “golden years,” when leveraged buyouts of corporations yielded huge profits.

Villalobos flourished as a “placement agent” offering help for firms seeking investments or contracts from CalPERS, particularly after another former board member, Fred Buenrostro, became chief executive of the pension fund in 2002.

Now Buenrostro, who pled guilty to accepting Villalobos bribes, awaits sentencing in May. Pushed out of CalPERS in 2008 amid complaints of investment meddling, he received a $300,000 salary from Villalobos and possibly a Lake Tahoe condo.

During the boom years CalPERS private equity investments soared (see chart below from annual report, p. 21). Above-market returns expected from private equity help the pension fund meet its earnings forecast, said by critics to be overly optimistic.

Among several types of private equity the biggest and most profitable by far is the leveraged buyout. Loans needed to buy a company are typically obtained by using the targeted company’s own assets as collateral.

A long-running controversy over leveraged buyouts flared publicly in the 2012 presidential campaign of Mitt Romney, made wealthy by Bain private equity. Some of his Republican primary opponents called the buyouts job-destroying “vulture capitalism.”

Leveraged buyouts also have been sharply criticized by SEIU, a large and aggressive union with members in the public and private sectors. Some say corporate regulation, often pushed by public pension funds, makes private equity more attractive.

A boost for leveraged buyouts came from an analysis of 3,200 buyouts from 2000 to 2005 issued in December 2013 by researchers at the universities of Chicago, Harvard, Michigan and Maryland.

The analysis concluded “private-equity buyouts catalyze the creative destruction process, as measured by job creation and destruction and by the transfer of production units between firms.”

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As the private equity boom ended with the financial crisis, a pay-to-pay scandal erupted in New York. Placement agents and private equity firms, some doing business in California, were accused of paying bribes to get public pension fund investments.

CalPERS did not know whether private equity firms were paying big placement fees for its investments. A board member who once worked for Villalobos, Kurato Shimada, chaired a committee that had blocked a staff move to require fee disclosure.

And during the boom years CalPERS was an eager private equity partner. In 2006 Los Angeles Times reporters asked CalPERS for letters, e-mails or memos from Villalobos and former state Sen. Richard Polanco about investment opportunities.

In a rejection of the Public Records Act request, a letter from a CalPERS attorney to the Times said “ the release of the (sic) some of the requested information may harm CalPERS’ ability to continue to invest with top-tier private equity funds.”

The letter said some private equity firms warned that “CalPERS’ current status as an ‘investor of choice’ will be damaged” and other private equity firms “recently expressly refused to allow CalPERS to invest with them” because of concerns about disclosure.

After the New York scandal erupted in April 2009, CalPERS adopted a fee disclosure requirement and asked private equity firms and other money managers if they had paid placement fees for CalPERS investments.

In October 2009 a CalPERS report said Villalobos and his small family firm, ARVCO, had received more than $50 million in placement fees from firms seeking CalPERS investments.

A review of placement fees ordered by CalPERS, lasting 18 months and reportedly costing $11 million, was led by an outside lawyer, Phillip Khinda, and a consulting firm. State and federal prosecutors filed lawsuits against Villalobos and Buenrostro.

Before it was all over, Shimada resigned from the board. A long-time board member and chairman of the investment committee, the late Charles Valdes, was linked to Villalbos in a number of ways and chose not to run for re-election.

A 37-year board member with the CalPERS auditorium named in his honor, the late Robert Carlson, was said to have met at Villalobos’ Lake Tahoe home in 2004 with Villalobos, Shimada, Valdes, Buenrostro and an executive of Medco, which paid Villalobos $4 million after receiving a CalPERS contract.

The top CalPERS private equity officer, Leon Shahinian, was suspended and then left CalPERS. He resisted and reported pressure by Buenrostro, but “lost his way” by accepting a Villalobos private jet trip to New York for an event honoring Leon Black of Apollo private equity.

The Khinda-led review found that in general the CalPERS investment staff, resisting pressure from Buenrostro and others, did not make improperly influenced investments that caused “substantial” losses.

