If you're a California voter, you've been the victim of a scam perpetuated by the state's public sector unions:
[Actual] CalPERS data shows the average career public employee, who put in at least 30 years of service and retired in the 2008-09 fiscal year, collected a starting pension of $67,000 a year, or 2.5 times the advertised figure [by CalPERS]...
The pension numbers are even higher for the separate local retirement systems that cover employees of the two East Bay county governments. The average was $85,500 for career workers who retired in 2009 from the Contra Costa system, and $83,000 from Alameda County. A majority of these workers also receive Social Security, which could add, very roughly, about another $19,000 to the annual pension.
More here. 1) think California doesn't spend enough on education? 55% of California's general fund will be spent on education (43% on K-12; and 12% on higher education); and 2) think we should tax people more? Think harder. If you're a company and want to expand, are you going to expand someplace where you and your workers have access to cheaper housing, reasonable wages, and lower taxes, or someplace with higher housing costs, higher salaries, and higher taxes?
What about taxing corporations instead of individuals, you ask? From David Walker's book, Comeback America (hardcover, page 121): "we must realize that corporations don't really pay taxes. Rather, they pass along any tax, in the form of higher prices to consumers, lower wages to workers, and/or lower returns to shareholders." It turns out trickle down economics exists--at least when it comes to taxes.
Bonus I: from Calvin Massey:
In the private sector a union bargains for a greater share of the entity’s revenue and profits. What it can provide in return is greater productivity, accomplished perhaps by work force stability, higher morale, and the belief that the common fate of employer and employee will be enhanced by productivity gains. If this happy event ensues, at the next round of collective bargaining, union workers can and should receive their fair share of the resulting gains.
In the public sector, by contrast, a union is not bargaining for a greater share of the revenue produced by economic activity; it is bargaining for a greater share of revenue that is obtained by force of law – taxation – or, if not a greater share, at least for a constant share of those revenues extracted from the citizens. What a public sector union can and does provide in return is political support for the faction that chooses to increase taxes or the union’s share of existing taxes. If public sector unions deliver on their support, they will be rewarded by ever more generous payments. There is no market that acts as an external monitor of worker compensation; there is only a steady repetition of a corrosive bargain – tax the public ever more in order to maintain political power. That is inimical to responsible government.
It appears Calvin Massey is a law professor at UC Hastings. Bravo!
Bonus II: Christopher Caldwell, FT, 2/25/11:
Public-sector unions have long posed a problem of what the economist Mancur Olson called the “logic of collective action”. Democracy tends to offer benefits to small, well-organised groups (who defend them vigilantly) while spreading the costs among the broader public (in doses that are too small to rally resistance around). The result is a hardening of privilege. What is new in Wisconsin is that those who do not belong to public-employee unions see this logic as clearly as those who do.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Showing posts with label public sector pensions. Show all posts
Showing posts with label public sector pensions. Show all posts
Friday, February 25, 2011
Wednesday, January 12, 2011
Public Sector Pensions: True/False Quiz
Questions for anyone who supports public sector pensions.
1. True or false? It is ideal to make all California taxpayers personally liable for financial obligations of potentially trillions of dollars to 12% of state workers.
2. True or false? If a financial manager fails to produce 8% returns over the course of 15, 20, or 30 years, he is either incompetent or has mismanaged funds.
3. True or false? Despite the fact that CalPERs bought actual land and commodities like timber in addition to stocks, it still failed to diversify its holdings over the past ten years.
4. True or false? As fund assets increase, it is easier to produce 8% gains.
5. True or false? As fund assets reach the hundreds of billions, it becomes harder to produce consistent gains because it becomes harder to effectively invest in all types of investments.
6. True or false? Warren Buffett, Stanford University, and Chuck Reed are lying to us or are uninformed when they warn us that government pensions in their current form are unsustainable and we should switch to a two-tier pension system.
7. In your opinion, what percentage of mutual funds run by professional managers have weathered the 2008-2009 recession? What makes you believe CalPERs will be in the top group of professional money managers in the future, given their performance in 2008-2009? If Bernanke and Greenspan couldn't see the housing crisis coming, why do you think a CalPERs money manager will?
8. True or false? It is ideal to rely on professional managers--most of whom have proven themselves incompetent over the past ten years--to prevent California taxpayers from being personally liable for potentially trillions of dollars of benefits to just 12% of state workers.
9. Almost all of California's public pensions assume an 8% average annual growth rate. Somewhere, there is a mutual fund manager who can manage the state's pension money and promise 8% annual gains. Do you have your money with him or her? If so, can I have the person's contact information?
10. Have you invested at least 25K in non-401k assets over the past seven years? (The reason I ask is because you would have a better idea of how difficult it is to get 8% a year, even over the long run.)
Even the big funds chase performance and have to mix up asset allocations. That involves the potential for human error no matter what. At some point, public pension supporters are just arguing that 12% of state workers should be immune from investment mistakes while the other 88% cover their arse.
Also, note that I did not mention private unions in this thread. It is a separate discussion, b/c private corporations, unlike states, can more easily declare bankruptcy to shed themselves of any long term obligations. The issue in the corporate union realm is how to ensure proper funding of the PGGC while minimizing the cost to taxpayers and consumers.
Furthermore, the best argument against private sector unions is that they harm younger and newer workers by enacting artificial barriers to getting a job; therefore, one can argue that unions limit worker mobility and freedom, especially for younger workers and immigrants.
