I just received
this notice from David Crane and it pertains exactly to the message in my last post. This is the message we need to convey to all
school district boards and to all elected officials.
This paragraph stands out:
"More money from taxpayers will not solve the pension problem. At this stage only a reduction in liabilities will work. That means a suspension in automatic benefit increases and a reduction in benefits for years not yet worked.But elected officials in California have been too afraid of government employee unions to act.** The only way that will change is through persistent and permanent protection of lawmakers who legislate in the general interest."
Here is the entire notice text:
In
addition to its regular pension spending, the State of California is
providing an extra $12 billion over a four-year period to boost the
assets of the state's two pension funds in an effort to reduce future
pension spending. But the impact will be negligible. That's because pension liabilities will grow >10x as much over the same period.
Pension liabilities grew >$300 billion from 2009 to 2018:
That growth is automatic because
California's pension funds suppress the true value of pension
liabilities* when they are first created, as explained here.
Even a tripling of the stock market and a tripling and doubling of
pension spending by schools and governments couldn't boost pension
assets enough to keep up:
As a result, the difference between pension
liabilities and pension assets ("Unfunded Liabilities") nearly tripled:
Pension costs for schools and governments
rose alongside, forcing schools to lay off teachers, shut programs and
provide insufficient raises for young-in-career teachers. But you ain't seen nothin' yet. In 2010 I published a Wall Street Journal op-ed entitled Dow 28,000,000: The Unbelievable Expectations of California's Pension Systemthat
explained the levels stock markets must reach to meet the projections
employed by California's pension funds. Failure means both
increased tax payments and reduced government services -- as amptly
demonstrated by school strikes and layoffs despite major tax increases
in 2012 and 2016.
It is only a coincidence that this note is being written during a sharp
market decline, which is largely irrelevant to what will continue to be
an upward curve of pension spending. That's because the Dow Jones
Industrial Average would already have to be at >50,000 for state pension funds' expectations to have worked out.
More money from taxpayers will not solve the pension problem. At this stage only a reduction in liabilities will work. That means a suspension in automatic benefit increases and a reduction in benefits for years not yet worked.But elected
officials in California have been too afraid of government employee
unions to act.** The only way that will change is through persistent and
permanent protection of lawmakers who legislate in the general
interest.
Govern For California is a network of 700 donors and 14 chapters that
supports lawmakers who legislate in the general interest. Join us here. Donations may be made here.
*Full (as opposed to net, or unfunded) liability accounting is required
because pension assets set aside to meet pension liabilities do not
legally defease obligations for the full pension amount. Ie, taxpayers are on the hook for the full amount.
**That lack of courage was demonstrated by legislators removing me from CalSTRS's board
in 2006. In contrast, it rarely takes political courage in California
to take on corporations or billionaires. Next time a California
politician tells you they've been courageous, ask them when they last
took on a government employee union.
