California's Pension Problem: Shockingly Irresponsible

The next time a California government worker starts talking about furlough days and pay cuts, remind them about their pensions and lifetime medical benefits. Or, just give them a link to this Judy Lin article from Friday:

California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...

Government workers and their union representatives often say the more generous pensions offset lower pay.

But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.

"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.

I predicted California's pension problem back in December 2007:

Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.

As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see here). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.

Regarding the state's bond ratings, my prediction recently came true (see Sacramento Bee, Capitol Alert, July 14, 2009):

Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status.

It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.

Comments

[whidbey:]

What do you add to the news stories you cite? Not much.

California is a liberal bastion (very like the US Congress) where the legislature has systematically destroyed the private sector with regulations on air, water and zoning and taxes for social programs, while refusing to reign in the unions; the Government unions in California control the political process in total. Now we learn that a public school education in California is preparation for entering welfare or poverty (49th or 50th nationally). Medical services are very uneven since there is no control on utilization (emergency rooms are in most respects useless and many have stopped trying to deliver services anyone).

You can predict the result, when California defaults on its obligations to its bond holders,( Lockyer notwithstanding,) and can not pay its retirement/health obligations, the Golden state becomes a no mans land for business activity. This is termed a decaying series with no visible stops: a ruin path.

The 12% contribution of the state to the national economy will be sufficient to bring Congress to their aid probably to guarantee state debt (35 million citizens, 12 million voters). This tumble down will hurt the US economy just enough to tip it back into a recession, then likely a depression. (there are other states in deep trouble as well, but we trust you know and fear them.)

This is not a passing problem to be poked at by would-be savants, it is the beginning of the end and we need to acknowledge the facts.
California is a microcosmic and blueprint for the unwinding of a once useful society. Be alarmed as hell, if you have the energy.

Aug 02 12:36 PM

[notsosmart:]

this whole business of govt workers has become a joke.the pols have to cater to them in order to get reelected as there are so many.this system cant exist anymore.its a downhill situation.the good times are imploding.ca.ought to declare bankruptcy,negate those crazy union contracts & tell the govt workers to quit if they dont like the new order.i dont think there would be a shortage of replacements.

Aug 02 01:25 PM

[UbuTranscen...:]

Musical Deckchairs on the Titanic

Clearly, California is approaching some sort of Great Reset. The proposed 2010 state constitutional convention might be a constructive part of that process, though the seemingly limitless will of the opposing political camps to mire themselves in protracted deadlocks does not auger well. However, it was not the legislature that created the crippling majority-to-spend-but-... absurdity - for that we can thank a ballot initiative!

If we ever need an example of why representative government, flawed though it may be, produces a better result than direct democracy, let the exemplar be the Propositions legislated by a century of California's ballot initiative process. Many, many passed propositions have had unintended (or deceitfully intentional) benefits for special interests at the expense of the state's infrastructure or long-term fiscal health. California's pension plans are not innocent of complicity in promoting crippling propositions, of course.

Proposition 13 is the archetype of a measure that common wisdom praised as a boon to the residential homeowner but has had huge negative consequences for the prosperity and future of the state, and significant benefits to a special interest (commercial property owners). We are wallowing in the Prop 13 collateral damage to the physical and education infrastructure.

A new constitution may well be the only way to finally reform or (hopefully) eliminate California's crippling ballot initiative mechanism. Unfortunately, even the fastest conceivable timeline for strategic reform of California's governmental processes will be overshadowed by tactical fiscal events.

So, back to pastimes on a sinking ship: the beneficiaries of California pension funds and the legislature will doubtless have a rude awakening when the Great Reset is upon us and the music stops and (surprise!) there are no chairs left at all.

Until then, let the music play! Preferably something upbeat, perhaps 'Don't Worry, Be Happy'.

Regards from sunny SoCal, Ubu.

Aug 02 01:40 PM

[UbuTranscen...:]

Hmm. As a coda, please note that

"majority-to-spend-but... in the first paragraph of my comment above should read

"majority to spend but supermajority to tax" with hyphens connecting the words.

The posting software evidently did not care for such a long series of words concatenated with hyphens.

Ubu.

Aug 02 01:46 PM

[Freedom Fan:]

"We are wallowing in the Prop 13 collateral damage to the physical and education infrastructure."
-UbuTranscen

How many more times must we hear this egregious liberal lie?

"California's state/local tax burden percentage stands at 6th highest nationally, above the national average of 9.7%. Californians pay $5,028 per capita in state and local taxes. "
-www.taxfoundation.org/...

As with the Reagan tax cuts and W's tax cuts, which actually increased revenue, the problem is NEVER LACK OF REVENUE.

It is the insatiable appetite of corrupt politicians for wasteful spending, and strangulation by the lazy public employee union bullies.

Here's a way to stop this travesty: Cut their pay and send them home! The less time they have, the less damage they will be able to do to the citizens of California.

Sign the petition to return California to a PART TIME legislature: www.reformcal.com/cms

Aug 02 02:07 PM

[Leftfield:]

Connecticut's spending spree began soon after they got a full-time legislature. Example: In '83, only a few years later, spending was $3.3 billion. Now it's about $20 billion and property tax is utterly onerous even though an income tax was also added. Teachers unions got statewide highest US compensation mandated and the state failed to match funds as promised.
Insane spending, whatever the government, is the problem. Whatever the tax system. Politicians buying votes have given us a debt-addicted misallocated crony capitalist private sector and countless government voters who must be appeased while they stifle opportunity for the rest of us.
There is no tax system that can support our present bloated governments.

Aug 02 03:17 PM

[Nick36:]

All these stories about extravagant government spending on salaries and pension benefits for government workers makes the taxpayers reluctant to pay any taxes.

In California, the voters have block tax increases through their democratic process.

And something like that might eventually happen for the federal government too due to their largess for the big investment banks and the bonuses they pay for their employees. Next year, you can be almost sure that a lot of republicans will be promising to keep the federal taxes under control. And a lot of them will get elected just for promising that.

When many taxpayers feel that the government is spending their taxes irresponsibly. Then these taxpayers will do their best to withhold as much of their taxes as they can through the democratic process.

Aug 02 05:51 PM

[437339:]

Notososmart

GREAT idea ! Tell the OVERPAID government workers at ALL levels to quit .Someone else WILL take their place +PDQ , pretty damn quick.

Aug 02 10:10 PM

[Gregman2:]

Thanks for this. Like you, I'm tired of whiney state employees who feel that they have it so tough. Get a life. They've stolen dollars from our kids educational quality. Some of the pension abuse should be examined by Jerry Brown--it might just help get him elected.

Aug 03 09:24 PM

[Glen L.:]

Here's a thought: fire the parasites and replace them with nobody. Who needs the government schools, especially when the product is just flat-out awful? Relieve parents of the crushing tax burden and let them buy whatever education they can afford for their kids from private educators, or better yet, homeschool if they can. Bring back apprenticeships and vocational schools. And the poorest kids will be teducated by religious schools, like they always were before the rise of statism in this country.

We had the can-do spirit and the know-how once in America, and we lost it. But we can relearn it. It starts with a wholesale rejection of the parasitic government that has grown like kudzu and threatens to strangle us all. No more government solutions; the solution is no more government.

Aug 03 09:59 PM