MOORLACH UPDATE — UNP Bottom Dwellers — April 7, 2018

The Unrestricted Net Position (UNP) projects my office has been publishing are obtaining attention (see MOORLACH UPDATE — 2017 State Per Capita UNPs — April 2, 2018).

The ten-volume UNP series on California’s 482 cities makes it to the first piece below. The Beach Reporter provides two interesting looks at the financial well-being of cities in its readership jurisdiction. The first is to point out where the cities are ranked in my listing (not in the best percentiles). The second is to provide how one of these cities is addressing its fiscal concerns.

The cities mentioned in this piece are #319 Manhattan Beach (see MOORLACH UPDATE — City CAFR Rankings – Vol. 4 — February 12, 2018); #429 Redondo Beach and #435 Long Beach (see MOORLACH UPDATE — City CAFR Rankings – Vol. 2 — February 8, 2018); and #462 Torrance, #471 Inglewood, #473 Santa Fe Springs, and #481 El Segundo (see MOORLACH UPDATE — City CAFR Rankings – Vol. 1 – February 7, 2018).

It should be noted that the metric is based on a municipality’s Unrestricted Net Position divided by its population. The UNP will include unfunded defined benefit pension liabilities, among many other liabilities.

Our recent state rankings are mentioned in the second piece below by California Policy Center (see the link provided in the first paragraph above). We have since received three of the state CAFRs that we have been waiting for, with two to go; but we do not expect New Jersey to lose its bottom position.

97 retired city workers in Redondo Beach make more than $100,000 per year

By Nick Green

http://tbrnews.com/news/redondo_beach/retired-city-workers-in-redondo-beach-make-more-than-per/article_5b04967e-39b3-11e8-a85b-df0c6fd95a52.html

Three South Bay cities—Torrance, Redondo Beach and Inglewood—now rank in the top in 10 Los Angeles County for retired city workers who make more than $100,000 annually, according to new data released Thursday by government watchdog Transparent California.

The cities were ranked second, eighth and ninth, respectively, on a list of communities with at least 25 retirees pulling in more than $100K annually. Long Beach was ranked first in the county with 390 former workers pulling in six figures in retirement.

Last year, the nonprofit government watchdog ranked Long Beach top in the entire state and Torrance second. This is the first year Transparent California has compiled a top 10 list of Los Angeles County cities.

“The issue is as pension costs continue to go up — and they will — you’re asking (private sector) South Bay residents, who on average make much less and will get much less in retirement, to pay for them,” said Robert Fellner, Transparent California’s executive director. “To me, that’s the issue; is that fair and is that sustainable?”

But even more telling, Fellner said, is the fact that retirees who collect more than $100,000 a year have an outsized impact on the total outlay each jurisdiction pays for retirement benefits.

For example, the 237 Torrance retirees and 97 Redondo Beach retirees who receive more than $100,000 annually account for 44 percent of the entire amount the two cities pay in retirement benefits. That’s about equal to what Manhattan Beach pays, too.

And that trio of South Bay cities trail only El Segundo (46 percent), which is second in the state only to Santa Fe Spings.

To put those figures in perspective, the average percentage for all agencies that participate in the California Public Employee Retirement System is just 14.5 percent going toward retirement benefits for retirees receiving more than $100K.

It’s the first time Transparent California has broken out public retirement benefits in that fashion.

It’s significant, Fellner said, because municipal officials often downplay the number of retirees raking in more than $100K. But the data shows that a relatively small number of former employees with large retirement benefits can cost jurisdictions a lot of money.

But why the large number of South Bay cities with big benefits?

First, Fellner notes, those cities pay their police officers and firefighters well because public safety is valued in those communities. Second, cities have a habit of surveying salaries of neighboring cities, ostensibly to remain competitive in attracting quality employees. But that strategy constantly raises the average salaries higher and higher, which can lead to a massive unfunded liability.

State Sen. John Moorlach, R-Costa Mesa, recently ranked cities in the state by how their unfunded liability is affecting municipal finances.

Torrance, it turns out, is one of the 25 cities in the state in the poorest financial shape. (In the South Bay, only the balance sheets of El Segundo—second worst in California—and Inglewood were worse off.)

