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California Rumblings?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Jim Christie of Reuters reports that Los Angeles' budget gaps may force dramatic change:
Los Angeles must take dramatic steps in coming months to bring its budget back into balance, including measures to slim the size of its government and reduce how much it spends on pensions for retired employees, the city's top budget official said on Wednesday.
Los Angeles, California's biggest city, is seeing a steep drop in revenues fueled by the state's 12.5 percent unemployment rate, a slump in consumer spending, an uncertain housing market and a weakening commercial real estate sector.
Fitch Ratings has grown so concerned about Los Angeles' budget woes that on Tuesday it downgraded the city's general obligation debt to AA-minus from AA.
Fitch said it expects the city's economic decline to impede financial recovery. Among problems it cited were high unemployment, sales tax weakness, assessed value losses, high home foreclosure and negative amortization mortgage exposure.
Miguel Santana, the city's administrative officer, said he was not surprised by the downgrade. He is intimately aware of how the city's finances are faring, and they're in dire shape, he told Reuters in a telephone interview after briefing the city council on options for balancing the city's books.
Officials must close a nearly $100 million gap in the city's current-year budget, and are likely to use reserve funds to do so, Santana said.
"Next year we're expecting a $400 million deficit," he said.
"We really need to prioritize our programs," he added, noting that tapping reserve funds next year would be imprudent.
Instead, difficult choices about the size of Los Angeles government should be made.
"Next year we'll have to find some real structural adjustments," Santana said.
Those adjustments may include layoffs and shifting some work done by the city to the private sector to shave costs.
They may also include a new pension benefit structure for city employees -- the so-called "two tier" system that many local officials around California are mulling.
The system would basically have new public employees hired after a certain date receive fewer pension benefits than current employees.
New public workers may also have to contribute more from their paychecks to their retirement accounts.
"We're looking at everything," Santana said.
Fitch in its statement underscored its concern about how much Los Angeles may be spending on pension benefits.
"As rising pension costs contribute significantly to the future financial needs, the city cites pension reform as necessary to achieve fiscal balance and has already begun discussions with some labor groups. However, Fitch views the ability to achieve savings in this expense as uncertain in both amount and timing, especially since any change to the police and fire retirement systems requires voter approval," the credit rating agency said.
What's going on in Los Angeles will soon be going on across the US and developed world. Don't think for a second that tough fiscal measures won't be taken to shore up public finances. And this will certainly mean curtailing pension benefits for new and existing public sector employees.
Elsewhere in California, Reuters reports that Calpers may dump Blackrock as an adviser:
Calpers, the biggest U.S. public pension fund, is considering dumping asset manager giant BlackRock Inc as one of its real estate investment advisers, a person familiar with the matter said.
The California Public Employees' Retirement System is also investigating why two outside pension advisors were managing its $6.8 billion hedge fund portfolio two years after their contracts had lapsed, the Los Angeles Times reported on Wednesday.
Calpers, which has suffered major losses on private equity and real estate during the credit crisis, recently informed BlackRock and other advisers that it was reviewing the relationships and would decide whether to continue or sever ties.
BlackRock, one of the world's largest money managers and a company that has thrived during the crisis, nonetheless steered Calpers into investing $500 million into Peter Cooper Village and Stuyvesant Town, a sprawling 11,000-apartment Manhattan apartment complex.
That investment, inked near the height of the real estate boom, is now widely considered worthless, the Wall Street Journal said on Wednesday, citing unidentified sources. The housing complex is owned by Tishman Speyer Props LLC and BlackRock.
BlackRock declined to comment on the Calpers review, citing a policy against discussing client activity. Calpers paid BlackRock $12.6 million in real estate advisory fees last year, the Journal said.
The real-estate review began several months ago and could be completed during a meeting next month. Real estate advisers are expected to learn the results of the review in January, said the person briefed on the situation, who was not authorized to speak publicly about it.
Calpers spokesman Brad Pacheco told the Journal the $200 billion pension fund would not "speculate on the future of our real-estate relationships until the review is complete."
Calpers officials in Sacramento, California, could not be reached for comment.
BlackRock shares were up 0.4 percent at $230 in early trading.
The pension fund voted last week to reduce its exposure to fixed-income investments managed by AllianceBernstein and PIMCO, a unit of Allianz . Still, the pension granted one-year contract extensions with the two firms.
HEDGE FUND ADVISERS
In related news, Calpers placed an official who oversees its $5.8 billion of hedge fund stakes on leave, the Los Angeles Times said, citing people briefed on the matter.
The advisers have been working with the pension fund since 2003, but their contracts lapsed two years ago, the newspaper said. Calpers officials found these advisers were paid $36 million.
