Just as the moment appeared that the media attention devoted to California’s pension crisis had begun to reach a fever pitch regarding the state’s pension crisis, a key state public employee union doubled down on its misinformation campaign regarding the state’s pension crisis.
Yvonne Walker, president of the Service Employees International Union Local 1000, wrote a recent op-ed for the Sacramento Bee titled “Let’s not be as shortsighted on pensions as on drought.”
The title of the piece actually makes it seem like it might hint at a reality check on pensions, but if you read the piece there is scarcely a single point that cannot be refuted with substantial evidence and facts.
The piece begins by drawing a flawed parallel to the state’s drought, which recently ended due to record rainfall.
The piece states that a “group of self-styled experts has grabbed the media megaphone with doomsday predictions about California’s public worker pension funds. They are repeating the same mistake, taking a short snapshot and concluding that it will extend forever,” state’s the Bee op-ed.
So the position the SEIU 1000 president is taking is that there will somehow be some great market correction between now and 2047, similar to the record rainfall this past winter, that will magically wipe away the $160 billion in unfunded liabilities that have accrued at the California State Public Employees’ Retirement Fund (CalPERS) since 2000.
This comparison may sound intriguing to Joe Public, or some state workers looking for some consolation in the increasingly abysmal prospects that their full pension will be there when they retire. But it simply does not match with the facts and evidence, of which few are presented to back up her arguments.
First off, this is about math, pure and simple. And for any expert, apart from the politically motivated state-funded UC Berkeley study cited in the piece, who has taken an honest look at the figures—things are not good.
In short, no financial expert can present any real evidence showing that CalPERS can grow its way back from its current 63% funded ratio to anywhere close to 100%.
Perhaps the best source is CalPERS own actuaries, Wilshire Associates, which has stated that they project the fund to achieve an average return of 6.1% over the next several years—nearly a whole percentage point below their current 7% assumed rate of return that doesn’t fully kick in until three years from now.
David G. Crane, a Democrat who was Governor Schwarzenegger’s’ point person on pension reform, is a former investment banker and wizard with the actual numbers.
Crane continues to publish a series of financial analyses of CalPER’s own figures, which prove that the fund is insolvent absent major policy changes and major changes in the assumed rates of return.
And if you don’t trust those folks, how about take a listen to a growing list of local administrators and public officials in local government who say that CalPERS recent rate increases are eating local government budgets alive and likely to push many to the brink of bankruptcy in the coming years.
Here is a great recent piece by a Beverly Hills City Councilman called “Pension Pomperipossa: Destroying California’s Cities,” while many more local and state accounts can be found on the Pension Tsunami website.
I doubt the Los Angeles Times, KQED, CALmatters.com, and famed editorial writer Dan Walters would devote a whole series to the state’s pension crisis if it were not for real. These folks are not a group of “self-styled experts,” quite the contrary, these are the real experts—some of the best analysts in California politics.
Furthermore, even if CalPERS gets a 20% return on their portfolio in 2018, which is not even possible, they would still only recoup a fraction of their unfunded liabilities.
CalPERS and the state’s insolvent pension system is not subject to natural weather conditions, it’s a man-made disaster, resulting from years of mismanagement and making assumptions that deny the most basic of prudent actuarial and investment principals.
Unfortunately, SEIU President Walker and the rest of her union counterparts refuse to acknowledge what is so clear to everyone else—absent major policy changes CalPERS will go belly up and likely take a number of localities and public retirees down with it in the form of bankruptcy and lost government pensions.
That’s the reality. And while union officials may believe they are gaining some kind of twisted political leverage or temporary windfall for their members by denying this reality, it will not change the underlying math, which is so very clear to everyone else. In fact, the numbers are staggering, and undeniable to someone like me, and the many other experts listed above.
The state’s public employee unions are supposedly advocates for government and government employees, but by denying the most basic realities about the state’s pension crisis they are demonstrating that they care far more about their own self-interests than about a truly thriving public sector, and even the basic well-being of their own members.
After all, how will the state afford to pay for any current government programs if it is spending 4/5 of all new tax dollars on retired government employees? I’m still not quite sure exactly how that policy result is defined as “progress.”
David Kersten is the president of the Kersten Institute for Governance and Public Policy—a Bay Area-based public policy think tank and consulting organization. Kersten is also an adjunct professor of public budgeting at the University of San Francisco.