Yet when one mayoral candidate said last week at the city’s first political forum of the campaign season that the biggest challenge facing Torrance was its unfunded liability, Mayor Pat Furey downplayed the issue. He said the city was taking care of the issue, recently making a one-time payment of $3 million to reduce the unfunded liability and adding another $5 million to an investment fund to help bring down the debt.

“The council has addressed those (issues) with all eyes open and very transparently,” he said. “There is a light at the end of the tunnel, there is no possibility of going bankrupt. … We can work through this and our employees can keep their pensions.

California should copy New Jersey’s union fund takeover, but with one caveat

By Steven Greenhut

https://californiapolicycenter.org/california-copy-new-jerseys-union-fund-takeover-one-caveat/

http://www.capoliticalreview.com/capoliticalnewsandviews/greenhut-california-should-copy-new-jerseys-union-fund-takeover-but-with-one-caveat/

New Jersey’s police and fire unions have demanded that the state give them control over their own pension destiny, and have convinced the Legislature to transfer management of their pension fund to a union-controlled board of trustees. Some Garden State residents have denounced the plan as the equivalent of giving unions a “blank check,” given that taxpayers have to pay for all of the trustees’ decisions. But the bill, which is now on the governor’s desk, offers a brilliant solution for New Jersey and even California – provided it’s amended in one simple way.

Yes, unions should be free to control their own destiny. Their members are dependent on these defined-benefit pensions, so union officials ought to decide how the money is invested. Union leaders should select the expected rates of return. They should manage the assets, decide on cost-of-living adjustments and control every cent within the fund. They and their members deserve to reap the benefits, of course, but here’s the caveat: taxpayers no longer should have to foot the bill for their miscalculations. They simply need to remove the liability from taxpayers.

New Jersey’s pension fund is so mired in debt and so underfunded that it almost makes California’s system – long viewed as the national poster child for pension dysfunction – seem like a model of fiscal probity. Instead of coming up with a plan to address the root causes of the crisis, New Jersey’s politicians overwhelmingly approved the above-mentioned plan (without my caveat, of course). In all seriousness, it could plunge the state’s pension system into a death spiral. You should never give a special interest unchecked control over the public purse.

Most experts view a 50-percent funding level as the point of no return for pension funds. California Sen. John Moorlach, R-Costa Mesa, compiled per-capita unfunded liability figures for all 50 states and found that California residents are each on the hook for $4,287 in pension debts (using a fairly conservative estimate). That’s bad – 42nd in the nation. But New Jersey’s per-capita pension debt is even worse at $15,208. It gets the 50th spot.

The California Public Employees’ Retirement System (CalPERS), which is the nation’s largest state-based pension system, is funded at 68 percent, which means it only has slightly above two-thirds of the money it needs to fulfill all of its pension promises. The California State Teachers’ Retirement System (CalSTRS) is funded at 64 percent. These are dangerously low numbers, especially coming after a year of fabulous investment returns. But, as they say in Jersey, forgettaboutit. The New Jersey situation is on a different plane altogether. New Jersey’s system is funded at 31 percent.

Instead of dealing with the real source of the pension liabilities (excessive pay and benefit packages for public employees, unrealistically high assumed rates of return, decisions made by politicians rather than actuaries), lawmakers in Trenton chose to shift control of the Police and Firemen’s Retirement System (PFRS) from the state and its investment council to the police and firefighter unions whose members benefit from the fund. Former Republican Gov. Chris Christie had vetoed a similar measure, but it’s unclear whether Democratic Gov. Phil Murphy’s will sign it.

Police and fire union officials understandably are frustrated at the pension fund’s poor performance and note that police and fire pensions are funded at a higher percentage (65 percent) than pensions for other New Jersey public employees. Extricating the police and fire portion would create an obvious fiscal problem by removing a better-funded portion of the pooled resources, and could therefore lower the funding levels even further (is that even possible?) for the remainder of the fund.

“The massive shortfalls in public pension funds are the single biggest financial challenge for American states and cities,” reported Bloomberg News last month. “So allowing government workers to determine their own benefits – as New Jersey may soon do – seems a clear recipe for disaster.” As news reports suggest, the new board of trustees would have a majority of union members and would have the power to adjust contribution rate and increase cost-of-living benefits for retirees.

“We want to control our own destiny,” said one New Jersey union official, quoted in that Bloomberg column. But the legislation doesn’t really do that. Perhaps unions should be free to control their own destiny, but that means that they and their members – not the taxpayers – have to pay the price if they make bad decisions or the economy doesn’t perform as expected. That’s the only real way to have control over one’s destiny.