A Calpers' spokesman told the paper that it was investigating dealings with outside advisers, but declined to discuss the disciplinary action further.
"We recently discovered that certain Calpers controls and procedures were not followed in the last two years," Pacheco told the Times.
Certain Calpers controls and procedures were not followed? Damn, what a shocker! I have seen or heard about lax internal controls countless times. From front-running currencies in personal accounts to shady side dealings with investment managers. You name it and I've seen or heard about it.
I will repeat this again, these large public pension funds need a thorough performance, operational and fraud audit conducted once a year by independent experts and the results should be publicly posted on their websites. Let's put some teeth into the meaning of fiduciary duty or else we can expect one disaster after another.
Happy Thanksgiving to my US readers.
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Amazing! I had no idea that this entire financial collapse could be attributed to public employees. Now I realize that deregulation, financing nine years of wars by borrowing, a tax policy that benefited the top one percent, and bonuses that rewarded failure were not the cause of our problems. It was those nasty firefighters and their pensions.
It's not the fault of public sector employees but they will unfortunately feel the repercussions of a financial system gone astray.
Yeah, the jerks! Forget about Wall Street and K Street private interests - with a long enough investigation you can discover that it was the average Joe that caused this mess.
Kicking the can down the road and crossing their fingers they'll be gone before it implodes - voting people into office that make me feel good. I don't know how many times I've heard supposedly intelligent friends/family describe their burning bosom when O made some speech a couple years ago. I must have missed the Kool-aid train.
Admittedly, I got a big O when Obama won because I was excited to see W and his cronies were finally leaving after eight long tortuous years. I also thought Obama can make a real difference, but his hands are tied. Wall Street owns the White House so he and his advisors also end up pandering to the financial oligarchy. That never changes no matter who is in office.
I find it sad that California would fire or layoff its legal US citizens but will do absolutely nothing about the crushing burden of the illegal immigrants in that state. Then again the mayor of LA thinks that SoCal should be part of Mexico. It is time that the employees told the state to give California back to the US.
Pensions are a paternalistic scam. A sop for forced termination (aka retirement) instituted by that fascist mountebank FDR in order to "share the jobs" and used and abused six ways from Sunday as detailed so well by Leo. None of this CALPERS skullduggery should surprise anyone. Giving responsibility for your future to a gang of operators drowning in conflicts was always a stupid idea. And now the Ponzi scheme is unravelling. Good.
Look on the bright side, the fire fighter had only ONE pension. Here in NJ, it's a almost a sport to try and collect 2 or 3 by putting in minimum time and then moving on to another. We are next...
What loyal patriots
Is patriotism without an incentive just socialism?
This was found scrounging for more info on my local municipality. Dates from September 09.
http://www.municipalbonds.com/wp-content/uploads/2009/11/1118_gp_sheehan...
In short, munis in general are speculative and 7% munis are highly speculative, ie "Time to sell." Government will not bail out state/local bankruptcies with $12T in debt guarantees outstanding.
Curiosity was aroused because street lights and occasionally stop lights are being turned off at night to save money in this west Michigan municipality.
Unions cutting themselves too good of a deal is a problem. For the unions too if they'd look long term at it.
Still, the money skimmed off the top dwarfs their feed.
To name one, the bonuses and money taken by Mozillo, former CEO of Countrywide, made millions running billions of bogus loans into the financial system. I'd suggest his swot far outweighs the cost of a tens of thousands if not hundred of thousands of lazy sots comparable to the one described by the original post.
The Madoff lists are bigger thefts than some shmoe who risks his life a few years then retires early.
Funny... maybe they should create a stimulus fund for illegals. In addition to thier free medical, housing and education, if they increased or extended their unemployment benefits maybe that will spur consumer spending and pull them out of recession.
Guaranteed Pensions are the weapons of mass destruction the unions public and private have left as a legacy for all of us to shoulder. There is no easy or fair way out of this now. Start by admitting that the pensions are too rich and
hopelessly underwater.
First chance for change came to OBama but he caved in to the UAW at the time of the Chrysler and Ford bankruptcy.
Every worker should be made responsible to save for his own retirement. He should not be saving for someone else's retirement. It needs to start now .
So now we have the biggest ponzi scheme of all time in the US, and Europe. What will happen? your guess is good as mine.
"Every worker should be made responsible to save for his own retirement. He should not be saving for someone else's retirement. It needs to start now ."
errr maybe those workers thought they were investing in a rock solid enterprise, such as calpers, or a bank.
You do realize that those pensions did not come for free? They were/are part of a negotiated package. Nevermind who negotiated the package, a contract is a contract.
