Tag Archives: pension deficit

Pension deficit, unfunded accrued liability, whatever you want to call it – by any other name, a turd will still stink

31 Mar

Today I posted a piece sent in by a reader – 

https://chicotaxpayers.com/2020/03/31/will-states-use-covid-19-funds-to-bail-out-pensions/

It’s a good article because it touches on issues related to the pension deficit. I’m afraid a lot of people aren’t worried about the pension deficit because they don’t really understand what it is or what it’s doing to our economy. So let’s dive in.

What is the pension deficit? It’s the difference between what public employees have paid into their pensions and what they expect to get in retirement. In California that difference is well into the negative.

In the late 1990’s, our state retirement agency cut a deal with other state agencies, promising they would fund pensions of 70 – 90% of highest years’ salary with stock market investments, allowing local agencies to negotiate unrealistically low employer and employee shares with the unions. Many agencies negotiated contracts in which the employer would pay the entire employee share. This resulted in very low contributions from employers/employees.

At the same time, many agencies also raised salaries markedly – in Chico, during the early 2000’s, the city doled out raises of 14%, 19%, 22%, for several years running. City manager Tom Lando’s salary, for example, went from about $65,000/year to about $135,000 in just the last few years before he retired. His successor came in at $190,000 and retired in less than a year. The next city manager agreed to work for a paltry $180,000, but his successor, Brian Nakamura, got over $200,000/year, also leaving in less than a year. Nakamura’s successor Mark Orme agreed to an initial $180,000, but now makes over $220,000 with “extra pay”. 

Orme will argue that he’s taken pay cuts – no, he just hasn’t been given a raise in salary for a few years. He will also tell you he’s paying more of his pension – so fucking what? Orme went from having the entire tab picked up by the taxpayers to paying less than 15% of his pension cost out of his own pocket. The taxpayers pick up most of the other 85%, with minimal contributions from CalPERS questionable stock investments. 

The low contribution rates coupled with the irrational salary increases put Chico in deep doo doo. In 2013, Chico employees’ pension deficit was about $168,000,000. When Chico came close to bankruptcy back in 2012, local conservatives pointed the finger at a liberal majority on council, accusing them of bad spending habits, but nobody wanted to talk about exactly what the debt was made up of. The UAL – unfunded accrued liability – is our single biggest debt, far overshadowing any other debt the city is carrying right now.

This is a national problem.  Today, the national pension debit is over $122 trillion. Put that in relation to your life. If you own a home, a car,  really nice clothes, even an extensive collection of Hummel figurines, you are probably not even worth a million.  Well, one trillion is 1,000 times 1 billion. 1 billion itself is 1,000 times 1 million. 

Here’s how I put it into perspective – within my lifetime, Jed Clampett was a millionaire, and that was a really big deal. 

Who should pay the UAL? That’s next time, when we take up the subject of “pension protection clauses,” or, The California Rule. 

 

Norman Elarth: “they will speak of uncontrollable external cost increases, rather than overcompensated and underfunded employees”

8 Aug

From the Chico Enterprise Record:

Policies help conceal false allocation of resources

Aquatic centers, solar power, new sports arenas around Sacramento, etc. Many are seeking the notoriety, above-market compensation, or even the cheap entertainment that becomes available by taxing the workingman. The question is why our politicians want to destroy our wealth by investing in entertainment and doubly expensive electricity, particularly since businessmen will not increase production and employment until workers are capable of paying down debt and increasing expenditures.

Unfortunately, while democracy and capitalism are both succumbing to government overspending, public greed, and the faulty allocation of financial resources, the problem is amplified by the leaders of government and its related entities. In order to maintain their power, they must increasingly provide a free lunch even more grandiose than the public can stomach, and hence we often find that their policies are shrouded in falsehood and deceit.

Thus, while our school board obscures the cash bonus and cumulative 9.2 percent raise given to our teachers, they completely hide the additional 4.3 percent of their salary that we will be paying into their pension fund for the years 2014 and 2015 combined. Another 4.3 percent will be added next year under Assembly Bill No. 1469. Their poorly managed total compensation for 10-months work will be about $60 per hour.

When cities and water and power companies help bankrupt our workers and the elderly with increased fees and rates, they speak of uncontrollable external cost increases, rather than overcompensated and underfunded employees.

— Norman Elarth, Chico