Sadly, the New Jersey bill echoes the current system there and here, but puts it on steroids. For instance, the CalPERS Board of Directors is dominated by retirees, union members and Democratic state officials who are elected with the support of public-employee unions. However, at some level state officials have to deal with fiscal reality. They are accountable to voters. If the unions gain direct control over pension funds, then there’s nothing to stop their spending sprees.

“What’s wrong with letting the unions manage their own pension funds?” asked Asbury Park Press columnist Randy Bergmann in a rhetorical way. “First most of the money … comes from taxpayers.” And “the unions can reap all the rewards while the taxpayers absorb all the risk.” His critique is exactly right. That’s where my idea comes in. Let unions benefit from their good decisions, but make them pay the price for their bad ones. If they blow it, then union retirees should be the ones to suffer.

This idea shouldn’t even be that controversial. After all, CalPERS officials argue that the pension fund is in solid shape because investment returns, taken over long-enough periods, always cover the payments. That sounds like a tacit admission that they don’t really need the taxpayer backing anyway. Yes, unions in New Jersey, California and everywhere deserve to control their own destiny. Agreed. And we, the taxpayers, deserve to control ours, too.

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

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MOORLACH UPDATE — Government Union Costs — November 8, 2017

The California Policy Center is back with another well written piece on the power of public employee unions, Sacramento’s “Daddy” (see MOORLACH UPDATE — Secretive and Expensive Union Deals — November 3, 2017 and http://www.capoliticalreview.com/capoliticalnewsandviews/moorlach-update-secretive-and-expensive-union-deals/).

You know I’ve been ferreting out the disappointing data that makes California’s Department of Transportation, Caltrans, one of the most disappointing DOTs in the nation and that reform is preferred over a new tax; that I have opposed high speed rail from the get to; that I have opposed trolleys in the OC; that I tried a CEQA reform legislative effort last year; and you know I’ve been warning you about public employee defined benefit pension plan rising costs for more than 16 years. The piece below addresses them all. And, I’ll spare you the links to my previous UPDATEs.

BONUS: The second piece is a photo from the Sacramento Bee showing me working at my front row desk during Session.

DOUBLE BONUS: Recently, I have begun my own weekly podcast, “The OC- Sacramento Connection”. On these podcasts, I have and will continue to share my thoughts on several issues including some of the ones in this update.

CLICK HERE to listen to my podcasts on ITunes free of charge.

INVITATION: My District Office has started a new Veterans Day tradition. Last year we had a simple afternoon ceremony at Crystal Cove State Beach to review the World War II history within its boundaries. Dan Worthington discussed the Fire Station, a WW II bunker that kept an eye on the California coast during the beginning of the war, pre-radar, to signal the alarm should the Japanese Fleet appear over the horizon. There is a similar location at Bolsa Chica and the west side of Catalina Island has ten such bunkers!

This year we have invited noted author Chris Epting to speak on the subject of “The Day the War Hit The Shore.” Orange County incurred civilian casualties stateside during WW II, an extremely rare occurence. This tragic episode has been lost over time, but has many valuable lessons to this day.

Please attend your traditional Veterans Day ceremonies at the eleventh hour of the eleventh day of the eleventh month on Saturday. If you want an afternoon break, join us at 3 p.m. We’ll meet at 21871 Newland Street in Huntington Beach. There should be some parking spaces at the neighboring wildlife center.

We will also have surviving family members present of those who were lost to this unique chapter in WW II local history. If you enjoy local Orange County history, this will be a relaxed setting to actually share war stories. Please RSVP with Aly Henderson at aly.john or 714-662-6050.

Without Government Unions, there Would be No Gas Tax Increase

By Ed Ring
http://californiapolicycenter.org/without-government-unions-no-gas-tax-increase/

Nobody argues that California’s roads need huge upgrades. But the solution didn’t require the $0.12 per gallon tax hike that [went] into effect [last week]. The root cause of these neglected roads – and the reason even more taxes will never be enough to fix them – is the power of public sector unions, whose agenda is consistently at odds with the public interest. Let us count the ways.