But the review found that CalPERS indirectly paid for placement fees received by Villalobos and others. Private equity firms charged higher management fees to offset the cost of the placement fees, apparently raising investment costs and lowering returns.

If CalPERS funded some agent-backed investments instead of others equally qualified, said the review, there may have been no direct losses. But CalPERS would have been harmed if capable managers thought the process was unfair and didn’t apply.

The review said “one of the most troubling discoveries” was that placement agent fees were being paid by Apollo and other money managers that already had strong ties to CalPERS.

In these cases, the review speculated, the placement agent fees may have been paid as “insurance” against the placement agents using their connections against the firm, risking the loss of investments or contracts.

CalPERS responded to the scandal by sponsoring legislation requiring placement agents to register as lobbyists and banning contingency fees based on the amount of the CalPERS investment.

Several of the big firms that used placement agents agreed to $215 million or more in CalPERS fee reductions. A number of CalPERS actionswere taken to insulate investments from improper influence.

In September 2011 CalPERS began a five-year private equity “strategic plan” to cut costs, reduce complexity, focus on regulatory compliance and create a new in-house system for accounting and reporting.

An annual CalPERS report last month showed that private equity is still yielding above-market returns: 20 percent for the year ending last June 30 and 12.4 percent over the last 20 years.

Buyouts were 61 percent of the total private equity portfolio valued at $31.3 billion, followed by “growth-expansion” style funds at 17 percent and “credit-related” at 12 percent.

“Buyouts will continue to be a large component of our portfolio going forward, as the returns have met our expectations,” Scott Jacobsen, CalPERS senior portfolio manager, told the investment committee.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

Brown Plan to Eliminate Retiree Health Care Debt

Gov. Brown wants state workers to begin paying half the cost of their future retiree health care — a big change for workers making no payments for coverage that can pay 100 percent of the premium for a retiree and 90 percent for their dependents.

The governor also wants state workers to be given the option of a lower-cost health insurance plan with higher deductibles. The state would contribute to a tax-deferred savings account to help cover out-of-pocket costs not covered by the plan.

More funding and lower premium costs are key parts of a plan to eliminate a growing debt or “unfunded liability” for state worker retiree health care, now estimated to be $72 billion over the next 30 years.

As Brown proposed a new state budget last week, he pointed to a chart showing retiree health care debt at a crossroads. If no action is taken, the debt by 2047-48 grows to $300 billion. Under his plan, the debt by 2044-45 drops to zero.

“So these are our promises,” he said, “and if we don’t take any action you are looking at hundreds of billions of dollars that we owe. And that’s why I am going to negotiate during our upcoming collective bargaining talks for the best deal I can get for the workers and the taxpayers.”

State worker retiree health care is one of the fastest-growing costs in the state budget. Next fiscal year its cost is $1.9 billion (1.6 percent of the general fund), four times more than paid 15 years ago, $458 million (0.6 percent of the general fund).

Brown’s plan would save taxpayers money by switching from “pay-as-you-go” funding, which only pays the health insurance premiums each year, to pension-like “prefunding” that invests additional money to earn interest.

Prefunding is widely urged as a way to cut long-term costs. The No. 1 recommendation of a governor’s public employee retirement commission in 2008 was prefunding retiree health care.

The California Public Employees Retirement System expects investments to pay two-thirds of total pension costs. The governor’s retiree health care plan is expected to save nearly $200 billion over the next 50 years.

When fully phased in, Brown’s plan is estimated to cost the state $600 million a year in addition to the payment of premiums. The amount is half of the “normal” cost of future retiree health care earned by active workers during a year, excluding debt from previous years.

State workers would contribute the other half of the normal cost, bringing the total to $1.2 billion. With $1.9 billion for premiums, the total is still well short of the $5 billion a state controller’s report last month said is needed for full funding.

Brown’s finance department said its cost estimates were developed with the same actuaries used by the controller, but a different scenario. Though not included in the estimates, California State University also is expected to prefund retiree health care.

In an annual “fiscal outlook” last November, nonpartisan Legislative Analyst Mac Taylor urged the Legislature to consider using the new Proposition 2 debt payment fund to pay state worker retiree health care debt.

