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

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...

Comments

ipso_facto Nov 1, 2017 12:58 PM Permalink

'“We don’t know how we’re going to operate,” said Oroville’s finance director...'Maybe review the high level of pension benefits you are awarding via your union contracts.  401(k) anyone?

Deja Doh Nov 1, 2017 12:36 AM Permalink

If the State and local governments wanted to be equitable as to how they hand out pensions (through CalPers) , they need to take away "safety" preferences in retirement.  It's a complete joke that police and fire can retire in some cases at 20 years or 45 years old and get upwards to 100% of their salaries.  If they were working 40 years to get that 100%, that would be completely sustainable.  The fraud in injury (disability) claims in the fire departments is a theft of public funds.  If the State and locals rolled all current "safety" staff into the general employee retirements they would be able to float their budgets, preserve the retirement plans.  People want to be firemen, and policemen.  They aren't hurting for job applicants.

USA USA Nov 1, 2017 12:26 AM Permalink

 "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." Ok, they are probably too generous in the retirement system, BUT:It is really the God Damn Feds fault for destroying the stock and bond markets where any long term investor is now SCREWED! Retirement systems will be / are in deep shit all over, just like your Mom and Pop who thought they could live on their retirement.They will be living in your basement soon!

pump and dump Nov 1, 2017 12:01 AM Permalink

What do you expect when you pay people not to work. In my town 1/3 of the payroll is for paid time off. The explanation in thereport was thats the way government works. They started this kind of accounting decades ago and believe that this is just waygovernment works. All you have to do is check the Comprehensive Annual Financial Report. Every state,city.county,or district has one.Just do a search and you will find it. You will find that they are all sitting on a shit-load of money in different trusts etc. Just playingbroke so they can raise more taxes. 

kumquatsunite pump and dump Nov 1, 2017 12:37 AM Permalink

hey hey hye, fat albert is a government employee. My "relative" is a teacher in California, goes to work sick inorder to add those days to "retirement." Nice eh? All those kids get sick. Meanwhile, none of the kids graduating are capable of reading, writing, writthmetic. You have idiots in charge. especially foreigners who don't actually speak english; ha ha. so you want to teach kids but the Teachers don't speak English. That's a good one.  

In reply to by pump and dump

DEMIZEN Oct 31, 2017 11:23 PM Permalink

these fucks in sacramento are completely retarded. they are pushing productive base out of state every vacancy is filled with more low cast mooches from flyover places putting themselves straight on cash assistance and import h1b moors to pay for it. the retail is dead as fucking disco.i see nonhispanic ishit gen millenials leaving en masse, probably going back to their parents or scoot around in RVs looking for better life.  lot of small business complaining of overhead fees shitty and expensive laborpool, all we get is dudes with glassy eyes and fat and/or loud cursing pregnant bitchces refusing to work more than 15 hrs/week. most of our customers are pobrecitos cashing in refi or cash assistance mooches. no hard income left, with retail being hit it is only going to get worse.  overhead sqeeze just doest give room to pay more than 10+ for a workerall remaining business are joke. fucking chiros, med scam terapies, some immigration lawyers, china take outs, wog smoke shops, kosher bullshit and insurance agents.  i have no idea how they make living i wouldnt walk into one these street mall unless i needed some hard dope or a thai massage. this is not going to end up well. after the new year we will look into international partnership options hold assets here and look into franchising. enough is enough

DEMIZEN Farmerz Nov 1, 2017 12:47 AM Permalink

cheap gass has issues it clogs my fuel system.  i think they mix in some cheap additives. i replaced my ignition coils and spark plugs and ran a couple of tanks with gumout fuel conditioner, it doesnt run rough anymore had a missfire error lit every now and then,so i use only premium 91 gass now. i have one of those variable valve timing engines. manual doesnt recommend it but it works for me. i still  buy arco sometimes but premium 91 only. 

