State facing $241 billion pension shortfall

 

California's state government has a $241 billion shortfall in what it owes its retirees - thanks to the willful shortsightedness of state lawmakers and the influence of government employee unions more than 15 years ago.

Gov. Gray Davis in 1999 signed the legislation, SB 400, that allowed 200,000 civil servants to retire at 55 - and in many cases receive as much as 90% of their peak pay for as long as they lived.

Elected in 1998 with more than $5 million in campaign contributions from public employee unions, Davis says that if he had it to do over, he would not support the pension improvements. "I believed, when I signed it, it was sustainable," he said.

CalPERS projected an average 8.25% annual investment growth that didn't materialize after two recessions limited fund performance.

Proponents of the bill in 1999 stupidly believed that it would impose no new costs on California taxpayers. The state employees' pension fund, they claimed, would grow fast enough to pay the bill in full.

The boosters were off - by billions of dollars - and taxpayers will bear the consequences currently and in future decades.

That means a child born in 2016 will spend his or her adult life being heavily taxed extra for the expensive pension benefits throughout much of the century.

In the current year, state employee pensions will cost taxpayers $5.4 billion, according to the Department of Finance.

That's more than the state spent fighting wildfires, environmental protection and the emergency response to the drought combined.

Now, check this out: it's more than 30 times what the state paid for retirement benefits in 2000.

Cities, counties and school districts the length and breadth of California are being squeezed by the vise-like grip of SB 400. After state workers won expansive retirement benefits, unions representing teachers, police, firefighters and other local employees demanded similar benefits and won them in most cases.

SB 400 took effect in 2000, and that same year CalPERS investments were hurt when the dot-com bubble burst. Eight years later, the housing market collapsed and the Great Recession set in, dropping the pension fund into a tar pit.

That same year the Dow Jones Industrial Average plummeted for the first time in a decade, by 6%. The following year, it fell 7% and then again the next year, by 17%.

CalPERS lost 3% in 2008 and 24% in 2009, deleting $67 billion in value.

All state employees benefited from SB 400, but none hit the jackpot quite like the 6,500 sworn officers then serving on the California Highway Patrol. Previously, their pensions had been calculated by multiplying 2% of their salary times the number of years worked. SB 400 raised that to 3%.

CHP officers who retired in 1999 or earlier after at least 30 years on the job collected pensions averaging $62,218. For those who retired after 1999, the average pension soared to $96,270.

Only a very small percentage of Americans have adequate amounts of retirement cash stashed away.

About one-third of those 55 to 64 have no retirement savings. One analyst reported that for those with savings, the median was $111,000 in 2013, a small cistern of money that can be drained very fast over a few years.

In 1999, Democrats willingly welcomed the expansion of pension benefits and most Republican lawmakers voted for them too.

The Dems in the Assembly gave the bill unanimous approval and 23 of the 32 GOP members voted yes.

Ron Seeling, who collects an annual $110,000 state pension after a 20-year career at CalPERS, said, "They had that surplus, and there was an incredible push to spend it."

"Politics and pensions just don't mix. That's all there is to it."

Our editorial board couldn't have said it any better.

 

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