Brown’s proposal to have workers help pay for retiree health care follows some large cities, such as San Jose and San Francisco, and his earlier experience with the Legislature.

The governor’s first retiree health care proposal, part of a 12-point pension reform, was dropped from the final version of the pension reform, AB 340 in 2012. An Assembly analysis said unions have “shown a willingness to bargain over the issue.”

The California Highway Patrol, giving up pay raises for several years, contributes 3.9 percent of pay to the state retiree health care investment fund with a state match of 2 percent of pay. Physicians, dentists and podiatrists (bargaining unit 12) and craft and maintenance (bargaining unit 16) contribute 0.5 percent of pay with no state match.

The governor’s proposal last week does not say how much of a bite from state worker paychecks will be needed to yield a total of $600 million, half of the retiree health care normal cost.

Brown’s first proposal in the 12-point pension reform did not include prefunding state worker retiree health care. But the new plan last week has all three of the retiree health care proposals that were in the first plan.

Ten years of service is needed to be eligible for retiree health care, beginning at 50 percent coverage and increasing to 100 percent after 20 years of service. For new hires, the plan pushes back the thresholds for new hires to 15 and 25 years.

The state pays more of the health care premium for retirees (100 percent retirees, 90 percent dependents) than for active workers (80 to 85 percent workers, 80 percent dependents). For new hires, the plan prevents a higher subsidy in retirement than received on the job.

CalPERS is asked to “increase efforts to ensure” seniors eligible for Medicare are switching to lower-cost supplemental plans. For family members, the plan calls for eligibility monitoring, some lower-cost coverage, and surcharges if covered at work.

President Obama’s health care act imposes a “Cadillac tax” on full-coverage “platinum” health plans in 2018, a move to control costs by encouraging employers to move toward plans with higher deductibles and more out-of-pocket expenses.

Brown’s plan directs CalPERS to offer workers the option of a high-deductible health plan. The state would contribute to the tax-deferred Health Savings Account of employees who choose the option to “defray higher out-of-pocket expenses.”

It’s not clear whether state payments for retiree health insurance, which are based on the average of the four highest-enrolled health plans, would be reduced if large numbers of active workers, whose premiums doubled in the last 10 years, opt for lower-cost plans.

In bargaining, a standard response to a proposed cut is to ask for an offsetting increase. When the largest state worker union agreed to an increase in employee pension contributions in 2010, the agreement included a pay raise in following years.

Brown’s plan presumably benefits state workers by making their retiree health care more secure. Costs are said to be growing at an “unsustainable pace.” Worker contributions might strengthen the legal argument that retiree health care is a “vested right” protected by contract law.

Meanwhile, the contrast with other workers grows. The number of large private firms (200 or more employees) offering any level of retiree health care dropped from 66 percent in 1988 to 28 percent in 2013, a Kaiser report said. Many California teachers have no employer retiree health care.

For state workers who retire early, retiree health care can be a major benefit. With at least five years of service, state workers are eligible to retire at age 50, age 52 if hired after Brown’s pension reform took effect on Jan. 1, 2013.

“The plan preserves retiree health benefits when the private sector is scaling back, maintains health plans, and continues the state’s substantial support for employee health care,” the governor’s budget summary said last week.

mendel2Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

This article was originally published on Fox and Hounds Daily

Millennials and Pensions – Do They Know Public Pension Systems Need Reform?

After the midterm election results there has been a lot of talk about the young people who didn’t turn out to vote. There are around 8 million millennials, people ages 18-to-35, in California. And the conventional wisdom has been that since they helped elect President Obama twice, they’ll continue to help elect Democrats. But what about all that debt piling up on their backs?

The non-partisan Legislative Analyst’s Office predicts $340 billion in debt, deferred payments, pension costs and other liabilities will be on California’s balance sheets for years to come. Gov. Jerry Brown’s latest budget dedicates just over $10 billion to pay down this debt, barely making a dent in the problem.

The largest pension system in the state, the California Public Employee Retirement System has not reported their actuarial values of assets and liabilities for 2013 yet, but out of its four defined benefit plans, it has an unfunded liability of about $60.6 billion. In 2013, CalPERS only contributed 87.7 percent of their annual required contributions, not even making a full payment.