In addition, being pro-union (or socialist) usually means you favor restricting work for immigrants in favor of native-born citizens. This is because most union jobs go to citizens, not new immigrants. It's not inherently wrong to believe that citizens should get preference over immigrants for jobs, but it depends on what kind of society you want, i.e., a faster-growing, dynamic society--or a society that votes themselves benefits to a specific class of people at the expense of future growth. But again, that's a separate discussion, and this "quiz" was designed to apply only to public sector unions and benefits.
2. True or false? If a financial manager fails to produce 8% returns over the course of 15, 20, or 30 years, he is either incompetent or has mismanaged funds.
3. True or false? Despite the fact that CalPERs bought actual land and commodities like timber in addition to stocks, it still failed to diversify its holdings over the past ten years.
4. True or false? As fund assets increase, it is easier to produce 8% gains.
5. True or false? As fund assets reach the hundreds of billions, it becomes harder to produce consistent gains because it becomes harder to effectively invest in all types of investments.
6. True or false? Warren Buffett, Stanford University, and Chuck Reed are lying to us or are uninformed when they warn us that government pensions in their current form are unsustainable and we should switch to a two-tier pension system.
7. In your opinion, what percentage of mutual funds run by professional managers have weathered the 2008-2009 recession? What makes you believe CalPERs will be in the top group of professional money managers in the future, given their performance in 2008-2009? If Bernanke and Greenspan couldn't see the housing crisis coming, why do you think a CalPERs money manager will?
8. True or false? It is ideal to rely on professional managers--most of whom have proven themselves incompetent over the past ten years--to prevent California taxpayers from being personally liable for potentially trillions of dollars of benefits to just 12% of state workers.
9. Almost all of California's public pensions assume an 8% average annual growth rate. Somewhere, there is a mutual fund manager who can manage the state's pension money and promise 8% annual gains. Do you have your money with him or her? If so, can I have the person's contact information?
10. Have you invested at least 25K in non-401k assets over the past seven years? (The reason I ask is because you would have a better idea of how difficult it is to get 8% a year, even over the long run.)
Even the big funds chase performance and have to mix up asset allocations. That involves the potential for human error no matter what. At some point, public pension supporters are just arguing that 12% of state workers should be immune from investment mistakes while the other 88% cover their arse.
Also, note that I did not mention private unions in this thread. It is a separate discussion, b/c private corporations, unlike states, can more easily declare bankruptcy to shed themselves of any long term obligations. The issue in the corporate union realm is how to ensure proper funding of the PGGC while minimizing the cost to taxpayers and consumers.
Furthermore, the best argument against private sector unions is that they harm younger and newer workers by enacting artificial barriers to getting a job; therefore, one can argue that unions limit worker mobility and freedom, especially for younger workers and immigrants.
In addition, being pro-union (or socialist) usually means you favor restricting work for immigrants in favor of native-born citizens. This is because most union jobs go to citizens, not new immigrants. It's not inherently wrong to believe that citizens should get preference over immigrants for jobs, but it depends on what kind of society you want, i.e., a faster-growing, dynamic society--or a society that votes themselves benefits to a specific class of people at the expense of future growth. But again, that's a separate discussion, and this "quiz" was designed to apply only to public sector unions and benefits.
Tuesday, February 23, 2010
To all the American Newborns: You Owe a Trillion Dollars, Thanks to Mommy and Daddy
Mish has done an excellent analysis on the trillion dollar public sector benefit problem. See HERE for more. It's horrifying and edifying at the same time. Sigh.
Friday, November 13, 2009
Gov Pensions Bankrupting Taxpayers?
This article scared me, until I realized not enough people will care, so the problem will be forgotten soon enough. What the heck, it's only 22 billion dollars, right?
The [government pension insurance] fund still has plenty of money to operate now. But unless pension funds adopt less risky investment strategies or Congress raises insurance premiums, it eventually will run out of money to pay the [government worker] pensioners it supports.
At least our children are on the hook for these things. Way to look out for them, huh?
The [government pension insurance] fund still has plenty of money to operate now. But unless pension funds adopt less risky investment strategies or Congress raises insurance premiums, it eventually will run out of money to pay the [government worker] pensioners it supports.
At least our children are on the hook for these things. Way to look out for them, huh?
Tuesday, August 4, 2009
Public Sector Pensions and Politics
The SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
Find me an investment advisor who can guarantee 8.25% annual gains in perpetuity, and I will show you a Brooklyn bridge for sale. (For the record, Madoff doesn't count.)
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
Find me an investment advisor who can guarantee 8.25% annual gains in perpetuity, and I will show you a Brooklyn bridge for sale. (For the record, Madoff doesn't count.)
Saturday, August 1, 2009
California's Pension Problem
The next time a California government worker starts talking about furlough days and pay cuts, remind them about their pensions and lifetime medical benefits. Or, just give them a link to this Judy Lin 7/31/09 article:
http://news.yahoo.com/s/ap/us_california_budget_pensions
California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...
Government workers and their union representatives often say the more generous pensions offset lower pay.
But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.
"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.
I predicted California's pension problem back in December 2007:
Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.
As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.
Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)
It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.
Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
http://news.yahoo.com/s/ap/us_california_budget_pensions
California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...
Government workers and their union representatives often say the more generous pensions offset lower pay.
But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.
"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.
I predicted California's pension problem back in December 2007:
Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.
As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.
Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)
It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.
Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:
The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...
City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.
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