You stop paying those it is no different than a bank failure, its byebye someone's $.
Who stole it? same folks as stole the other $
Scapegoat government workers all you want but that will not solve the problem which lies far away from that.
Let's give all those bankers a bonus for doing such a heckofa job Brownie. Free market my ass.
All is well, nothing to see here people!
Just move along AND DON'T FORGET to buy the new and improved Soylent Green lunchbags!
Very nice piece, Leo. Thank you.
California? Isn't that the State that stole, ooops i mean forcibly borrowed 10% more from workers' paychecks interest free claiming to pay it back on their tax return months later? Do you mean THAT California? You know, the one where the sheeple took the 10% cut without a strike, without major protests and without anyone actually DOING something about this outright theft, ooops i mean interest free forced loan to the State.
If this happened in France the people would be protesting in he streets and there would be massive strikes. Ah, American sheeple... what a sad country when no one defends themselves. The founding fathers would be ashamed and outright embarrased at what the USA has become.
That is because the personality traits that define the first generation American are completely lacking in successive generations. They feel it is their entitlement. It is like that old saying that wealth lasts 3 generations: the first person is very ambitious, saves their money, invests wisely and builds the company. The second generation feels entitled and they didn't work to build the company so they don't reinvest in the business but live off the profits. The third generation also feels entitled and doesn't want to work. But now the company is in such a state of collapse due to non-investment and lack of work that the 3rd generation has to live by selling off the assets of the company. Thus the next generation is back to nothing.
We now have a whole society of 'entitled' people. We have some highly motivated and smart immigrants arriving but we also have a ton of immigrants who are not. This is due to illegal aliens and our immigration policy of allowing family members in rather than people who actually have skills and can do something productive in our society. There are not enough enterprising people to offset the sheeple.
Those who are motivated will find a way. I've been telling my wife (she is an immigrant) for over 5 years that i would be revoking my citizenship to avoid the tax wave and SHE would be the American! It is a half-joke, but also half-serious. Once the paper backed ponzi collapses they will have to get more serious about printing paper and that means taxes will go up to pay for all the BS they promised people. Things will break and adjust. The highly motivated will find a way. I've worked all over the world and i won't think twice about leaving the mess to the ones who brought it onto my generation. I really hope it doesn't come to that but the American Idol crowd obviously is huge and they don't know what the hell is happening nor do they care.
I have heard alot of shit from the various commentaters above blaming goverment workers for the financial crisis , indeed now we are in a zero-sum world we will have to make choices
But yet lets be clear on this ,the crisis in the western world was caused by bad investments over many decades - the investment gurus who made bad decisions were bailed out by monetarist morons , capital simply was expended on the wrong items
Now we have no more capital to give.
Consumption levels will now have to drop enormously to rebuild our capital base.
I didn't read any commentater blaming the crisis on government workers. We know who caused that.
What people are reacting to is the asymmetry of the effects of the crisis. I've worked for the government in the past and I am currently self employed. I can say without any hesitation that government employees feel pretty good about themselves. I had to sit through a conversation listening to a few of 'them' complain about having to pay for meals while on a business trip this summer. I was thinking, "My God. Don't they realize how petty this is compared to the financial tsunami that's about to hit us all." Until they receive pink slips, they're not worried because in their minds, their jobs are secure and their pensions are golden. That will change once the pensions collapse so much of this chit chat is moot.
Because this is a zero sum world, when one group gets preferential treatment at the expense of another, anger will flare up. In a time of scarcity, it's dog eat dog, every man for himself. Some very tough decisions will have to be made. I'm afraid this isn't going to end well.
We are approaching a major reset, probably worldwide. The entire system will be scrapped. Authoritarian governments will be attempted in some countries (including the US). Some will succeed, some will fail. It's going to be a mess. If congress had balls and wasn't owned by the banks we may have been able to address the problem, and maybe we still can.
www.RevokeTheFed.com
And consumption is what has been keeping this rocketing shitmobile going... it's not going to end well.
Consumption is going to mean tuberculosis again for quite sometime I'm afraid.
California has had a far left socialistic system for 40 years. Socialists never believe that the golden goose will die, no matter how many taxes and excesses they place on it. Well California, welcome to the real world. Pay your debts or go bankrupt, and bankruptcy is not going to be much fun for a long time.
That is what is most shocking to me, is the desperation in trying to 'protect what is rightfully mine'.
I have not heard one gov't employee stand up and say, my benefits need to be reduced, everyone except me is feeling the pain.
No, instead they think that somehow they DESERVE these benefits, and they must be better than other people.
