California’s big pension funds thought they were building a perpetual-motion machine. <\/p>\n
Now the gears are stripped and the wheels have fallen off. The California State Teachers’ Retirement System and the California Public Employees’ Retirement System are taking some steps to confront the problem. But thanks to a 1999 decision by lawmakers and then-Gov. Gray Davis, it may be too little, too late. <\/p>\n
In their latest move, the pension funds revealed that they are considering lowering the expected annual rates of return on their investments, as The Bee’s Dale Kasler wrote last week. <\/p>\n
It’s not an academic exercise. The funds have been too optimistic for too long, at the expense of taxpayers and, ultimately, the state workers and educators they represent. <\/p>\n
CalSTRS estimated it would earn an average of 8 percent. Its portfolio lost 25 percent in the 2008 market crash. CalPERS estimated its rate of return would average 7.75 percent. Its portfolio fell 23 percent because of the crash. <\/p>\n
If the pension funds lower their assumed rates of return, taxpayers would need to make larger payments now. That would be painful. But by ignoring the gap between wish and reality, the pensions’ liability would worsen, leaving future taxpayers to pay bills due now. <\/p>\n
That’s not fair to anyone involved. <\/p>\n
The immediate problem dates back to the late 1990s, when the pension funds took recklessly wrong turns. <\/p>\n
In 1999, the first year of Gov. Gray Davis’ tenure, lawmakers and labor lobbyists pushed through SB 400 by then-Sen. Deborah Ortiz, a Sacramento Democrat. Sponsored by CalPERS itself, the bill vastly increased pension payments to state workers, particularly those who wear badges. <\/p>\n
The bill analysis prepared by otherwise clear-eyed legislative staffers said that if lawmakers were to pass the measure, as happened, the annual cost by 2009 and 2010 would be “in the $650 million range.” The analysis was based on CalPERS’ assessment of its “superior return on system assets.” <\/p>\n
Hubris is a horrible trait. As we learned from the dot-com bust and the 2008 crash, what goes up always comes down. Instead of paying $650 million, state taxpayers will pay $3.1 billion this year, and $3.5 billion in the fiscal year starting in July. <\/p>\n
SB 400 was a bipartisan blunder. The Senate approved it 39-0; the Assembly voted for it 70-7. <\/p>\n
A year earlier, as Gov. Pete Wilson was leaving office, he struck a deal with teachers that increased state payments into teacher retirement. <\/p>\n
Because of the way CalSTRS is funded, the state cost is less. But it’s still real money, $1.3 billion in the coming fiscal year, according to the Department of Finance. <\/p>\n
The teacher-retirement board could act to align its rate of return in September, though it would require legislation. <\/p>\n
CalPERS could act next February. <\/p>\n
The pension fund guardians need to take this and other steps to fix the problem. For the sake of current and future pension beneficiaries, unions and their lobbyists who so aggressively pushed to sweeten pensions a decade ago need to engage in the issue. <\/p>\n
No machine runs forever. But campaigns do seem to be perpetual. <\/p>\n
Initiatives aimed at government workers likely won’t appear on this year’s ballot. But if pension funds remain a mess in 2012, initiative promoters will have a rich target.<\/p>\n","protected":false},"excerpt":{"rendered":"
California’s big pension funds thought they were building a perpetual-motion machine. Now the gears are stripped and the wheels have fallen off. The California State Teachers’ Retirement System and the California Public Employees’ Retirement System are taking some steps to confront the problem. But thanks to a 1999 decision by lawmakers and then-Gov. Gray Davis, […]<\/p>\n","protected":false},"author":4325,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-398980","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/398980","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4325"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=398980"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/398980\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=398980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=398980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=398980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}