The states teachers’ retirement system, CalSTRS, had an unfunded liability of $70.5 billion in 2012 and $73.7 billion in 2013. In 2013, CalSTRS paid only 44.12 percent of their annual required contributions. Governor Brown worked with the Legislature to increase contributions — since they are controlled by statute — but his plan is to increase payments over the next five years and spread the costs to school districts and teachers. This will likely increase burdens on local public school budgets and impact their general fund spending priorities.

The University of California retirement system had an unfunded liability of $11.6 billion in 2012 and $13.8 billion in 2013. In 2013, they paid only 35.7 percent of their annual required contributions. This recently prompted the university regents to increase tuition on students to pay for a bloated bureaucracy and massive pension liabilities.

In total, taking the public statements of all the state systems at face value, the California defined benefit pension system had $142.7 billion in unfunded liabilities in 2012 (the figure for 2013 is not available as CalPERS has not provided the data). The aggregate funded ratio for the whole system in 2012 was 77 percent, compared to 90 percent in 2003. In 2013, the state only paid 65.6 percent of their aggregate annual required contributions.

It should be noted that if the state systems had simply paid their full contribution every year during 2003-2013, the cumulative missed contribution plus the associated returns is more than $41 billion. Instead, these missed payments have become compounding debt for which future generations will be responsible.

In 2012, Governor Brown signed a set of nominal pension reforms that capped some pension costs, though most of the changes only impacted new employees. However, CalPERS recently contravened both the spirit and the letter of the law and allowed 99 specialty pays to be counted as base pay for purposes of calculating pensions. This not only boosted the costs of the state pension fund, it also put many localities who contract with CalPERS in the unenviable position of accommodating higher costs on their employees and pensioners as these calculations put pressure on their bottom lines.

While state government retirees collect handsome guaranteed pensions, young taxpayers will foot the bill. This has particularly serious ramifications for the millennial generation, who are sinking under the weight of public debts and obligations made by people years before they were even born. Paying those debts leaves far less money to fund government services and amenities they’d like to focus on, like education, public safety, roads, water systems, parks, beaches and libraries.

More fundamental reform is needed to depoliticize pension benefits and policies, make pensions fair to government workers and accountable to taxpayers in a simple and transparent manner. Further, government employees deserve retirement accounts that they own, are portable and transferable, without the penalties associated with the current politician-controlled system. Reform also needs to eliminate unfunded liabilities on future generations.

Millennials won’t be the only losers if our elected officials do not have the courage to reform the state’s broken pension systems. The status quo may endanger our public institutions for generations to come. But reform won’t happen unless millennials get informed and engaged.

Lance Christensen directs the Pension Reform Project at Reason Foundation.

California Comeback or Continuing Crisis?

As the California Legislature reconvenes this week for the new session, Californians will hear two decidedly different messages from both politicians and political pundits about the “state of the state.”  Governor Brown will surely tout the “California comeback” and argue that the state is in much better fiscal health than just a couple of years ago.  On the other hand, more conservative voices will argue that California remains in fiscal crisis, that our system of governance is still fundamentally flawed and that those who believe the state is on the right track are simply fooling themselves. So who is right, the “declinists” – as Governor Brown has labeled some of us in the latter group – or the “delusional” in the former?First, in the “comeback” camp, there is no denying that California is enjoying the benefits of the national economic recovery. This rebound has resulted in much more than anticipated tax revenue for state coffers. In fact, for fiscal 2014-15 the Legislative Analyst is projecting an additional $2 billion.

Second, Brown will contend that we have already made substantial progress in dealing with the vast amount of accrued government debt racked up in the last decade. To his credit, Brown has at least laid out a game plan for some – but not all – of the pension obligations by requiring that public school teachers pay more into their pension fund known as CalSTRS. Moreover, the red hot stock market has – at least temporarily – made a significant dent in the unfunded liability of the state’s pension funds

Third, while not the hard spending cap based on inflation and population that fiscal conservatives would prefer, the passage of Proposition 2 in November enhanced the efficacy of the state’s “rainy day” fund. California’s most significant fiscal problem is the over-reliance on a fraction of California’s population – the wealthy – to pay the lion’s share of tax revenue. This results in wild swings in revenue depending on how the wealthy are doing. Proposition 2 was designed to smooth out the peaks and valleys of revenue so that we might be better prepared when the next inevitable recession occurs.