1 – CalTrans mismanagement:

CalTrans could have done a much better job of maintaining California’s roads. One of the most diligent critics (and auditors) of CalTrans is state Senator John Moorlach (R, Costa Mesa), the only CPA in California’s state legislature. Last year, Moorlachreleased a report on CalTrans which he summarized in “7-Step Fix for ‘Mismanaged’ Caltrans,” an article on his official website. Just a few highlights include the following:

  • In May 2014 the Legislative Analyst Office determined that CalTrans was overstaffed by 3,500 architects and engineers, costing over $500 million per year.
  • While to an average state transportation agency outsources over 50% of its work, CalTrans outsources only 10% of its work. Arizona and Florida outsource more than 80%.
  • 54% of CalTrans staff is at or near retirement age, so a hiring freeze would reduce staff merely through attrition, without requiring layoffs.

But Moorlach didn’t make explicit the reason CalTrans is mismanaged. It’s because the unions that run Sacramento don’t want to outsource CalTrans work. The unions don’t want to reduce CalTrans headcount, or hold CalTrans management accountable. Those actions might help Californians, but they would undermine union power.

2 – Bullet train boondoggle:

Money that could have been allocated to maintain and improve California’s roads is being squandered on a train that will do nothing to ameliorate California’s transportation challenges. A LOT of money. According to the American Road and Transportation Builders Association, California’s freeways can be resurfaced and have a lane added in each direction at a cost of roughly $5.0 million per mile in rural areas, about twice that in urban areas.

Meanwhile, the latest estimate for California’s “bullet train,” is $98 billion (that’s $245 million per mile), thanks to construction delays, and design challenges including nearly 50 miles of tunnels through seismically active mountains to the north and south. And hardly anyone is going to ride it. Ridership won’t even pay operating costs. But Sacramento pushes ahead with this monstrous waste when that same money could (at the urban price of $10 million per mile) resurface and add a lane in each direction to 10,000 miles of California’s freeways. Imagine smooth, unclogged roads. It’s not impossible. It’s just policy priorities.

But while bad roads destroy the chassis of millions of cars and trucks, and commuters endure stop-and-go traffic year after year, the California High Speed Rail Authority dutifully pushes on. Why?

Because that’s what the government employee unions want. They don’t want roads, with all the flexibility and autonomy that roads offer. They want to create a gigantic high-speed rail empire, with tens of thousands of new public employees to drive the trains, maintain the trains, maintain the tracks, and provide security, running up staggering annual deficits. But all of them will be members of public sector unions.

3 – All rapid transit boondoggles:

In a handful of very dense urban areas around the U.S., fast intercity trains make economic sense. But most light rail schemes, along with laughably absurd “streetcar” schemes that actually block urban lanes sorely needed by vehicles, do not achieve levels of ridership that even begin to justify their construction when the alternative is using that money for better, wider connector roads and freeways. The impact of ride sharing apps, the advent of non-polluting cars, and the option of using buses to accomplish mass transit goals all speak to the superior versatility of roads over rail for urban transportation.

So why do California’s cities continue to poor billions into light rail and streetcars, when that money could be used to unclog the roads?

To reiterate: The public sector unions that run California want tens of thousands of new public employees to operate the trains and streetcars, maintain them, maintain the tracks, and provide security, running up staggering annual deficits. But doing this means that public sector union membership – hence public sector union power – will increase.

4 – CEQA reform so people can live closer to the jobs:

The median home value in the United States today is $202,700. The median home value in California today is $509,600, 2.5 times as much! There is no shortage of land in California, and the alleged shortages of energy and water are self-inflicted as the result of policies enacted by California’s state legislature. But instead of reforming California’s Environmental Quality Act, SB 375, AB 32, and countless other laws that have made building homes in California nearly impossible, California’s legislature is doubling down on more government solutions – primarily to subsidize either extremely high density housing, or subsidized housing for the economically disadvantaged, or both.

None of this is necessary. Outside of California’s major urban centers, there is no reason homes cannot be profitably built and sold at a median price of $202,700, and there is no reason the people living in those homes cannot drive or ride share to work on fast, unclogged freeways.

But California’s public sector unions want more regulations on home building, and they want more subsidized public housing. Because those solutions, even though inadequate and coercive, enable them to hire vast new bureaucracies to enforce the many regulations and administer the public assets. Unleashing the private sector to build affordable homes in a competitive market would rob these unions of their opportunity to acquire more power. It’s that simple.