In reply to by Farmerz

TeethVillage88s Oct 31, 2017 9:25 PM Permalink

Monthly Treasury Report 30 Sep 2002, shows Pension Benefit Guaranty Corporation under Department of Labor

2016 Pension Benefit Guaranty Corporation outlays = $6.2 Billion
2015 Pension Benefit Guaranty Corporation outlays = $6.1 Billion
2014 Pension Benefit Guaranty Corporation outlays = $6 Billion
2013 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2012 Pension Benefit Guaranty Corporation outlays = $5.9 Billion
2011 Pension Benefit Guaranty Corporation outlays = $5.9 Billion

2010 Pension Benefit Guaranty Corporation outlays = $5.6 Billion (new Normal)
2009 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2008 Pension Benefit Guaranty Corporation outlays = $4.7 Billion
2007 Pension Benefit Guaranty Corporation outlays = $4.6 Billion
2006 Pension Benefit Guaranty Corporation outlays = $4.4 Billion
2005 Pension Benefit Guaranty Corporation outlays = $3.6 Billion
2004 Pension Benefit Guaranty Corporation outlays = $3.2 Billion
2003 Pension Benefit Guaranty Corporation outlays = $2.5 Billion
2002 Pension Benefit Guaranty Corporation outlays = $2.1 Billion
2001 Pension Benefit Guaranty Corporation outlays = $1.4 Billion

Total--Interest on the Public Debt, Table 5 Monthly Treasury Report

2016 Total--Interest on the Public Debt = $430 Billion
1998 Total--Interest on the Public Debt = $363.824 Billion

IRS, Total Outlays—Internal Revenue Service, under Treasury, 2016 = $133 Billion
IRS, Total Outlays—Internal Revenue Service, under Treasury, 1998 = $33.2 Billion

2014 VA Information Technology Systems outlays = $3.432 Billion
2013 VA Information Technology Systems outlays = $3.218 Billion
2012 VA Information Technology Systems outlays = $3.266 Billion
2011 VA Information Technology Systems outlays = $3.355 Billion
Total VA Information Technology Systems outlays = $13.27. Billion in 4 Years

2014 Total Medicare/Medicaid = $1,19 Trillion
2013 Total Medicare/Medicaid = $1.1 Trillion
1999 Total Medicare/Medicaid = $390 Billion

2014 Total Social Security Admin = $908.76 Billion
2013 Total Social Security Admin = $870 Billion
1999 Total Social Security Admin = $421 Billion

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Fred used to post charts of GINI Ratio or GINI Coefficient by Race or Race and Sex... I guess the don't want people to see women actually doing better than men.

But I don't real have the kind of data we are talking about.

PIIGS as victims of banks, of businessmen, or of lazy culture, or of lazy, stupid, Elitist Govt?

About 5 choices there.

https://fred.stlouisfed.org/series/GINIWAF (white alone)
https://fred.stlouisfed.org/series/GINIBAF (Black Alone)
https://fred.stlouisfed.org/series/GINIAAF (Asian Alone)
https://fred.stlouisfed.org/series/GINIHARH (Hispanic Any Race)

But base is Gap between Income or Wealth between Rich & Poor... we only really measure the GAP between Incomes of Rich & Poor regardless of Race... but this is done by Country!

https://fred.stlouisfed.org/series/GINIALLRH (ok, all races)
Income Gini Ratio for Households by Race of Householder, All Races (GINIALLRH)
2016: 0.481 Ratio, Not Seasonally Adjusted, Sep 13, 2017

What does .48 mean when ratio was .39 in 1971 ?????!!!!

Jack's Raging … Oct 31, 2017 8:48 PM Permalink

Definitely deserves a haircut, like any public pension--but more so. The only people doing well in the Sacramento metro are government officials and heavily protected occupations like medicine. Housing is cheaper than than other cities in CA, but still far out of pace with the local income potentials. Cheaply built mcmansions for >$550k, Houses from the 1970s for >$300k. Many of the counties in the area charge exorbitant fees, like $50,000 for permitting to build modest homes. The worst part is that they often waive those fees for mega-corporate developers to built either Section 8 rat-traps, or elite communities.