The opposite of this optimistic view is the “declinists/naysayers” camp whose adherents believe that California remains in fiscal crisis.  Sure, the economic recovery is making things look better temporarily, but this is no more than putting a coat of paint on a decrepit house with a crumbling foundation.

The list of metrics supporting the naysayers is impressive.  California ranks number one in poverty out of all 50 states.  Nearly a quarter of the state’s 38 million residents (8.9 million) live in poverty.  Business flight out of California to more business friendly states like Texas, Arizona, Nevada and Utah is accelerating.  The tax hikes approved by voters via Proposition 30 slammed California’s wealthy with a huge retroactive income tax hike.  Their response has been to vote with their feet and move to more favorable climes such as Texas & Nevada which have no income tax at all.

There remains a broad consensus that California’s tax structure is irrational.  Rather than lowering taxes which would make California more competitive, the response from the political left is to propose a new tax on services.  Given that California already has the highest income tax rate in America as well as the highest state sales tax rate, any tax “reform” that seeks to generate billions in new revenue will sink California even further.

Recent reports from the Los Angeles Times, no bastion of conservatism, note that millennials – the youth we need for economic survival – can’t afford housing in California and are moving out of state to escape anti-growth regulations which unnecessarily double the cost of a home or apartment.    The Times also reported that the same out migration is occurring for the poor and middle class.  And speaking of the middle class, they are about to be hit with a one-of-a-kind gas tax – imposed only by California – that will make fuel costs even higher.

A comprehensive list of California’s governance problems would fill volumes and can’t be recounted here.  Suffice it to say, however, that those of us who have been labeled as “declinists” have a firmer grip on reality that those who believe that California’s natural beauty and weather will overcome all problems.

To be clear, those of us who possess a realistic grasp of the magnitude of challenges facing the Golden State do not believe that California is a bad place.  To the contrary – it is a great state with a great deal of potential.  The only question is whether our elected leadership will allow the citizens of California to pursue happiness as they see fit unshackled by foolish and counterproductive government policies.

This article was originally posted on HTJA.org

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Pension Reformer Chuck Reed Will Fight On

San Jose is in the center of the world’s economic pulse, Silicon Valley. By all rights, its city treasury ought to be overflowing with digital wealth.

Instead it has flirted with bankruptcy because of its burgeoning pension problem — a problem that already was the major cause of the bankruptcies of Vallejo, San Bernardino and Stockton. The pension problem, as everywhere, was caused by the irresponsible pension spiking of 1999-01.

Enter Mayor Chuck Reed. A Democrat, he valiantly struggled with the problem, passing the Measure B in 2012 with 69 percent of the vote. It is being challenged in court by grasping unions.

Term limits are forcing Reed to leave. But Sam Liccardo, who backs Reed’s reforms, just was elected to succeed him — in the teeth of vicious union opposition.

Reed failed to place a pension reform initiative on the statewide ballot this November after Attorney General Kamala Harris forced on the initiative an incredibly biased title and summary. He says he’s going to keep pushing reform, including a possible 2016 initiative.

It wouldn’t surprise me if he ran for governor in 2018. After all, the problem only is going to get worse. And Harris’ anti-reform stance could come back to haunt her in her own bid for the higher office.

This piece was originally published by CalWatchdog.com

Biased LA Times Has Trouble Connecting the Dots

GUEST COMMENTARY – In a truly ironic twist, we just had Times columnist George Skelton (who covers Sacramento) and departing Times columnist Jim Newton (who covered many local issues) give, respectively, their recommended fixes for our state and city/county governments.

Which would all be well and good if the problems they now decry hadn’t occurred on their watch, and in large part because of their fixed, intransigent “liberal” bias.  And while Skelton and Newton probably consider themselves part of the self-righteous answer to our problems, perhaps a healthy dose of humble pie would be a good idea for them because they helped cause our state and local messes.

