"It's Not Sustainable" - Sacramento Lashes Out At Calpers After Raising Pension Payments

Tyler Durden's picture

In the latest sign that America’s looming pension crisis is inching closer to an all-our collapse that will inevitably end in a series of bailouts – or worse, the failure to pay out retiree’s coveted benefits - a handful of California cities are lashing out at CALPers after being forced to hike pension contributions to offset expectations for long-term returns that have been revised lower by the state pension system.

Ten of the largest local governments in the capital region can expect to pay a total of $216 million to CalPERS in fiscal 2018-19, an increase of $27 million over this year, according to the Sacramento Bee. And nearly half of that increase will be borne by one local government – the city of Sacramento.

The Sacramento region’s largest local governments will see pension costs go up by an estimated 14 percent next fiscal year, starting a series of annual increases that many city officials say are “unsustainable” and will force service cuts or tax hikes.

 

The increases come after CalPERS in December reduced the expected rate of return from investments, forcing local governments and other participants in the state’s retirement plan to pay more to cover the cost of pensions.

As one might expect, city officials are less than pleased. According to Leyne Milstein, the city of Sacramento’s finance director, said the city’s pension costs will double in seven years, and while city revenues have also increased in recent years, thanks in part to a strong real-estate market, the rise won’t be nearly enough to offset the increased cost.

“It’s not sustainable,” Milstein said. “These costs are going to make things incredibly challenging.”

In a report this month, Joe Nation, a researcher at the Stanford Institute for Economic Policy Research, wrote that “employer pension contributions are projected to roughly double between 2017 and 2030, resulting in the further crowd out of traditional government services.”

Nation said he supports tax increases to pay for pension obligations, although he adds that it would be extremely difficult to muster political support for such a tax.

In a futile exercise that resembles banging one’s head against a wall, local government officials from across the state, including West Sacramento, complained to CALPers board members, warning that they would need to cut services and raise taxes to put more money toward pensions.

“We don’t know how we’re going to operate,” said Oroville’s finance director, Ruth Wright, who suggested that a doubling of pension costs in five years could force the city into the nuclear option. “We’ve been saying the bankruptcy word.”

Of course, there’s little CALPers can do. If it doesn’t mandate the increases, it knows that will increase its culpability when the music stops and every asset has been liquidated.

To wit, Steve Maviglio of the labor-backed Californians for Retirement Security said officials have the means to address the increased costs. “If city officials are truly interested in meeting their obligations, they always have that opportunity at the bargaining table or providing more revenue thru measures on the ballot,” he said.

Of course, this exercise in cya isn’t nearly enough to stave off the inevitable collapse. Nation questions whether the new CalPERS return rate is too optimistic. In his report, he provides estimates for how much local governments can expect to pay if the fund’s investments don’t meet projections. In 12 years, the city of Sacramento would see pension costs go up $94 million a year under his alternative projection.

To afford these higher costs absent higher revenues, Sacramento would have to cut 25% of police and fire services after cutting other less essential services.

Milstein said she won’t estimate when or if the city will have to start cutting employees if the current financial forecast proves correct. In the city’s current budget, officials said, “Given the current revenue forecast, the city alone cannot absorb the increased costs of providing retirement benefits.”

Some groups, including the League of California Cities are lobbying CalPERS to consider funding options besides raising employer rates, including possibly suspending cost-of-living adjustments for pensioners and looking at working current workers into less generous plans.

As we’ve noted many times, defined benefit pension plans are, in many cases, a Ponzi scheme…

Current assets are used to pay current claims in full despite insufficient funding to pay future liabilities...but unlike Wall Street Ponzi schemers like Bernie Madoff, nobody goes to jail because everybody is complicit.

While California’s problem is certainly dire, pension costs directly triggered budget battles in state capitols across the US this year. Connecticut is still struggling to pass a budget that meaningfully reduces an expected $3.5 billion two-year deficit.

