Yet another prominent study highlights the depth of California’s and the nation’s pension crisis. The Pew Charitable Trusts recently released a report on the “state pension funding gap” — i.e., the $1.1 trillion-dollar divide between the assets governments have set aside and the amount of liabilities they have amassed to pay for those shockingly generous public-employee pensions.
It should surprise no one that California’s systems are woefully underfunded, and that the nation’s most populous state has by far the largest overall pension liabilities in raw numbers. We’re in worse shape, percentage-wise, than some other union-dominated blue states such as New York (which has done a good job funding its pensions), but in better shape than others. These debts keep growing everywhere, though, and piddling investment returns magnify the problem.
The actuarial data doesn’t tell the full story.
Union officials blame the stock market for the current morass. Low returns are a problem, of course. The California Public Employees’ Retirement System (CalPERS) assumes that its investments will yield 7.5 percent annually (soon to be lowered to 7 percent), but only saw a 0.61 percent rate of return in its latest fiscal year. Those returns are what are supposed to fund the system on a sustainable basis — and when they fall short debt levels rise.
Markets go up and down, but the real problem remains the salaries and benefit levels themselves. Pension systems are designed and operated for the benefit of public employees, who often take advantage of spiking gimmicks and disability benefits that inflate costs to taxpayers. The most illustrative story is told by looking at some recent anecdotal evidence, where we get a glimpse of how the nation’s real 1 percent get to live.
Records recently released by a nonprofit group Transparent California put names and job titles alongside the compensation packages. A chief port pilot, who operates tugboats that guide cargo ships into ports, received a total compensation package of $594,000. These port pilots average $434,000 a year in salary and bonuses, according to a 2016 Los Angeles Times article. They are skilled positions but in high demand. The newspaper revealed how the son of the top port pilot was hired for one of these “rare opening(s)” but was later terminated after ensuing questions about his credentials.
One San Jose police sergeant — yes, a sergeant, not a chief — received a package worth $552,000 last year. His $127,000 base pay was boosted by $69,000 in overtime, $219,000 in back pay, plus gobs of health and pension benefits. That’s beyond crazy. How many people in the private sector get these kinds of pay and benefit packages?
These figures, by the way, only include the direct cost of these pay packages and not the unfunded portion of the pension liabilities—unfunded costs that ultimately will be borne by taxpayers, too.
We have a senior deputy city manager earning a compensation package of $485,000 and myriad city managers, police officers and firefighters earning in that $400,000-plus a year range — and many of them are rank-and-file types who inflated their final pay with an overtime bonanza. You can scroll here for page after page of eye-popping compensation packages, and see how myriad benefits turn already generous salaries into CEO-style deals. Be sure to check out the highest-paid employees, mostly University of California professors earning north of $1 million.
One city engineer in Oakland’s planning department, who reviews plans, racked up $299,000 in overtime alone last year, thus quadrupling his base pay to $484,000. The San Francisco Chronicle explained that, according to Transparent California’s research director, his “pay rate and compensation suggest that he would have needed to be working 16 hours a day, all 365 days of the year, to get the amount of overtime pay he received.” The city told the newspaper that the engineer doesn’t just work on business days.
Are California cities really out of money or do they simply squander what they have in unfathomable ways?
Transparent California reported on six Los Angeles fire and police officials who each received more than $1 million in payouts last year (on top of their annual pensions). None of them, by the way, were the top-ranking officials. They were assistant and deputy chiefs and a police commander. That’s because of a program called a Defined Retirement Option Plan. “DROP allows an employee to draw a salary and pension simultaneously for up to five years, with each year’s pension being deposited into an interest-bearing account,” explains the group. The beneficiaries walk away with a one-time payout or annuity when they choose to actually retire.
When California legislators decided to grant 50-percent retroactive pension increases to the California Highway Patrol in 1999 (in a plan that then spread across the state), they argued that such a deal was needed for retention. But the very existence of DROP programs is proof such an argument was nonsense. (And how does retroactivity — i.e., granting soon-to-retire employees a boost going back to the day they started — encourage them to stay on the job?)
DROPs exist because employees want to keep working and their agencies want them to keep working, but the pension benefits are so generous that there’s no incentive to keep working. So these plans let them double dip their salary and pension — and then walk away with more money than most people save over their lifetimes. What a scam.
By the way, Los Angeles County’s former Sheriff Lee Baca will reportedly receive a pension of around $334,000, although he might not have much chance to use it given that federal prosecutors are seeking a two-year prison term after his recent conviction “for obstructing a probe into abuses at county jails,” according to the Los Angeles Times.
A Richmond, Calif., police officer whose killing of an unarmed man led to an $850,000 settlement from the city to the victim’s family, received an “industrial disability” retirement worth $70,000 a year tax free for the rest of his life, plus cost of living increases, according to a San Jose Mercury News report last year. He had worked for the department for eight years. These types of deals are not unusual — and they show that such behavior really pays off.
The retired city manager of the impoverished Los Angeles County city of El Monte told the Times last year that his $216,000 guaranteed lifetime retirement (plus paid health insurance and cost-of-living adjustments) lets him travel to Europe, play golf at Old Course at St. Andrews in Scotland, and “take some things off my bucket list.”
The retired manager receives two pensions, according to the report, and is part of “a coterie of former El Monte civil servants who receive one taxpayer-funded pension through (CalPERS) — and a second through a ‘supplemental’ plan approved by the city council in 2000.” I bet you’re shocked that the city earmarks 28 percent of its general fund to pensions, which leaves far less money to deal with street paving and parks maintenance.
Then there are some Newport Beach lifeguards who receive compensation packages above $200,000 and, well, you get the idea. Every time critics point to these well-documented deals, union types complain that we’re picking on a small number of outrages. But they are not a small number, as the above-mentioned database shows. Those same union people complain when we forego the anecdotes and focus on the unfunded-liability numbers.
Pick your poison of actuarial data or real-life examples of this decades-long transfer of wealth from private workers to government employees. Either way, the state has created a deep fiscal hole and an unfair situation, where average taxpayers have to pick up the costs of underworked and overpaid public servants who will be jetting the globe filling their bucket lists while the rest of us are trying to figure out how to make ends meet.
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