After all, those two are the ones who kept adhering to policies that ultimately led to a one-party, inbred system that enriched a few while proclaiming to help the little guy … while a continuing efflux of generational Californians who built this state finally threw up their hands, and either withdrew from civic life or just fled the state into one of the saner states in our nation.

Which means that the rest of us still living here are either too stupid or stubborn to conclude we’re beyond repair, or we have more courage and integrity than Skelton or Newton with respect to serious confronting … and I mean CONFRONTING … the California problems that threaten to spread like a cancer to the rest of the nation:

1) Perhaps not all Democrats, but THIS group of Democrats running Sacramento and Downtown LA are the puppets of public sector unions–particularly educational unions–that don’t give a rip about students, taxpayers and families … but unions who make damn sure they’ve got the self-serving volunteers and money to elect their personal favorites. (Photo.)

Governor Brown’s attempts to limit-set the state’s educational and other unions when he “temporarily” raised taxes to balance the budget?  Quietly being placed aside as talk of permanent tax hikes get louder, and dying the sure death that former Governor Schwarzenegger’s proposed reforms did when he first became governor, and when he thought he had a voter mandate to reform Sacramento …

… and before “Benedict Arnold” Schwarzenegger decided if you can’t beat ’em, then join ’em.  So now Skelton says that Brown needs to stand up to the UC Regents and insatiable public sector unions pushing an unsustainable public pension our state can afford, and Newton recommends containing the influence of United Teachers Los Angeles.

Perhaps Skelton should follow Newton’s path and now depart from the biased Times, because neither really backed Schwarzenegger when it counted, and neither really backed Antonio Villaraigosa when he attacked the UTLA. Villaraigosa deservedly lost a lot of voter respect by the end of his mayoral term, but on education he showed some serious guts–and as with Schwarzenegger, he had wholly insufficient support from the press.

A press that, as with Skelton and Newton, would do well to learn how to Connect-the-Dots and recognize how political courage never wins without honest and courageous journalistic support.

2) We just had a slew of Sacramento politicians nailed on corruption charges, and we are in the middle of a host of corrupt and misguided educational projects such as bad iPad deals and Common Core being rammed down the students throats (and their taxpaying families) … and yet not a courageous word from either Skelton or Newton as to which group of politicians are truly behind this nonsense.

And nary a favorable word as to which end of the political spectrum are most outraged, and have been most outspoken, about the lack of political transparency and honesty in either Sacramento or Downtown Los Angeles.

On his way out, Newton suggests that “two mayors, Riordan and Antonio Villaraigosa, spilled much political blood trying to devise a better system for overseeing schools.  They came up short, but they were right.”  Yet did Newton ever have the temerity and spine to do honest reporting when it really counted, and recognize the historical prediction of that Democratic and American icon, FDR, who originally opposed public sector unions?

Not all unions … public sector unions!  The ones who did exactly what FDR feared, and who take taxpayer money and spend it on campaigns to make sure they get their favorite boys and girls into office.  And does Skelton, in his holiday wish list for Sacramento, really take it to the ongoing dysfunctional California Democratic Party system and suggest more political parity to keep things transparent and balanced?

No … because in Skelton and Newton’s world, only Republicans need to be reformed and bipartisan.  Which would be fine, if an inbred Democratic world was any better than an inbred Republican world.

Here’s a hint for the press–both for those who hold their nose and tolerate Republicans and Independents, or those who obviously hold Republicans and Independents in contempt:  stare in the mirror, ask YOURSELF if YOU need to show more impartiality, and Connect the Dots that “power corrupts, and absolute power corrupts absolutely” because ALL one-party systems are ripe for corruption and dysfunction.

3) While Skelton makes an excellent point against “Democrats now always bowing to labor and Republicans not consistently cowering before the anti-tax crowd”, he doesn’t Connect-the-Dots between how the outdated tax system and public pension system he decries, and who’s really, REALLY trying to fix it (and ditto for Newton).

And neither of them give credit to a California Republican mantra which should also be one proclaimed by Democratic and Independent leaders, because it’s true from a mathematical, not politically partisan perspective:

WE DON’T HAVE A TAX PROBLEM, WE HAVE A SPENDING PROBLEM.

