‘All is Well’

[This editorial appears today (24 October 2009) in The Union’s print and online opinion sections.  In there it is retitled ‘Unfunded liabilities time bombs are ticking away’.  This is the submitted version. gjr]

George Rebane

Nevada County’s unfunded liabilities to its Calpers pension commitments total over $80 million.  By now most people know that Calpers is the world’s biggest public employee pension fund management agency.  It currently invests over $200 billion of contributions from the various California taxing jurisdictions (counties, cities, towns, agencies, and, of course, the state).  Other lesser known pension and healthcare fund management organizations in the state, whose unfunded liabilities (UL) added to Calpers’, bring the California total UL to over $130 billion.

This column’s readers know how Calpers pension liabilities are calculated, and how local electeds commit their jurisdictions to pay for their promises.  Unfortunately, not all the electeds here and across the state are so informed.  As a result, many have continued to burden their jurisdictions with liabilities they neither realize nor can resolve.

Next Tuesday 10am October 27th at the Rood Center, the regularly scheduled Board of Supervisors meeting will feature a presentation on county finances by Joe Christoffel, the county’s Deputy CEO and Chief Financial Officer.  Mr. Christoffel told me that he also plans to include the county’s UL situation in this quarterly review. 

Michael McDaniel, Executive Director of the Sierra Environmental Studies Foundation, will then give an overview of the county’s unfunded pension liabilities.  Mr. McDaniel will be speaking at the invitation of the Nevada County Tea Party Patriots who requested extended BoS coverage of this issue.  He will also present recommendations that may help get us out of the financial holes in which the county and its cities find themselves.  Mr. McDaniel is the lead author of ‘Unfunded Liabilities – Our Community’s Fiscal Time Bombs’ published by SESF in December 2007 and available at sesfoundation.org.

The county’s hidden UL problem did not just grow out of the recent financial crises, but has been building over many years.  Two years ago, before the current recession when SESF raised the issue locally, the county’s pension UL was just under $50 million, and Grass Valley and Nevada City had undisclosed debts of about $4 million and $700,000 respectively.  Then Calpers’ well-documented investment disaster last year reduced the monies available, but not the obligated amounts to be paid out.

The jurisdictions in which the retired public sector employees worked are still responsible for all retirement payments. The markets’ downturn, along with TBD BoS in/actions over the last two years, have increased the county’s UL to the over $80 million number.  The county has neither highlighted nor disclosed any plan to make up these UL.  Well, that’s not entirely true.

Some local bloggers and folks in the Rood Center seem to think that the entire problem is really not ours, and can be laid at Sacramento’s feet.  This longstanding ignorance is unfortunate.  When the SESF report was presented to the BoS and the local media, it was essentially ignored.  In the interval some of us, who have continued to point out the coming train wreck, have been accused of “demagoguery” for bringing the problem to public attention.  A day late and a dollar short, the country’s UL have become national news with daily articles outlining the fiscal calamity facing communities across the land and especially in California.  (For more, please visit pensiontsunami.com.  See also The Union’s online edition and Rebane’s Ruminations)

Politicos and their staffs across the country are pointing fingers at state capitols and Washington to place blame and expect solutions.  In California the ignorance and/or inattention (I’ll leave out perfidy) of local elected officials created our problems.  These same officials hired and fired, and determined the retirement benefits for their public-sector employees.  And if they saw their actions creating an unsustainable fiscal future for their jurisdictions, why did they remain silent?

These same worthies now expect that someone else up there will pull our fat out of the fire.  But the remaining ‘solutions’, as some of us have outlined elsewhere, are few and stark –

• Adopt a two-tiered system treating new employees differently (give them less) than existing employees and the retirees.
• Hyper-inflate (i.e. destroy) the dollar so that all contracted liabilities can be paid off in cheap/worthless dollars.
• Declare Chapter 9 bankruptcy (like Vallejo) and abrogate all unfunded liabilities.
• Pass a state law that stiffs the retirees and current employees by cutting their pension benefits to a fraction of what was contracted.
• Hope that retirees will start dying early and at a high rate (i.e. that the actuarial tables will quit working).
• Hope that the people in Ohio will chip in to pay California’s debts.
• Hope that a miracle happens and the security markets will return over 15% annually so that the Calpers investments will make good all unfunded liabilities.
• Ignore the whole thing and hope that your term is up before things get nasty.  This tactic has worked well in the past, and may still have some legs.

Yes, some of these alternatives do require higher intervention, but only cynically can they be called solutions.  The remarkable thing is that the public employees continue to ignore all of this and remain quiet.  When you come next Tuesday, find out what Nevada County’s solution will be.  If you don’t hear one, or hear one that makes sense, step up to the mike and ask.

An article in the 15oct09 Wall Street Journal warned that “The cost of shoring up Calpers, the troubled $200 billion pension fund for California public employees, will ultimately fall on the state's 38 million residents, who are already dealing with tax increases and reduced public services.”

Cities and counties will have to cut (more) visible and important services in order to meet their legal obligations to retired workers.  Unattended, the various UL time bombs in Nevada County will go off, and any prayers for a bailout from someplace unknown will not be answered.  Next Tuesday people should ask - Where are we now?  How did we get here?  How are we going to work out of this UL mess?

For those not interested or with hopeful faces still turned toward Sacramento, please open page 142 of your hymnal and join in the singing of ‘All is Well’.

George Rebane is a retired systems scientist and entrepreneur in Nevada County who regularly expands these and other themes on Rebane’s Ruminations (www.georgerebane.com).

Comments

[Russ Steele]

Bill Lockyer, California's Treasure has a message for the California State Legislature telling them that two-thirds of what they produce is “just junk”? Insisting that more taxes won’t solve their problems, and that they have to start looking for ways to save money instead? But the best part is when he tells them:

"It’s impossible for this legislature to reform the pension system, and if we don’t, we bankrupt the state. And I don’t think anybody can do it here, because of who elected you. … You’re just captive of the current environment — I don’t see any way out!"

Video clip at NC Media Watch

[Russ Steele]

George,

I am encouraged by the positive feedback on your article at The Union's Comment Page. The usual pack of attackers are missing, perhaps they are stumped for words to counter your excellent arguments. Or, everyone agrees with your assessment? Interesting!

[George Rebane]

"stumped for words" no longer, it just took them a bit longer to work their way out of the woodwork.