WillyGroper Oct 31, 2017 8:43 PM Permalink

follow the money...dual bookeeping.  they've got it in CAFR.the whole lot of them have been skim'n w/BAC-ML running the slush funds.it's a circle jerk w/board of supervisors & judges in a never ending upward spiral awarding themselves more money.a long time back CAF claimed CALPERS moved all the money offshore.1/2 way in.  https://www.youtube.com/watch?v=fCsjzGYD2pEhere's another fine example of them throwing a former us prosecutor in jail for uncovering it.https://www.youtube.com/watch?v=FcsbO_qPvwc https://www.youtube.com/watch?v=FrugA6ULMu4#t=2525.541604  

koan Oct 31, 2017 8:21 PM Permalink

It was never meant to be "sustainable" and people (who could do basic math) knew this from the beginning.
It is a part of a plan to collapse a nation.

MuffDiver69 Oct 31, 2017 8:19 PM Permalink

Found this in comment section of the linked article above in the Sacramento Bee..Just too much..hehehehe

“Metro Fire has roughly 800 employees. With a taxpayer pension contribution of $35.5m next year, that equates to a $44k pension contribution per employee per year. Declare bankruptcy and end it. This is beyond ridiculous and is verging on corruption only found in 3rd world sewers.

Mr.BlingBling Oct 31, 2017 8:03 PM Permalink

Fourteen whole percent? Well, Boo-fucking-hoo!

My 2018 health insurance notice arrived yesterday and it’s going up 20%. And that’s compounding the 26% increase for 2017. So the City of Excremento can fuck right off if it’s looking for sympathy.

Zorba's idea D503 Oct 31, 2017 11:19 PM Permalink

Vast majority of Boomers worked their asses off,  often with two household incomes to chase our sinking-stinking dollar. I suppose we did fail to End the FED. Would like to see what the millenials with all their closets full of participation trophies are willing to sacrifice other than your parents savings. The worm eating the apple is the Reserveless FEDERAL RESERVE...and its the size of Jabba the hut. Best of Luck.

In reply to by D503

thisguyoverhere D503 Oct 31, 2017 8:41 PM Permalink

Boomers did their job. Most had 2.1 kids behaved like impulsive children, divorced, counseling, therapy and left little to nothing to their children.

All the while complaining about their 'spoiled children' that they raised (or let govt schools and television raise) so well.

Perfect if you are at the top, the ascendant middle class destroyed itself andnits progeny with a little help from your friends, foundations and tax exempt 'charities' like planned parenthood and every acronym under the sun.

In reply to by D503

Herdee Oct 31, 2017 7:12 PM Permalink

And you'll need the federal government to print on a massive scale in order to save society. The war machine just lost again in Syria and now turns its' attention to North Korea but soon they'll wake up to its' own society going bust and it'll have to print on a scale we've never seen before in order to prevent implosion of society and civil war.

JoeTurner Oct 31, 2017 6:29 PM Permalink

So Americas future boils down to 60m boomers retiring (10k/day) half have no savings and will demand massive amount of expensive healthcare and millions of minorities demanding massive amounts of welfare paid for by a shrinking population of middle class tax payers...hyperinflation will be the only politically viable option

FredFlintstone Oct 31, 2017 6:21 PM Permalink

Our city raised income taxes from 2 to 2.5% during the "global financial crisis" due to sagging revenue. Now that the economy has been humming along for some time, did they consider recinding the increase? Fuck no.

Dickweed Wang Oct 31, 2017 6:23 PM Permalink

They can come up with over 20 trillion dollars to bail out the fucking banks 10 years ago (not to mention the 40 trillion that's gone "missing" over the last 20 years) but they can't come up with 7 trillion to fix the pension problems across the country?  That should show everyone where "their" priorities are.