Eventually, pension managers will be forced to reckon with the fact that their projected returns have been way too optimistic, forcing them to lower projections and grapple with the enormity of their funding shortfalls...

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buzzsaw99's picture

you give calpers more money they will just waste it on fang and tsla stocks.

RagaMuffin's picture

or better buy their bonds....

Creepy_Azz_Crackaah's picture

"warning that they would need to cut services and raise taxes to put more money toward pensions."

FUCK YOU, GUBMINT!!!  Cut "services."  Don't raise taxes, strangling non-gubmint people any more.  Most of the "services" simply fuck over the people paying for said "services" anyway.


max2205's picture

But nobody cares about ACA escalation 

YUNOSELL's picture

Absolutely brilliant strategy to raise payments on something that the payees will never be able to claim any future value in -- Bravo!

cheka's picture

jpm skype loans money to cali hellhole at 0.x percent interest.  as long as cali continues with bolshevism, they are covered by frbny

YUNOSELL's picture

duplicate post, so let me try to think of something clever

Chuck Walla's picture

so let me try to think of something clever

We're waiting

Endgame Napoleon's picture

Tax the illegal aliens’ pay-per-birth freebies to pay for the pensions of workers who processed and administered the pay-per-birth welfare.

Paul Kersey's picture

Another 2008 kind of stock market/real estate crash, and very few pension plans will be able to maintain even a modicum of solvency.

divingengineer's picture

Or another 9 years of sub-5% interest rates. Just as insolvent.

Kidbuck's picture

Any time an official calls something a "challenge" instead of a problem they are lying and will never solve it.

M O B's picture

If they had FANG or TSLA coming into 2017 then they are looking at an average of ~50% YTD returns right now.

Do you not actually trade?

 

Maybe Calpers bought gold instead and have managed to find one of the only ways to lose money in 2017 YTD.

laser's picture

You might want to buy a little gold while you still can if you have not already.

drendebe10's picture

Give all those fukn money 4 nothing govt bureaucratic turds 401Ks like the rest of US working tax paying citizens

RagaMuffin's picture

What's  referenced here, defined benefits, is a fixed variable. Name any sustainable sytem, that can support/endure any fixed variables? 

cheka's picture

one that assumes 2% gains/yr rather than 8

booboo's picture

So cutting pensions monthly pay out is not an option? How about cutting governments budget? No? ok.. how about raising pension contributions by .gov employee, novel approach I know, I mean who would consider that? Crazy.. right?

 No, always the taxpayers burden.

Endgame Napoleon's picture

Have 4 kids after an illegal border crossing and get your $576 per month (in my state, probably $800 per month in So Cal) EBT taxed by 50% to pay for the pensions of government employees who tabulate your amount of free monthly groceries for reproduction.

Have your $6,269 child-tax-credit, sex-and-reproduction reward check cut in half to cover the pensions of the government employees who computed your pay-per-birth, tax-time reward check.

Have your monthly, womb-productivity cash assistance halved to contribute to pensions.

Have a pension-support fee added to your free rent or the rent on your mixed-income apartment with a per-child rent reduction.

Have a pension-maintenance fee added to your subsidized electricity bill, when you are a beleaguered, illegal alien parent with multiple sources of unearned income that is not available to most citizens at the same pay grade, processed by future pensioners.

cheka's picture

tx teacher retire system raised their contribution requirement.  tx teachers contribute something like 60-70 percent, state matches the rest

a 30 year teacher retiring in tx will get about 2600/month....with no health care.  this is more common than not.  but the communist states get all of the headlines

MisterMousePotato's picture

$2600 a month certainly sounds reasonable compared to some of the grotesquely excessive pensions many government employees have garnered for themselves, but, let us instead compare that to what people in the private sector receive.

The maximum benefit under Social Security is about $2400/month, which is 10% less. Bear in mind that the maximum benefit requires maximum contributions, which is 15% on a salary of about $135,000/year - approximately $20,000/yr - which is enormously more than contributions made by any government employee.