5 – Insatiable appetite for pension fund contributions:

According to a California Policy Center study, taking barely adequate annual employer pension contributions into account, the average unionized state/local government worker in California makes over $120,000 per year in pay and benefits. But to adequately fund their promised pension benefits, employers will need to pay at least another $20,000 per employee to the pension funds. This funding gap, which equates to over $20 billion per year, is the additional amount that is required to cover the difference between how much California’s public employee pension funds currently collect from taxpayers, and how much they need to collect to keep the promises that union controlled politicians have made to the government unions they “negotiate” with. That is a best-case scenario.

It could be much worse. A 2016 California Policy Center analysis (ref. table 2-C) estimated that under a worst-case scenario, the annual costs to fund California’s public employee pension funds could cost taxpayers nearly $70 billion more per year than they are currently paying.

And by the way, California’s pension funds are themselves almost entirely under the control of public sector unions – research the background of CalPERS and CalSTRS board directors to verify the degree of influence they have. Absent significant reform, funding California’s public employee pensions is going to continue to consume every dollar in new taxes for the next several decades. The cumulative financial impact of funding these pensions is easily triple that of the bullet train’s $100 billion fiasco, probably much more.

Let’s not mince words. Government unions control California. They collect and spend over $1.0 billion every year, and spend most of that money on either explicit political campaigning and lobbying, or soft advocacy via expensive public relations campaigns and sponsored academic studies. Their presence is felt everywhere, from local transit districts to the governor’s office. They make or break politicians at will, by outspending or outlasting their opponents. At best, California’s most powerful corporate players do not cross these unions, often they collude with them.

California’s public sector unions operate as senior partners in a coalition that includes left-wing oligarchs especially in the Silicon Valley, extreme environmentalists and their powerful trial lawyer cohorts, and the Latino Legislative Caucus – usurped by leftist radicals – and their many allies in the social justice/identity politics industry. The power of this government union led coalition is nearly absolute, and the consequences to California’s private sector working class have been nothing short of devastating.

Government unions force California’s agencies to over-hire, overpay, and mismanage, because that benefits their members even as it harms the public. These unions enforce absurd policy priorities that further harm the public in order to increase their power. They are the reason California has increased its gas tax.

REFERENCES

Pump bump: California drivers to pay 12 cents more per gallon starting Wednesday – San Jose Mercury, Oct. 31, 2017
http://www.mercurynews.com/2017/10/31/pump-bump-california-drivers-to-pay-12-cents-more-per-gallon-starting-wednesday/

California’s gas tax increases Wednesday – Los Angeles Times, October 31, 2017
http://www.latimes.com/politics/la-pol-ca-gas-tax-increase-political-battle-20171031-story.html

How much you’ll REALLY pay in gasoline tax in California – San Diego Union Tribune, Apr. 23, 2017
http://www.sandiegouniontribune.com/business/energy-green/sd-fi-california-gastax-20170413-story.html

What Californians Could Build Using the $64 Billion Bullet Train Budget – California Policy Center, Mar. 21, 2017
http://californiapolicycenter.org/what-californians-could-build-using-the-64-billion-bullet-train-budget/

American Road and Transportation Builders Association – FAQs, ref. “How much does it cost to build a mile of road?
https://www.artba.org/about/faq/

High-Speed Rail Delay More than Triples Planned Cost to San Jose – San Jose Inside, Oct. 2, 2017
http://www.sanjoseinside.com/2017/10/02/high-speed-rail-delay-more-than-triples-planned-cost-to-san-jose/

A 13.5-mile tunnel will make or break California’s bullet train – Los Angeles Times, Oct. 21, 2017
http://www.latimes.com/local/california/la-me-bullet-train-tunnel-20171021-story.html

California Environmental Quality Act – Wikipedia
https://en.wikipedia.org/wiki/California_Environmental_Quality_Act

State Senate bills aim to make homes more affordable, but they won’t spur nearly enough construction – Los Angeles Times, Aug. 11, 2017
http://www.latimes.com/politics/la-pol-ca-state-housing-deal-effects-20170811-htmlstory.html

California’s Public Sector Compensation Trends – California Policy Center, Jan. 2017
http://californiapolicycenter.org/californias-public-sector-compensation-trends/

What is the Average Pension for a Retired Government Worker in California? – California Policy Center, Mar. 2017
http://californiapolicycenter.org/what-is-the-average-pension-for-a-retired-government-worker-in-california/

The Coming Public Pension Apocalypse, and What to Do About It – California Policy Center, May 2016
http://californiapolicycenter.org/the-coming-public-pension-apocalypse/

Senate President Pro Ten Kevin de Leon, D-Los Angeles, during a key climate change vote on July 17, 2017. Hector Amezcua hamezcua

http://www.sacbee.com/news/politics-government/capitol-alert/article178559596.html?#emlnl=Alerts_Newsletter&id=am9obm1vb3JsYWNoQGdtYWlsLmNvbQ==

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District. If you no longer wish to subscribe, just let me know by responding with a request to do so.

