Tuesday, February 1, 2011

Ash Kalra: a Discussion on Unions and Pensions

Is Ash Kalra a government union puppet? You decide. Below is our discussion, copied from his Facebook wall, on January 27, 2011:

San Jose City Councilmember Ash Kalra: [posts a link to Sarah Palin, who apparently made a gaffe by not fully understanding the Sputnik moment reference in President Obama's recent speech.]

Me: Palin may be a moron, but at least she would never vote to give public sector unions bonuses during a recession :-) Private sector unemployment is 12%, public sector unemployment is around 1%, and you voted to give bonuses to government unions? Do you understand the money that goes to the government unions comes from the private sector?

Ash Kalra: Matt, I don't know what bonuses you are referring to as most of our unions gave money back to balance our budget this last year. And, unlike the private sector, we do not give bonuses anyway. Also, in 2010, the largest segment in the workforce that lost jobs were public sector employees. Everyone is hurting and it does not help to pit the private sector versus the public sector. We need jobs for everyone including those that provide services to our community.

Me: @Ash: you don't know what bonuses I am referring to? See here: http://www.sanjose.com/news/2010/10/28/City_Council_pensions_deficit [Note: I've updated the link because the original SJ Mercury News link requires a password.]

Seems like the "Forgetful Foursome" moniker isn't just hyperbole. [Note: the SJ Mercury News dubbed Ash Kalra, Kansen Chu, Nancy Pyle, and Nora Campos the "Forgetful Foursome" after their vote supporting government pension bonuses. Seven (7) Santa Clara County Council members voted against the pension bonuses, prevailing over the four who voted to give additional pension monies to retired government workers, including some who receive six-figure annual pensions.]

You say that "in 2010, the largest segment in the workforce that lost jobs were public sector workers." This is a misleading statement. In the aggregate, government workers are such a large number, even a 1% decline in their ranks translates into more individual persons unemployed than compared to other individuals in discrete occupations. (According to the BLS, "In 2010, 7.6 million public sector employees belonged to a union...Within the public sector, local government workers had the highest union membership rate, 42.3%...The largest numbers of union members lived in California." (http://www.bls.gov/news.release/union2.nr0.htm)

See also: http://1.bp.blogspot.com/_HOMfaLGCZIY/THoXdPJM3TI/AAAAAAAAAdQ/GOFeYbeQrMg/s1600/the_protected_class.png

In any case, it's fairly obvious that a 12% unemployment rate in CA's private sector vs. a 1% unemployment rate in CA's public sector is cause for concern. When certain politicians use their discretion to give more money to the public sector during a recession, even when such monies are not contractually required, it's unclear whether they understand Economics 101.

If we want to assist both the private and public sector, we need politicians who understand that a thriving private sector is paramount, especially because the private sector funds the public sector--not the other way around.

Ash Kalra: Matt, I was referring to drops in Silicon Valley in 2010. The public sector was the largest category in job losses. As for the article you dug up, we did not give bonuses. That is the supplemental retirement bonus for retirees that had been paid out for about a decade. The decision was whether to suspend and examine it or keep it in place and examine it. I certainly felt we should keep it in place and examine it since there are some retirees that rely on it and it had zero impact on the general fund and almost zero impact on the pension fund to keep in place while it is being examined. Suspending it was purely symbolic except to some of the retirees that rely on that money. Even on Tuesdays meeting, I asked the staff, as we examine the supplemental payment, to identify those retirees that are truly in need so we can relieve those struggling on the lower end of our retiree pay scale. So, to say we are giving bonuses to government unions is certainly a gross generalization. I have voted time and again assistance to our private sector employers to help them retain and grow their companies and have spent countless hours meeting with CEO's in my district to find ways we can help them succeed including helping them access capital as well as grants and tenant improvement programs offered by the city. It's easy to buy into labels the media chooses to put on me but there is a lot of work I and my Council colleagues are doing to help our private employers.

@Ash: thank you for your response. However, you are making misleading statements. First, by voting to maintain the current supplemental pension bonus plan, you voted to give bonuses to former government employees. You could have chosen to use that money for current government workers, businesses, or deficit reduction. You chose not to do so, which reveals your priorities (i.e., when given a choice, you choose retired government workers over current workers and deficit reduction [or at least a more fully-funded pension account]).

Second, Silicon Valley's public sector lost about 2,600 jobs in 2010, which you allege is a higher number than other individual occupation groups. But all you are doing is taking job losses within a very large group and comparing them to losses within separate, smaller groups.