Moreoever, the private sector employee has to work and wait significantly longer to collect such maximum benefits (age 66 or 67 currently) than the government employee. Again, this is a huge difference. Price it by the 2600/mo and you're talking about - what? - 2600 x 12 mos x 10(?) yrs = $312,000. I know I'm kinda small time, but that sure seems like a lotta dough to me.

Too, don't forget that the average Social Security benefit is actually only about $1400/mo - nearly half of what your teacher receives.

Well, okay. A teacher's job is really hard. Yeah, right. They get more vacation in a year than most tax donkeys get in a lifetime. They get paid substantially more than people in the private sector and they have job security unimaginable to most Americans.

Finally, try doing as piss poor a job as teachers have for decades and see how long you last in a job in the private sector.

Sorry. I don't agree that $2600 is a reasonable pension benefit for a teacher. Frankly, there's a part of me that, looking at the overall picture (their disproportionate and destructive influence on society, for instance) would feel a certain satisfaction if they were rendered penniless as being their just desserts.

Economically speaking, well, I dunno. reduce teachers pensions to, say, the average Social Security benefit, and that would save - not sure. Can't find out how many retired teachers there are. 75,000 retire each year. 850,000 represented by AARP. So ... a million? Two?

Okay, we're talking maybe ten to 30 billion dollars a year altogether. That's enough money to make a real difference in these individual struggling plans, I suppose, but it sure ain't enough to solve America's problems.

And it's not enough money to drive any dramatic changes to any of this. So, relax teachers. You'll probably get to keep most if not all your filthy lucre.

But do understand why decent people avert their eyes and don't want to have anything to do with you.

Arrow4Truth's picture

One can pay for it and bitch about it, or stop being a "taxpayer."

Antifaschistische's picture

"Sacramento would have to cut 25% of police and fire services after cutting other less essential services."

...and, it will.  If you're familiar with public sector organization...you know, that they are run like one giant Union.  Even if they aren't unionized.  They are their to protect "their own".  They will eventually cut services 50%, and increase your taxes, JUST to maintain the fat incomes and the retiree payouts.

...and we're going to watch this entire house of cards slowly crumble in the next decade.

Creepy_Azz_Crackaah's picture

In Delaware fire departments are all volunteer and they work incredibly well.  Fire department people making $250K/year becasue you sleep at the station two nights per week: YOUR FIRED!

Billy the Poet's picture

We've got three volunteer fire departments here in my small town (pop. 4400) in Western Pennsylvania. Makes for some good parades. Red trucks, yellow trucks, blue trucks...

 

cheka's picture

congrats on living in a dindu free area.  two thumbs up

stacking12321's picture

i give you two thumbs up, as well.

oh, wait, those aren't thumbs...

madmax1965's picture

Yeah, where I grew up (western NY) all volunteer and it works well!  The pricks out here in AZ all retire fat, dumb and happy after a career of picking up dead blue hairs and running their "side" businesses!  Definitely not sustainable.

konadog's picture

Politicians blaming the pension fund. That's rich. How about blaming the California libtard politicians who think more government is the answer to every problem, that think passing endless laws and rules is an "accomplishment", and that create ever bigger and more bloated agencies that accomplish less and less?  What does it take now to fix a road in CA?  About 15 years and three generations of employees? You want to see the cause of the problem? Look in the mirror - not at the pension fund. 

After you clean out the house of libtard in Sacramento, you can abolish the Fed and end financial repression so that pensions can earn some interest on their deposits. Retirees wouldn't mind either.

Stan Smith's picture

At it's core,  the biggest "lie" is the fact that these funds -- Calpers here specifically -- offer "X" percent return on something that is likely truly half that.    ZIRP has it's consequences.    My guess is most the regulars here understand this,  but it's obvious well more out in the world dont -- by design I'd add.

