1 Gone
May 23, 2018

Pensions will be Reduced....alot!!

0 comments

Edited: Feb 1

It will be impossible to fund the retirements as promised...the $$ just isn't there...

 

California’s Pension Woes Exacerbated by PoliticsBy IKE BRANNONSHARE

California governor Jerry Brown has been taking a victory lap of sorts after putting forth a budget for fiscal year 2019 that would include a $6 billion surplus, a remarkable turnaround for a state that hemorrhaged red ink in the wake of the great recession.

Of course, much of that surplus arrived via a hefty tax increase, as well as a surfeit of revenue resulting from the stock market boom via capital gains taxes, so attributing this turnaround to fiscal probity might be taking things a bit far.

However, Governor Brown does get credit for at least temporarily righting what seemed to be a sinking ship. What’s more, he seems to realize that this surplus can easily disappear, and he has warned his potential successors to resist spending that surplus. What Brown is fully aware of is that even the most spectacular stock market increase is not enough to erase the state’s most pressing financial problem—namely, its underfunded government pension.

Currently, it has enough money set aside to cover just 68% of its future obligations—certainly far from the most indebted state (that would be my own state of Illinois), but still low enough to dismiss any notion that future stock market growth can remedy the problem.

Despite this, the California Public Employees Retirement System, or CalPERS, has put politics ahead of achieving a high rate of return by insisting that the boards of the companies it invests in adhere to various social and environmental practices.

It’s nonsense, of course, and it amounts to little more than an extension of politics into a realm that doesn’t have room for it.

The problem is that these environmental and social constraints inevitably bring with them a lower rate of return—regardless of what CalPERS and other advocates say to the contrary. And these lower returns will only hasten the day when the state’s taxpayers—or, failing that, federal taxpayers—will be on the hook to cover California’s pension deficit.

A few of the state’s politicians seem to be aware of the conundrum this places on California citizens: A Democratic state senator recently offered a bill that would allow new state employees to opt out of the state pension plan and simply participate in a defined contribution plan. The state university system already allows newly hired professors to opt out—a recognition that a defined benefit plan does not work well for a peripatetic workforce like academics.

Ultimately, moving to a defined contribution plan might make sense from a long-term sustainability perspective, but transitioning to such a system for everyone would require someone (namely, current taxpayers and state workers) to cover promises already made to current and future state retirees while new employees build up their own retirement balances. In short, someone’s going to be left holding the bag in the ponzi scheme that is a pay-as-you-go public pension plan.

That’s a tricky path to navigate: Utah did such a thing for its new employees with a much smaller per-capita shortfall, accomplishing it by making those new employees fork over a portion of their income to cover promised benefits. It is not clear even that will be sufficient for the state.

California will need every dime it can get its hands on to fund its pension shortcomings, and with the country’s highest income tax rate it probably can’t raise personal income taxes too much higher. Governor Brown has commented that the state’s retirees should expect a benefit reduction the next time there’s a recession but most people think any reductions in promised benefits are precluded by the state’s constitution.

At some point a future governor of California will need to figure out how the state’s going to cope with having billions in promised benefits and insufficient money set aside to keep those promises. That calculus will be much easier if CalPERS doesn’t accept a lower rate of return in exchange for dubious political chits.

 

This work by Cato Institute is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