It's like saying we should maintain bonuses to bankers because the entire financial industry in Silicon Valley (a large, diverse population) suffered more job losses than smaller groups of workers, such as hot dog stand workers, coaches, fishermen, etc. While 2,600 job losses are not something to sniff at, the way you present the information is misleading. [As such], you cause voters to question your judgment and economic knowledge when you vote to increase [or maintain discretionary] payouts to retired government workers during a recession that has caused massive deficits, in part due to the way cities like San Jose calculate pension benefits and payouts.

Perhaps a better question to ask is, "What reforms do you plan on enacting and supporting to ensure that pension payouts to retired government workers do not adversely affect future private and public sector job growth?"

For example, do you plan on lowering the projected pension investment return rate to something close to a riskless rate? Do you plan on increasing the time before which a city employee is eligible for a pension? (Right now, San Jose government workers are eligible for pensions after just 5 years.) [Note: What about basing pension payouts on a worker's average lifetime earnings instead of the final three years, when salaries are the highest?] In short, how do you plan on cutting pension costs, when such costs are clearly causing an adverse impact on city finances, according to the Civil Grand Jury, Stanford University, and [Mayor] Chuck Reed?

Ash Kalra:
We voted unanimously on Tuesday to look at all of those options to reduce our pension liability. And, no, I did not vote to increase pension payments. And, the supplemental payment that has been in place for many years is not money that could otherwise be removed from the pension fund for any of the items you listed. They are solely for the benefit of the pensioners, although I do think it is reasonable to reevaluate the program and target the supplemental benefit to those truly in need and have the remainder returned to the pension fund. We also voted to evaluate the program to see whether it will be entirely eliminated or otherwise adjusted.

@Ash: Thank you for correcting me. You voted to maintain, not increase, supplemental pension payouts (which were not contractually required). [Note: In other words, you voted to give discretionary pension payments to non-working government employees, despite the fact that the city's pension plan is currently underfunded.] I look forward to hearing your and other Councilmembers' ideas on fixing our city's budget problems in ways that focus on current public and private sector workers [as well as the unemployed].

San Jose's employee pension bill, $63 million a decade ago, is now projected to be $248 million in the upcoming budget year, up from the $194 million that had been anticipated a year ago, even though the city's staff has shrunk from more than 7,000 to fewer than 6,000.

(SJ Mercury News, January 25, 2011, article "San Jose City Council OKs Pension Plan," by James Woolfolk)

If we had switched government workers to 401ks (defined benefit plans) instead of maintaining costly, unpredictable pensions, San Jose might eventually have $248 million to spend on new jobs in 2011 instead of paying government workers who no longer work.

Bonus II: my friend saw the discussion later and emailed me the following message:

Here are some facts and figures from San Jose's chief negotiator, Alex Gurza, regarding the "13th check"--"excess earnings can be declared and transfered to the SRBR ("13th check" pool) even if other actuarial assumptions have not been met and even if the plans are significantly underfunded, as they currently are."

"Largest payments are made to those who've been retired the longest and who served the city longest." These folks often are the ones that were receiving the less enriched benefits enacted in the 2000's; however, very few--perhaps four of five--workers are at or below the poverty line, and that's if you consider ONLY their pension payout. These few workers had only about 8 yrs of service, on average. We don't know if these folks worked elsewhere and have other pensions, 401(k)'s, savings, etc. [Anyone who works eight years for a single employer cannot expect to rely on his pension payments from that single employer as his primary source of income.]

3% automatic COLA [cost of living increases] went into effect for police and fire employees as of 2002. Over the 9 years since, the REAL cost of living rose an avg. of 2% per year. The compounding effect of the 3%-on-3%-on-3%-etc. gives us an average increase of 3.4% each year for these retirees. Just with their REGULAR pension payments, they've outpaced inflation by 12.4% over 9 yrs.

For Federated (the other) employees, they got the 3% COLA in 2006. Since then CPI has risen avg. of 1.8% per year. The compounded 3% COLAs equate to 3.2% gain, on average, over each of the past five years. These retirees have outpaced inflation by 6.8% in five years.

Update (Jan 2017): Rather than create better metrics measuring employee performance, governments are going the other way--resorting to fear and hero worship based on outliers--to maintain and increase employment.  Better individual metrics mean that governments will not be able to rely as much on social engineering or irrelevant issues to hire, fire, and demand tax revenue. If Inspector A has 10 successful investigations while Inspector B has 2, then the government may easily defend any off-the-job behavior of Inspector A if challenged, including social media postings. In a world without individual metrics, Inspector B prevails because the touchstone in hiring becomes non-controversy rather than merit.

Bonus (February 2017): another year, still the same political machine in California. This time, in Mill Valley, CA.  More HERE.

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