Rich Ulery on Our Unfunded Liabilities

[This 9jun15 email from my friend Rich Ulery is reprinted here with permission.  Mr Ulery is active in local affairs, is the former chairman of the Nevada County Republican Party, and now serves on its Executive Board.  He also chairs the Citizens Oversight Committee of NCCFD. This report is germane to reignite discussion of the county’s unfunded pension liabilities, long an issue of interest at SESF and RR.  When compared ot the state’s unfunded liabilities, our amounts are small.  However, when we compare what we will owe to our ability to pay, our unfunded liabilities are overwhelming.  gjr]

Rich Ulery

As you know, while I keep up with the local blogs, I have intentionally refrained from commenting. I did notice your 8 June 10:30 AM comment (see below) in the latest sandbox about George Boardman's article on unfunded pensions.

I attended the 2June15 Board of Supervisors meeting during which Martin Polt presented the 2015-16 preliminary county budget totaling $201 million. County pension plans are now funded to the tune of 66% in the miscellaneous category and 72% in the safety category -- below the total CalPERS funding ratio, currently estimated at 77%. The most shocking tidbit offered was the current Nevada County unfunded liability, which is now estimated at $190 million -- over double what I had previously believed. I addressed the board about this situation and referenced a recent article in "Calpensions" which spoke of the ratio of active workers to current retiree annuitants. In California, the ratio has dropped from 2:1 in 2002 to 1.45:1 in 2012 and expected to drop to to well under 1:1 over the next couple of decades -- putting even more pressure on the unfunded situation. Nevada County, by the way, is already under the 1:1 ratio, currently having more retiree annuitants than active employees.

The article also mentioned that the few remaining corporate defined benefit programs are generally using a 4% discount rate while, as we know, CalPERS is still at 7.5%. Supervisor Anderson asked me if I was recommending that the county consider using a 4% rate in its efforts to set aside reserves to address the unfunded liabilities. I responded that if that were the case, the liabilities would explode to around $350 million. The county would be unable to make a dent without significantly impacting its ability to deliver services. Addressing underlying benefits was the only prudent way. The meeting to approve the final 2015-16 budget is scheduled for next Tuesday.

This morning I attended the BOS meeting that included 5 resolutions to approve new MOUs. In last week's budget meeting, the board approved setting aside an additional $500K in reserves for the pension liabilities and $603K in reserves for "potential bargaining increases". I again addressed the board outlining my frustrations with the process, stating that the resolutions were merely formalities since the MOUs had already been negotiated and agreed to in closed session without any input or analysis from the public or the press. I reiterated my request for the board to adopt a COIN ordinance, which would add a greater degree of transparency to the labor negotiating process. I presented a COIN ordinance at the 28April15 BOS meeting. Unfortunately, no member of the BOS has expressed any inclination to pursue such an ordinance for Nevada County. The COIN ordinance adopted last summer by Orange County is attached. (Download Orange County COIN Ordinance) The entire subject of public pensions and what we do with unfunded liabilities might be a good blog thread to begin. The BOS needs to feel some pressure.

*****

‘Sandbox – 7jun15’ comment posted by: George Rebane | 08 June 2015 at 10:30 AM

Kudos to our George Boardman for his 8jun15 Union column. He again raises the fiscal cancer of unfunded pension liabilities that our county and city governments have (a problem long heralded and outlined in these pages); this is an issue that cannot be brought up too often these days. We recall that these cancerous pensions were installed by past supervisors and council members who knew absolutely nothing about how their handiwork would eventually metastasize. At the time those dummies just wanted peace and tranquility with their public employees so that the voters’ feathers would not be ruffled by inconvenient public employee strikes of slowdowns. In the final analysis it was, or course, we sheeple who elected the dummies and then paid no attention to what they were doing.

Mr Boardman’s recounting of his rejection by Nevada County Peeps brings a smile to my face. Here is a website that purports to be knowledgeable about Nevada County and local issues, and then has no idea of who prominent columnist George Boardman is because the man doesn’t maintain a Facebook page with a sufficiently informative profile. Boardman’s retort to his rejection revived Groucho Marx’s famous reply about his club memberships. My own takeaway is that it looks like Peeps may not be the all-knowing site on things local that it claims to be, and therefore Mr Boardman’s rejection will really make no never-mind to folks who pay attention to local happenings.

Anyway, the Boardman column is paywalled here –
http://www.theunion.com/opinion/16704168-113/george-boardman-pension-burden-threatens-to-crowd-out

Comments

[Russ Steele]

If the government does not have the money, do they have to pay the promised pensions?

New Jersey's top court sided with Gov. Chris Christie on Tuesday in a legal fight with public worker unions over pension funds, sparing a state budget crisis this month but leaving unanswered questions about how the state will pay for the promised pensions as Christie prepares to announce whether he'll run for president.

The state Supreme Court overturned a lower-court judge's order that told the Republican governor and the Democrat-controlled Legislature to work out a way to increase pension contributions for the current fiscal year, which ends June 30.

A decision in the unions' favor likely would have sparked a contentious scramble to come up with billions of dollars that Christie has repeatedly insisted the state doesn't have, while drawing additional attention to New Jersey's fiscal problems, which Christie's rivals are sure to point to often if he chooses to run.