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MOORLACH UPDATE — Incentivizing Mediocrity — November 1, 2017

The Trump Bump continues! The Dow Jones Industrial Average has been rather moribund for years.

As you can see from the slide above, the DJIA was flat for some 2-1/2 years. Then Donald Trump was elected on November 8, 2016.

By June 30, 2017 the following year, the DJIA ended the year at 21,401.30. That’s up 3,451.93 points in one year! Or 19.23 percent!! It is up 3,513.02 since the Presidential election, for a 19.6 percent increase! Unheard of!

And the Dow is still going up! It closed at 23,405.70 on Halloween, October 31, 2017!

And, of course, everyone is a genius in a bull market. But, should government institutional money managers be compensated for what the market does? Maybe for what they generated above and beyond what would have been earned anyway (known as alpha). But, just for being there? The California Policy Center addresses this curious compensation component in the first piece below.

The second piece is an editorial submission to Fox & Hounds on the SB 1 Gas and Auto Tax increase that became effective today (see MOORLACH UPDATE — Scary Week Ahead — October 28, 2017).

Thanks, again, for making yet another “contribution” to the state of California and its Department of Transportation, which is one of the most poorly managed and performing DOTs in the nation. Instead of improving this union-run bureaucracy, the Democrats pursued the easier road of raising taxes over cutting bloat. It’s a good thing you’re generous and take a blind eye to simple things like running a government department as if it had competitors or something. And, just maybe, the Governor will give the management of Caltrans incentive bonuses, too.

In good times and in bad, California’s pension fund managers win fat bonuses

By Steven Greenhut
http://californiapolicycenter.org/good-times-bad-californias-pension-fund-managers-win-fat-bonuses/

Sacramento — California’s top pension funds have suffered through a few cycles of bleak investment returns and plummeting funding ratios, so we can’t blame them for wanting to celebrate after what was, relatively speaking, a stellar financial year. But the manner in which they chose to celebrate was shocking. The funds gave their top officials massive bonuses, in part to assure that these officials don’t flee to higher-paying private-sector jobs.

The California State Teachers’ Association (CalSTRS) enjoyed a 13.4 percent return on its investments, while the California Public Employees’ Retirement System (CalPERS) earned returns of 11.2 percent. That’s good news, especially given that higher rates of return translate into lower pension debts ultimately borne by taxpayers.

It was especially good news for CalSTRS Chief Executive Jack Ehnes, who received a $224,682 bonus in addition to his $420,000 salary, according to a Sacramento Bee report. And it was good news, too, for CalSTRS Chief Investment Officer Christopher Ailman, who will receive a $272,678 bonus on top of his $509,000 salary. Those salaries, as you can imagine, come with great retirement plans.

The Bee noted that CalPERS’ executives did well, too, with Chief Executive Marcie Frost receiving an extra $80,190 and Chief Investment Officer Ted Eliopoulos receiving an extra $312,305 after last year’s returns were announced in September.

One might argue that it’s great to reward investment officials for bringing in banner returns that keep the pension funds and taxpayers out of hot water. But there are two problems with that argument. First, the funds gave their executives massive bonuses even when the investment returns were vastly underperforming predictions. As an example, Ehnes received a $214,500 bonus in 2015-2016 – when CalSTRS earned a piddling 1.4 percent return.

It’s yet another example of the “heads we win, tails you lose” approach to finances that CalPERS and CalSTRS have taken to an art form. Despite the seeming grotesqueness of six-figure these bonuses, they don’t mean much to taxpayers, local school agencies and school districts, or pension recipients. They are a drop in the bucket in the multibillion-dollar funds. They are illustrative mainly of the attitudes that dominate in the public-pension world.

