The California state
Legislature approved a record $108 billion budget Sunday night June 15, 2014 -
but you probably should hold your applause. Among other things, not included in
the budget, was an increase in Medi-Cal providers' re-imbursement rates which
were lowered during the economic downturn and has resulted a diminishing
participation of medical providers and a waiting list for medical care.
The
budget does include a plan to fully fund the teachers' pension system but no
mention is made of the corresponding under-funded CalPERS program which is
forcing many California cities on a path to bankruptcy.
Currently,
some State and local cities are paying as much as 30% of employee wages toward
pension plans and this does not include the "Pension Obligation Bond" which
adds another 10 % to the mix.
According to a Contra Costa Times editorial (April 8, 2013): ". .
.CalPERS and CalSTRS have a common thread: They each lack sufficient money to
pay for pension benefits workers have already earned." Additional editorial remarks point out
that both of these pension funds have a combined $173 billion unfunded
liability which works out to about $14,000 per California household.
The
public employee pension is not calculated in accordance to actual contributions
made, as is the case with social security, but instead offers the reverse
formula whereby the participant can be awarded retirement based upon a
percentage (2 or 3%) times an average of his highest income years, times the
number of years served. An actuary
is then employed to determine how much must be contributed to the fund in order
to pay for this retirement when it comes due.
The
alarming reality is the California taxpayer will ultimately pick up the tab for
any losses or shortfalls to the system.
Equally alarming is the fact most local residents are not aware they are
on the hook for this massive pension short-fall.
You
might ask, "If we have Prop 13, which sets rules for tax increases and we, the
voting public, did not have opportunity to vote for the Public Employee Pension
Program, how can we be liable for this massive pension deficit?"
This
is what you might call an indirect or "hidden
tax." Your city, county or
state has entered into agreement with employee unions which established the
afore-mentioned pension formula.
At the outset, the employee was to pay 7%-to 9% of his wage and the
employer (city, county or state), would pay the remaining costs.
Some
financial actuaries claim that CalPERS and CalSTRS made, and continue to make,
unrealistic projections with respect to their investment returns which resulted
in underfunding of the pensions at the very outset. Because of the economic downturn, ill-advised reliance on
unrealistic forecasts and irresponsible accounting to defer funding the system,
the pension fund deficit now requires a huge influx of cash to remain
solvent. But the pension system is
plagued with other problems.
For
many years there was no "cap" limiting pension benefits. Some public jurisdictions allowed
overtime pay, accumulated sick leave and even vacation time to be added to the
final pension calculation. The
Sacramento Bee reported in June, 2011, that nearly 9,000 retirees in the state
currently receive $100 thousand or more in annual benefits.
Recently,
according to an A.P. editorial by Fenit Nirapril, Governor Jerry Brown
requested CalPERS consider the problem of additional pension costs because
retirees were living longer than original calculations which is a contributing
factor to the huge pension deficit.
It
should be noted the CalPERS board is dominated by public employees who will
benefit from the pension system and the other board members include Democratic
appointees who receive significant campaign contributions from government labor
unions. The CalPERS Board,
according to the AP article, has already indicated it will ignore the
governor's request to tackle the problem immediately.
FOX IN THE HEN HOUSE.
The entire public retirement system has the appearance
of placing the fox in the hen house. Even on a local level involving cities
run by the "so-called" City Manager style government, pension negotiations are
headed up by persons who will benefit directly from favorable negotiations with
the employee unions.
The
average working stiff is required to pay a modest 6.2% from his paycheck with
matching funds from the employer for social security; whereas, the public
retirement system offers a huge return for modest employee contributions and a
massive employer cost which is being passed on to the California taxpayer.
No
one is complaining that public employees and public safety personnel do not
provide a valuable service to the community, but putting in place a pension
program that is out of financial control which requires virtually unlimited
taxpayer funding is not acceptable!
Possibly, as a solution, our state
legislators should pass a measure limiting employer contributions to no more
than 10 percent and bring this matter to a halt before more cities are forced
into bankruptcy.