The Golden State may not be as golden as it once was, but it’s still doling out some generous allowances. Despite a $400 billion debt load and a pending pension crisis, California continues to add members to its six-figure pension club.
According to Transparent California, a database of government salaries, pensions, and compensation, 62,000 retired California civil servants receive annual retirement benefits that total six figures.
With roughly 20 cents of every dollar spent by the Los Angeles city government and taxpayers footing an enormous pension system, when will Governor Jerry Brown exclaim that enough is enough?
Is it any wonder that the exodus out of California only persists?
100k Club Gets Bigger
Earlier this month, Transparent California released new data that showed the state paid out more than $20 billion in retirement benefits last year. But the biggest shock may be that the state’s so-called 100k Club grew by 23,000 members in 2016.
There are two names that even go beyond six figures, topping the state’s public retirement system: Earl Paysinger and Emile Mack. Paysinger, a former LAPD deputy police chief, and Mack, a former assistant fire chief, received about $1.4 million each in pension benefits in 2016.
In total, there were seven retired government employees who received at least $1 million in benefits.
According to Reason, Transparent California had only previously gathered data from CalPERS, a system for retired public workers, and CalSERS, a system that pays retired teachers. The latest information collects data from local pension funds and the state university retirement system.
The libertarian website writes:
“The more comprehensive data reveal nearly twice as many $100,000 pensions. Using last year’s data, Transparent California said Michael Johnson, a former Solano County administrator who received a $388,407 pension, was the highest-paid government retiree in the state. This year he does not even crack the top 100, a group dominated by Los Angeles police and fire retirees along with a handful of former San Diego city employees.”
Analysts say that six-figure and million-dollar pensions are not the primary reason for California’s fiscal calamity. They hint at a much bigger problem.
A Wasteland of Fiscal Madness
Across the U.S. today, there are states, cities, and counties facing pension crises. Pew Charitable Trusts reported in April that U.S. state public pension systems’ unfunded liabilities surged 17% to $1.1 trillion. Pew cites lower-than-expected market returns and governments failing to set aside enough money to cover the principal on pension debt as the reasons.
At $400 billion in debt, a $150 billion budget deficit, and $1 trillion in unfunded government pensions, California does not have enough money to cover current and future employee pensions. Cities and counties are having a difficult time trying to keep up with public pension costs.
In 1997, the CalPERS funded ratio was 111%. In 2017, it’s a little more than 60%. Because the stock market is performing well, the annual investment returns are inching higher, but it isn’t perpetual. Moreover, the CalPERS fund is bleeding about $140 billion in red ink, which means taxpayers will bear the burden of making up for the shortfall.
Unlike the private sector, the public sector guarantees an annual benefit using a formula. For instance, California police officers receive a minimum of 90% of their final years’ pay, whether the stock market booms or busts. Nothing legally can be done, unless a municipality files for bankruptcy.
The last five years have seen five California counties declare insolvency: Vallejo, Stockton, Mammoth Lakes, San Bernardino, and Compton.
Los Angeles will indeed have an increasingly difficult time funding the retirements of ex-employees. Last year, the city’s general fund payments for pension and retiree healthcare surpassed $1.04 billion, accounting for nearly one-quarter of operating revenues. This was just 5% in 2002. To help cover the costs, the city has had to shift close to $1 billion from other programs to service retirement incomes, which means smaller budgets for public safety, recreation, or libraries.
California’s leaders seem bewildered as to what measures they could employ to fix the system. In the last 15 years, state representatives have attempted 20 different times to get public approval for reforms, but they never seem to make it to any ballot initiatives. Of course, you certainly can’t count on unions to attend to the growing troubles – many union leaders have dismissed the reports as nothing more than “doomsday predictions.”
The End is Near?
David Walker, Comptroller of the U.S. government from 1998 to 2008, has been sounding the alarm on pension shortfalls at all three levels of government for the last decade. He isn’t optimistic. In 2015, he warned that the odds of getting something done are very slim:
“They need to understand the longer we wait, the more dramatic the changes, both on the spending side and the revenue side. Making tough choices sooner rather than later is the way to go.”
California has joined the likes of Minnesota, New York, and Texas in facing a looming pension disaster. The current generation of workers will eventually kiss their guaranteed pensions goodbye. Yesterday’s politicians overpromised, today’s politicians fail to take action, and tomorrow’s politicians will have no idea what to do. Once The Golden State discovers that the pension system has become too big, it won’t be so golden anymore.
Does your state have a pension crisis? Let us know in the comments section!