Basically, government employees have become a social class unto themselves. They have 'sold out'. The only problem is, it is the rest of society they have sold out!
I sense there will be a term invented in the next few years, to keep people from discriminating against this class of people. Anti-State, or Unpatriotic, anti-semitic, something!!! And we will know how it is that a small group of people is able to ruin the name of a large group of people.
Few people, when given a choice, will admit that their compensation is any less than what they deserve, whether they do or don't in fact deserve it. Why should a retired firefighter be any different from an investment banker in that regard? It's fine to say that public employees are too well compensated and should be given a haircut, but if you're in the private sector as a senior level manager, an engineer, or a lawyer, would you willingly choose to give up what you have negotiated simply because it's "too much"?
How many software millionaires are in the SF Bay area who got their start because they were a junior programmer at Sun or Oracle in 1980 - doing exactly the same work as their compatriots thirty years later but without the oversized stock option packages? How many real estate agents are now set for life for spending perhaps a couple of months a year effectively acting as a tour guide when you had waiting lines a couple dozen deep for even a modest two bedroom? How many lawyers are now quite independently wealthy because they won a major class action suit, or more often successfully defended a large company or two against those same suits?
A typical teacher will end up spending eight hours a day on their feet, dealing with bored, recalcitrant children, angry or indifferent parents, extreme restrictions on their teaching curriculum and often an expectation that significant amounts of their income be spent towards buying school supplies that the schools can't otherwise afford. Most teachers must have a minimum of a Master's Degree to be able to teach or otherwise advance in the system, and that usually is paid for out of their funds, not some corporateion. They have three months a year of no income, very little guarantee of tenure and in general very stressful jobs with little opportunity for outside renumeration. If their pension benefits are good (and most aren't anymore) then they will likely end up living at roughly that of perhaps the average corporate employee, and that's assuming of course that those same pensions haven't been raided repeatedly by corrupt administrators or savaged by greedy investment "professionals".
The same can be said for most government workers. Most people here tend to see the average civil servant as a leech on the system, despite the fact that, save for those positions which tend to be closest to the political process, most civil servants make very mediocre wages. The pension system is meant to compensate for that somewhat, as an incentive to get people into government that otherwise would be able to do far better for themselves in business, but even there most such pension systems have been systematically degraded for the last thirty years as one pro-business administration after another has "trimmed the government fat" - always a popular bit of political rhetoric, despite the fact that most agencies are already stripped to the bone.
one good example for you and the poorly paid teachers..
http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_brill
This goes double for Wall Street, and "too big to fail". Maybe when we claw back the heavy profits from big business, banks and Wall Street we should revisit your question. Talk about "rightfully mine".
If a firefighter's salary and benefits ranges in 175k, think all those government employees. something got to give.
"..And this will certainly mean curtailing pension benefits for new and existing public sector employees."
Good.
Unintended consequences everywhere you look. Sqeeze the balloon dog here, and damn, it bulges out somewhere else. Our economic world is starting to resemble a pyramid standing on it's point. A few productive folks supporting layer after layer of managers, administrators, analysts, "investors", officials, coordinators, etc. Never thought I would be channeling Ayn Rand. Must be the Thanksgiving tequila.
Ayn Rand, utopia without thieves. Take a look at the shake down in Wall Street, not to mention the discredited shrunken market god.
Too much tequila for you.
You can't build a pyramid with only two tiers.
It's really too bad California is so corrupt that it is able to hide the true facts on the ground about its economy.
The California economy is dead--and the dead don't "recover." What you describe is simply part of the "liquidate liquidate liquidate" (to quote Andrew Mellon) which is going on everywhere in the country.
In 50% of transactions in the U.S., one of the parties is a government entity. It has ALWAYS been the policy of the U.S. and its states to deal with problems
1. ad hoc and
2. with money.
And that's shoddy but survivable until the political system decides that the society is so sick that it is going to de-couple from the society. And that's what is going on now. The decline in state and municipal spending will have a catastrophic effect going forward, not necessarily because of the amount cut, but because that spending is so strategically placed. But obviously strategy doesn't matter any more if you decide the society is dead.
The political system has decided the society is dead. If you want a detailed picture of what follows from that, just come to California. We are in a complete state of collapse. The U.S. too.
Add to that some of the worst Gerrymandering in the Nation, and you have a pretty accurate picture.
If they got rid of the Gerrymandering, California might have some hope of solving its' problems. But there's no chance of that.
California and LA are just the tip of the iceberg:
http://themeanoldinvestor.blogspot.com/2009/11/problem-with-muni-bonds.html
CALPERS has always been a walking shit pile of conflicts and insider dealing with their "board". Black Rock is the least of it---call up the FBI, DOJ and the crime task force and have them walk through a few of these fleecings, aka "transactions" over the last decade.--really.