Let me translate this for anyone who’s willing to drop their obsession with “good guy/bad guy politics” or partisan politics of any sort, and let me translate this to Skelton, Newton, or any other biased self-proclaimed know-it-all from the media who needs to drink a tall glass of “shut your mouth” to wash down that aforementioned, long-overdue piece of humble pie.

I’ve jokingly referred to “Alpern’s Law of Taxes” (which really isn’t MY idea, but just common sense that’s been extolled by others for centuries, if not millennia): IT’S NOT THE AMOUNT OF TAXES THAT INFURIATES TAXPAYERS, BUT THE PERCEPTION OF HOW THEY’RE BEING SPENT.

When we’re fighting the Nazis, or their modern-day equivalents in the Taliban/al-Qaida, we can and should raise taxes to take ownership of our generational struggles.  FDR was right to do it in the 1940’s, and G.W. Bush was wrong to not do it when he declared a War on Terror.  Ditto if taxes are being raised for infrastructural needs SO LONG AS THEY ARE SPENT WELL.

However, pension spiking and allowing public sector workers to retire in their mid-50’s while the rest of us have to work until we drop dead of exhaustion. is NOT a prescription for a proper public investment of the taxpaying public as our infrastructure and governmental services crumble and disappear.

So Republicans have and did raise taxes (both Republican and Democratic voter majorities in L.A. County voted to raise sales taxes for transportation Measure R), and they need to do so again under the right circumstances. But shouldn’t Democrats get past “blame the Koch Brothers and Bush” to acknowledge that our taxes are too-often being spent poorly?

Do the likes of Skelton and Newton have the spine and moxie to suggest that public sector unions undo the Governor Davis Debacle and start calculating CalPERS and local/city/county investment returns at 4% or less (and have public sector workers pay more into their systems) until they’re no longer draining our state and local governmental coffers?

Do the likes of Skelton and Newton have the spine and moxie to suggest that while raising taxes on the rich is politically expedient, raising income and sales taxes on EVERYBODY combined with a moratorium on raising the state and local budgets (if not lowering them by 5-10%) is the best way to make everyone sacrifice together and keep our budgets balanced for the long-term?

Do the likes of Skelton and Newton have the open-mindedness to abandon their never-ending dogma of “end term limits” and listen to the voters who are smart enough to ignore them?  After all, the City of Long Beach did show how a popular Mayor (Beverly O’Neill) could retain her office with a write-in vote in a city that also retained general term limits.

(We are the same nation that had its tone set with our first president, George Washington, who many would have gladly been elected king but who proclaimed that he was only one man … and who voluntarily left office to leave it to others to take on the responsibilities of leading.)

As for little ol’ me, I’m just a dermatologist who’s also a local/volunteer civic leader and a transportation advocate in favor of Proper Planning and Good Government — and I’m always happy to be proven wrong.

But as for Skelton and Newton, they’re not too smart or too wise to acknowledge they really ARE biased, and really DON’T have all the answers, no matter which closed-minded and “progressive” rag chooses to hire them.

They, like the rest of us, really need to Connect the Dots and acknowledge when bad policies and bad politics are connected in a vicious circle that is self-serving and society-destroying.

Let’s hope that 2015 is a turning point when we all (certainly myself included, but especially the wizened columnists at the Times and other media outlets) can reopen our minds and rehash the “truisms” that need to be thrown out like yesterday’s news.

This article was originally published on CityWatchLA.com

(Ken Alpern is a Westside Village Zone Director and Board member of the Mar Vista Community Council (MVCC), previously co-chaired its Planning and Outreach Committees, and currently is Co-Chair of its MVCC Transportation/Infrastructure Committee. He is co-chair of the CD11Transportation Advisory Committee and chairs the nonprofit Transit Coalition, and can be reached at Alpern@MarVista.org  He also does regular commentary on the MarkIsler Radio Show on AM 870, and co-chairs the grassroots Friends of the Green Line at www.fogl.us. The views expressed in this article are solely those of Mr. Alpern.)