Of course, this is all around us,  and no one seems to want to admit there -- except here by the way -- is a problem.

Oh how fun the asset devaluation will be !!!

Salsa Verde's picture

Calpers has every single California municipality by the balls.  Absolutely nothing will be done to balance the pension boondoggle.  The California tax payers will be tasked with endlessly patching the funds until the entire state goes bankrupt.

in4mayshun's picture

They can raise taxes all they want but they better be ready for the consequences. People are stretched too thin already and when they can't afford their Starbucks and iphoneX the zombie hordes will revolt.

Vilfredo Pareto's picture

Wouldn't that be amazing to see California go red again.

 

High taxes just might do it.

Jethro's picture

Taxes?  Oh, you mean the US citizens there?  Aren't they outnumbered by illegal immigrants (who pay no taxes, and receive public funds) now?

gilhgvc's picture

good, raise thier damn taxes to the stratosphere. Jack it up on everyone, I love it. 

Vidar's picture

To hell with these government parasites. Liquidate the pension funds and return the money to the taxpayers (not to the government, but to the specific individuals who were originally robbed at gunpoint by these same government goons).

Bastiat's picture

How many times have you showed up at local government meeting to weigh in on employee benefits?

Not My Real Name's picture

Uh huh. As if that would have miraculously stopped the graft and fiscal mismanagement.

Good one.

Sudden Debt's picture

Who gives a fuck about the future right?

Voters vote every 4 years.

Americans themselves are the problem.

No American gives a fuck about any other American.

 

The younger want to retire and the retired want their retirement.

I can't blame the politicians here. They got elected in the first place by a bunch of greedy ass people who only think of now.

wisehiney's picture

The day when that tax bill comes, that nice cali sunset will look like a huge glowing ball of dogshit.

brewing_it's picture

Sure its sustainable, all you have to do is print the money.

Bastiat's picture

Bailouts are for racketeering bankster fucks, not for little people.

TeethVillage88s's picture

- 1979 Chrysler bailout, Iacocca approached the United States Congress in 1979, Chrysler was required to reduce costs

- 2009 Chrysler bankruptcy, Because of the Chrysler bankruptcy, Iacocca may lose part of his pension from a supplemental executive retirement plan

- 2008 BMW Auto Bailout, CPFF
- 2008 Caterpillar Inc Bailout, CPFF
- 2008 Chrysler Financial Bailout, CPFF
- 2008 Ford Auto Bailout, CPFF
- 2008 General Electric Bailout, CPFF
- 2008 Genworth Financial Insurance, CPFF
- 2009 GM bankruptcy & Bailout
- 2008 Harley Davidson Bailout, CPFF
- 2008 Hartford Financial Insurance, CPFF
- 2008 McDonalds Bailout, CPFF
- 2008 METLIFE Bailout, CPFF
- 2008 PACCAR Bailout, CPFF
- 2008 Verizon Bailout, CPFF
- 2009 Toyota Bailout, CPFF

- 2009 Wall Street Bailout, Unlimited FED Loans, $800 Billion TARP, $4.4 Trillion QE, And 6 Years of LIRP/ZIRP

https://www.dropbox.com/s/y0flxf2iaoo1pf3/clinton-emails.zip?dl=0 (Clinton Emails)

https://datahub.io/dataset/fed-once-secret-loan-crisis-data-compiled-by-...

QQQBall's picture

Yes Stan Smith +100

 

Been reading FIRE blogs for part of the day. Finsancial Independence Early Retirement. There are peeps, actually couples, with $1.5MM or larger nest eggs and they cannot retire... they talk about safe withdrawl rates (the 4% rule) to to live off of until they reach SS age. Then they whack 25% off the scheduled bennies. The biggest risk is medical insurance - of course the CALPERS folks have no worry there!

Fuck thsi site is getting wormy with all the ads and jumping around. So slowwwww...

Arrow4Truth's picture

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