Maybe start with the Angelides who is about to assume the Chair of the the newly convened Financial Crisis Inquiry Commission:
""Angelides’ years at CalPERs and CalSTERS encompass a regime which should be a case study in how not to run public sector pension funds. Starting in 1999 the CalPERs board, nominally nonpartisan and supposedly tasked with ensuring the enormous fund is well managed, began to tilt more heavily toward a union-backed agenda. The tilt corresponded with his election as Treasurer and then the appointment to the board of former San Francisco Mayor Willie Brown and Sean Harrigan, a United Food & Commercial Workers union leader. Observing the changes, the New York Times commented that CalPERs now wore a “union label.” "
http://www.manhattan-institute.org/html/miarticle.htm?id=5370
I can guarentee that the property is NOT worthless...it is just worth less than what CALPERS invested. The scam is that the CALPERS investment IS worthless...literally. This is highway robbery at its finest. You can steal more with a pen than with a gun.
Right. You only need a gun when someone starts asking questions.
And even more with HFT.
Auditing public pension funds is just putting lipstick on socialism. It was inevitable that pensions funds would all be ruined.
A lot of that socialism is going to support illegal immigrants. The Congressional Budget Office did a study recently which found that the illegal immigrants cost the state over $20 Billion dollars. That's the size of the deficits that the State has been running.
And Los Angeles is ground zero in supporting them.
Hello L.A.! The bill has come due. I hope you have the cash.
Bingo. Being in charge of that much of OPM is a path to corruption.
Retirement funds need to be individualized.
A two tiered system eh? That won't sit well with new (younger) employees who will be asked to give more and get less, in addition to stagnant wages, unaffordable housing thanks to the efforts of the banks and government, the inevitable higher taxation across the board, looming inflation of food and gas, paying off sky high university debt, and we're supposed to have money left over to put into our private retirement accounts as well when the pension plans fail us...ugh.
Sorry, but most workers stay. Boeing did it years ago as did the Wa state legislature with the police retirement system. I think it also happened in Oregon with the state employees. This has been going on for at least 30 years.
What will be interesting is if/when state and local governments cut the pension benefits of existing retirees.
Before this they should stop paying the highway robbery fees to Wall Street for the various shady bond deals, CDS etc.
What will happen if they continue to pay Wall Street but cut the pension benefits. Do you think anyone will complain?
Don't underestimate the elders!
http://weblogs.sun-sentinel.com/news/specials/weirdflorida/blog/caneFU.jpg
About a year ago I met a retired fire fighter from my area that made an interesting declaration..."I have been retired longer than I worked". In fact he most likely will be alive a lot longer than he worked since he is only 67. He was part of the first wave of firefighters in the area that had a pension deal that nobody else will ever see again. He was given a 70% pension and now lives his life out in a local bar, never to see a productive day in his life again. But many will say 'but he is part of a noble profession that saves small children and cats in trees'. These are the images that are evoked in many of our public service employees...teachers, police etc. They have been part of a beautifully played opera over time where the unions have used those professions to ratchet up the base levels for all public employees...even the toilet scrubbers. Now that the bell is rung many will say it is not fair to un-ring it, but the reality is that we can't afford our parents and grandparents selfishness anymore. From the debate on health care to social security, to public pensions it all leads to one root problem...our parents and grandparents screwed us. They voted in people and chose a system that rewards them beyond their contribution and placed the burden on us and our children. I keep hearing about death panels and pulling granny's plug. As heartless as it sounds if the choice is having to pull the plug on granny or my children, well lets just say there won't be much of a debate in my house because there wasn't much of a debate back when they chose to pull it on us.
Well, family is family. But pulling the plug on everyone else's granny is surely in the cards. The demographic bump of the feckless 'Boomer cohort will guarantee a well-deserved gerontological animus. The best and the brightest can and will escape to Asia and elsewhere, leaving the greatest generation of tax eaters to feed on the low-yielding proles in the middle. Enjoy the dog food, hippies.
Wow. Reminds me of a Dilbert where Dogbert eggs on a little girl who ends up threatening to send all old people to planets with no oxygen.
Those from the "greatest" generation seem to forget that the generations that they have foisted their Ponzi schememes on are going to have to be trusted to wash their hands shile doing the only jobs that are available - hospital jobs. Can you say - deaths due to rising rates of infections?
Wa-wa-wa-wa!! Then granny won't leave you in her will . Perhaps you would have liked living in a homeless shelter due to minimum wages paid to your progenators .