New Posts
  • 1 Gone
    Feb 15

    Top reasons people are fleeing the state..... More Californians are considering fleeing the state as they blame sky-high costs, survey finds A growing number of Californians are contemplating moving from the state due to the sky-high cost of living, with sentiment highest among millennials, according to a new study.Fifty-three percent say they are considering fleeing, representing a jump over the 49 percent a year ago.The poll conducted by Edelman Intelligence found the chief reason for dissatisfaction isn't wildfires or earthquakes but housing cost and availability. LOS ANGELES — A growing number of Californians are contemplating moving from the state — and not due to wildfires or earthquakes but the sky-high cost of living, according to a survey released Wednesday. The online survey, conducted last month by Edelman Intelligence , found that 53 percent of Californians surveyed are considering fleeing, representing a jump over the 49 percent polled a year ago. The desire to exit the nation's most populous state was highest among millennials, the survey noted. "California is a great, great place if you're young and ambitious and daddy's paying the rent," said Joel Kotkin, a presidential fellow in Urban Futures at Chapman University in Orange, California. "It's similar to New York with the same dynamic, and maybe more of it." Kotkin, who has researched California demographic and economic trends for decades, said he's astounded when he asks his Chapman students whether they think they'll be in the state in 10 years. "I would say the majority would say 'no,' — and many grew up in California," he said. "There's no doubt that California's economy, for all of its strengths when it comes to innovation and creating these industries that people want to be part of, is struggling with high costs," said Aaron Terrazas, a senior economist with online real estate site Zillow. "Costs have gotten way ahead of incomes in California, and that's making a lot of people think about whether it's worth the hurdles." According to Edelman, 63 percent of millennials in the 2019 survey indicated they were considering a move from sunny California. The chief reason for dissatisfaction: housing. When asked in general about what would make them leave California, 60 percent of millennials in the survey gave housing cost and availability as the reason. That was slightly higher than the general population (55 percent), although 65 percent of renters cited housing factors as a reason to leave. Californians believe housing costs are four times more threatening to the state's economy than high health costs. Residents also consider crime and security as a top-three concern. Terrazas said millennials in California who are "tired of renting and looking to settle down and buy a home are finding it's often out of reach for them." He said this is especially the case in coastal job centers of the state, whether Los Angeles County or the San Francisco Bay Area. "California just doesn't strike them as reasonable," the economist said. "The state has consistently seen much faster home value appreciation than most of the country, and the same goes for rent until about two years ago. Rents have begun to slow down, ... although they remain at high levels." Terrazas said Southern California has high housing costs and on average lower incomes than Northern California. "In some ways, Southern California is in much more dire straits," he said. Even with higher average incomes in Silicon Valley, though, he said homebuyers now must spend about half of their pretax incomes on a monthly mortgage for a median home. The median home in the Silicon Valley market topped $1.2 million at the end of 2018, according to Zillow data. Statewide, the median home value in California was $547,400 at the end of 2018, while the U.S. median home value was $223,900 . By comparison, the median home value in New York state stood at $289,000 and $681,500 in New York City; New Jersey was $324,700. The Edelman survey found 47 percent of Californians are considering moving out of the state in the next five years. Again, it found the rates among millennials were higher with 55 percent of them contemplating the move. And 57 percent of Californians with kids under 18 also were considering packing up and leaving in the next five years. Chapman's Kotkin believes the next wave of discontent in California won't necessarily be focused on housing costs but taxes. "Taxes are a real killer if you're upper middle class and whether you're a younger person trying to buy a house or you just want to be able to spend what you make," said Kotkin. "There's also concern among people looking to retire and having their income taxed into oblivion." At 12.3 percent, California led the 50 states in 2018 with the highest top marginal tax rate, according to the Federation of Tax Administrators . And that doesn't include an additional 1-percent surcharge for those Californians with incomes of $1 million or more. "The tax bill made it worse," Kotkin said, pointing out that the federal tax changes mean deductions for state, local and property taxes now get capped at $10,000. "State taxes have become a significant factor now. We're getting into a situation where the middle class in California really can't hack it." Overall, the Edelman survey involved a total of 1,900 California residents and was conducted Jan. 4 to Jan. 20. It said results were weighted to the Census to be representative of the state's adult population. A report from California's Legislative Analyst's Office last year indicated Texas, Arizona, Oregon and Nevada are popular destinations for relocating Californians. It also found families with kids and those Californians with only a high school education were most likely to flee to lower cost states than college-educated residents. Finally, the survey found more than 60 percent of residents feel that the best days of living in California are behind instead of ahead. And a large number of residents are "ambivalent" toward tech as an engine of prosperity, the survey said. Jeff Daniels Reporter
  • 1 Gone
    Feb 1