In a 5-2 ruling, the court said that state constitutional provisions calling for an annual budget process trump a 2011 law requiring high pension contributions from the state.

Bottom line, if State does not have the money, they do not have to fund the pension plan. The question is, could this same ruling apply to California pension holders. If I were a Nevada County government employee, I would be worried.

[Russ Steele]

Where are the liberal crickets?

[George Rebane]

RussS 552pm - I think you're hearing the liberal crickets. The data has been there for years. Public pensions were negotiated by our elected dummies and scoundrels, most of whom are long gone. We are holding the bag whose dimensions have been long described, most recently here by Rich Ulery. Against this data there is little to be said by those who believe in public retirees über alles.

[Bill Tozer]

Not a day goes by when there isn't some unfunded pension liabilities in the news. How long and how far can be kick this can down the road?
Not exactly on topic concerning local county woes, as well as not the best article on the looming awakening of Hungry Sleeping Giant, but sheds insight nonetheless. Big ouch coming for us non pension recipients who will get left holding the bag.

http://www.marketwatch.com/story/whos-responsible-for-the-chicago-teachers-pension-fund-2015-06-10?siteid=yhoof2

[Bill Tozer]

Ok, I got lazy. Just hit RR's link to Pensionwatch and copied the first story. No bad. "I think what we have here is a failure to communicate", he says swerving his car to miss another pothole.

http://unionwatch.org/retiree-with-183690-annual-pension-attacks-pension-reform/

[Todd Juvinall]

I heard Obama is trying to get reparations for slavery. Anyone else hear that?

[fish]

From another spot I visit!

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"Lawrence McQuillan's California Dreaming is a superb, wake-up call to all those depending on generous pensions from state and local governments--they simply won't be there, or at least in the amounts expected. The book is also a wake-up call to California taxpayers--who will be shocked to learn of the huge tax liabilities they face. McQuillan explains how governments have created this mess and offers sensible reforms to end the crisis and preserve retirement benefits--without bankrupting taxpayers."

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"California Dreaming is a horrifying must-read that exposes the steal-as-you-go policies driving the state (and our country) straight down the tubes!"

--Laurence J. Kotlikoff, William Fairfield Warren Distinguished Professor and Professor of Economics, Boston University; former Senior Economist, President's Council of Economic Advisers

"Notice the crucial word: "former." A former mayor recommends this. A former director of the budget recommends it.

Where were these guys when we needed them? What did they do when they were in power? They did what all officials do. Nothing. The model is former Treasury Secretary William Simon, who hired Edith Efron to write A Time for Truth for him to put his name on. His time for truth was 1974-76, when he was in office. Instead, he supported the U.S. bailout of the IMF. He opposed the re-imposition of the gold exchange standard. He went along to get along. You can buy a used hardback copy of his book for a penny, plus postage and handling. Don't bother. It's too expensive.

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The ad sounds good. Maybe there is hope.

There is no hope. No major city will apply the book's recommended solutions, whatever they are. No city council will hear of the book, let alone read it. No city manager will adopt it as his blueprint for reform. No municipal union will tolerate it.

The issue is moral. The voters want something for nothing. "Don't tax you. Don't tax me. Tax the guy behind the tree."

Voters prefer to stick it to the retired union members. "Retired? Tough luck, dreamer. You're not on our list of endangered species. We are."

That's why nothing will be done. The mentality of the Great Default is basic to our society. "Promise them anything that will keep them happy now. We can default later." This attitude begins with marriage vows, and it extends to every aspect of society.

Call it no-fault bankruptcy.

Trusting souls always gets hurt. Pensioners believed their unions' leaders back in their working days. "We can't get you higher wages, which are taxable today. But we can get you retirement benefits, which will be taxable when you are retired. Avoid income taxes now." The faithful members believed it. They used coercion to get their contracts -- the NLRB -- and they figured: "The taxpayers will pay. They have no choice." But the taxpayers do have a choice: default. And they will exercise this choice.

We have seen 50 years of this promise: "How to save Social Security." (We don't see this: "We can save Medicare." It cannot be saved.) But no one ever implemented the plan in "We can save Social Security." No one in authority ever mentioned it.

Decade after decade, we hear this: "We can still save Social Security. It's not too late." The defender of the status quo says this in response: "We didn't save it 50 years ago, 40 years ago, or 10 years ago, but you say it can still be saved. Someone will promise the same thing 50 years from now. No problem. Buzz off."

The Great Default from Washington will legitimize the mini-defaults locally. Municipal union members will get stiffed.

I guess I should feel bad about this. I don't. The state giveth, and the state taketh away. Be prepared."

[Bill Tozer]

Darn Fish, your paste was so long I had to scroll to the bottom to see if it was Paul or Ben or stevenfrirch or me doing another much too long incoherent monologue. But, nooooo, it was Fish spreading his wings for that long flight to Wal-mart to pick up 5 copies of the book. Are you going to share your books with the class?

[fish]

Posted by: Bill Tozer | 11 June 2015 at 04:39 PM

I'll save you the time William......whole bunch of civil servant retirees are gonna get stiffed!