    Politicians won't stop until everyone is out of $$$$ California’s New Governor Calls for Tax on Drinking Water California’s new governor has wasted little time continuing the state’s seemingly limitless expansion of government. Governor Gavin Newsom’s first budget proposal, published last week,  suggests  instituting a tax on drinking water in the name of cleaning up California’s water systems. The “Environmental Protection” section of the 2019-2020  budget  seeks to establish a new special fund, with a dedicated funding source from new water, fertilizer, and dairy fees, to enable the State Water Resources Control Board to assist communities, particularly disadvantaged communities, in paying for the short-term and long-term costs of obtaining access to safe and affordable drinking water. The Definition of Insanity California’s drinking water quality is indeed poor. Communities throughout the state  struggle  with dangerous pollutants in their supply, but opponents of the suggested tax say there is no need to tax residents in order to solve the problem. Jon Coupal of the Howard Jarvis Taxpayer Association has argued that the proposal is an example “of California’s knee-jerk reaction to default to a new tax whenever there’s a new problem,” the  Sacramento Bee  reported . (In another example, last year bureaucrats  proposed  a new tax on text messages that was ultimately shot down.) Coupal says there shouldn’t be new taxes for water system improvements when the state is sitting on a $14.2 billion surplus. Similarly, the California Association of Water Agencies, a coalition of public water agencies throughout the state, has  expressed  opposition to the proposed tax, arguing that in light of the current surplus, a trust should be established to fund water clean-up efforts.  “The state should not tax something that is essential to life, such as water and food,” they said in a press release, adding that the costs of living in California are already too high and that another tax would make water less affordable. Further, significant funding has already been allocated to help clean up water in disadvantaged communities, which experience disproportionate levels of polluted drinking water. For example,  Assembly Bill 1471 , passed in 2014,  authorized $260 million “for grants and loans for public water system infrastructure improvements and related actions to meet safe drinking water standards, ensure affordable drinking water, or both.” In 2015, as part of the emergency drought funding, then-Governor Jerry Brown approved an additional $19 million in funding was allocated “to meet  interim emergency drinking water needs  for disadvantaged communities with a contaminated water supply or suffering from drought-related water outages or threatened emergencies,”  according  to the state water board. In June of last year, voters  approved  Proposition 68, which authorized $250 million for clean drinking water projects, as well as drought preparedness measures. Further, in December, the EPA awarded California $187 billion in federal funds “for drinking water and wastewater infrastructure improvements.” New Governor, Old Politics California already has one of the  largest  tax burdens in the country. Its top tier income rate is the highest at 13.3 percent, as is its sales tax rate of 7.25 percent. In 2017, the state  collected  $82 billion in tax revenue—nearly $4 billion more than expected. Nevertheless, Newsom is modeling his new tax proposal on a funding bill state lawmakers rejected last year. According to his budget, “This proposal is consistent with the policy framework of SB 623, introduced in the 2017-18 legislative session.” That  bill  sought to tax both homes and businesses to raise money for water cleanup and would have been  capped  at 95 cents per month, but it died in the Senate. (A similar  attempt  to tax drinking water in the state of New Jersey also languished in that state’s legislature last year.) It appears voters could be growing apprehensive toward new fees for drinking water considering they defeated  Proposition 3  in last year’s election, which would have allocated $500 million in bond funding to help the state’s water suppliers meet safe drinking water standards. Newsom’s push has received praise from environmental groups, but the  Sacramento Bee reports  that while the budget has an increased chance of passing since Democrats regained their supermajority in the legislature, some Democrats are hesitant to approve new taxes on drinking water. Considering the hundreds of millions of dollars that have already been allocated to fix the water problem, it seems the bigger issue isn’t a lack of funding but an excess of bureaucracy and intervention.
  • 1 Gone
    Jan 24

    Eventually, you'll run out of other people's money..... $269 billion in new state taxes and fees proposed By Dawn Hodson More than $269 billion in new taxes and fees are being considered by the legislature according to the California Tax Foundation’s new report “Tax Watch. ” The proposed taxes and fees would more than double the current amount paid by California taxpayers. This despite the state’s projected $13.5 billion reserve fund or the fact that Californians already pay some of the highest taxes in the nation. “California’s high tax burden already takes a big bite out of the average family’s budget and these proposals would make it even more expensive to live and work here,” said California Taxpayers Association President and CEO Teresa Casazza. “Taxpayers should hold on to their wallets, because we expect even more tax hikes to be introduced in the next few months.” The new report identifies more than 30 bills and constitutional amendments that come with higher taxes, fees, assessments and charges. If all of the proposals identified in the report were enacted, the amount of tax and fee revenue collected by state government would increase more than 140 percent, from $191.26 billion to $460.93 billion annually. Those bills include a government-run healthcare tax.  SB 562  (Lara) would establish a single-payer healthcare system where California would pay the healthcare costs of everyone living in the state. The program would cost $400 billion and require an estimated $200 billion in new taxes. (Some believe the cost would be even higher.) The bill remains on hold in the Assembly as lawmakers consider alternatives and options for funding this or a similar program. A sales tax on business services would raise $49 billion. SB 993  (Hertzberg) would expand the sales-and-use tax to services used by businesses. The tax would be passed along to consumers in the form of higher retail prices. A new tax on California businesses would raise $14.4 billion.  ACA 22  (McCarty/Ting) would impose a new 10 percent tax rate on net business income of more than $1 million. The proposal would effectively bring California’s corporate income and franchise tax rate to 18.84 percent – the highest business income tax rate in the United States. The tax would make the 49 other states even more attractive to businesses seeking to open facilities and create jobs. Californians Against Higher Taxes is a statewide taxpayer advocacy association that advocates against specific new, higher and targeted taxes that will negatively impact residents and businesses.