The bigger problem is that the funds have run up massive debt that, based on more realistic rates of return, has hit $1.3 trillion dollars. Sure, the funds’ executives win huge bonuses in good years and bad ones. So do all the pension recipients. In these defined-benefit plans, California public employees are promised a pension payout based on a formula that calculates their years of service and their final three years of pay. It is guaranteed, with the only possible exception being a bankruptcy from the employing municipality.

As they work, that formula can never be reduced – even going forward. Back in 1999, when CalPERS pushed a state law that led to massive, retroactive pension increases the state, officials there promised that it wouldn’t cost taxpayers a dime. So far, it’s cost them many billions of dollars and has helped lead to service cutbacks as cities struggle to pay rapidly increasing pension costs. The pension funds blame previous financial crises for the problems – rather than their own culpability in hiking benefit levels. Whatever the case, the pensioner can’t lose. Taxpayers are on the hook for whatever the shortfall may be thanks to a variety of court decisions.

CalPERS and CalSTRS may be giddy over the latest returns, but one year of good returns doesn’t fix the deep hole created by years of poor returns and benefit increases. Even a few years of great returns can’t make up for system’s low funding rates. CalPERS, for instance, is only about 68 percent funded even after the stellar returns. That means that it has only a bit more than two-thirds of the money it needs to make good on all its promises. As of last April, CalSTRS’ funding ratio was around 64 percent.

A recent study from Stanford University’s Institute for Economic Policy Research deals only with CalPERS. As I explained for the California Policy Center, it found “that over the past 15 years, employer pension contributions have increased an incredible 400 percent.”. Pension costs have tripled since 2002 and are eating up larger shares of city budgets, thus leading to a crowding out of vital public services. City officials attended a recent CalPERS board meeting and shared their troubling stories, with one city official even raising the specter of bankruptcy.

Yet instead of dealing with these problems, the pension funds are partying like it’s 1999, when soaring investment earnings promised to usher in decades of “cost-free” benefits for the public-employee unions who control the pension funds and the Legislature. They act as if they couldn’t have seen a downturn coming. They blame the financial crash, rather than their foolhardy financial decisions. Did any executives get dinged for those decisions?

The Legislature’s best-known pension reformer, Sen. John Moorlach, R-Costa Mesa, agrees that it takes incentives to hire top officials to run the nation’s largest funds. But he attributes the latest solid performance to the market rather than the magic of fund managers. “What did (CalPERS’ chief investment officer) and team provide above and beyond the average rate of return for similar institutional pension systems?” he asked. “Just because the market is up is not something to be rewarded for. What did you do to exceed the average yield from which the taxpayers can split the difference in an appropriate manner? … Just being there doesn’t cut it.”

But “just being there” is the entire foundation of the state’s public-pension system. If you’re an executive for the funds, you get a big bonus, apparently in good years or bad. If you are a public employee, you receive a large, guaranteed pension for working a set number of years, no matter what happens in the economy at large. And if you’re a taxpayer, you’ve got to pay any and all shortfalls and endure any service cutbacks because of the selfish decisions made by pension funds and legislators. It’s your fault for being here.

The bonuses are the least of taxpayers’ worries, but they are remarkably emblematic of a system that runs for the benefit of its employees and beneficiaries – and not at all for the benefit of the California residents who pay the bills.

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut.

 

Stealth Gas-Tax Increase Hits Today

John Moorlach

By John Moorlach

State Senator representing the 37th Senate District

http://www.foxandhoundsdaily.com/2017/11/stealth-gas-tax-increase-hits-today/

Call it the Stealth Gas-Tax Increase. Today California’s gas tax increases about 12 cents a gallon to pay for the newly budgeted $5.2 billion a year in supposed road repairs which the Legislature passed and Gov. Jerry Brown signed last April.

But few motorists will notice it. That’s because every Nov. 1 the state switches to what’s called the winter blend of gas, which is about 10 cents cheaper than the summer blend mandated from April 1 to Oct. 31. The summer blend costs more because it adds refinery steps to reduce pollution during the year’s hot, smoggy months.

The usual 10-cent reduction will be erased this year by the 12-cent increase, so the resulting 2-cent increase overall will hardly be on your radar. For a 15-gallon fill-up, it’s just 30 cents.

The “seeming” increase of 2 cents a gallon will appear to be a slight incline in cost for rebuilding the state’s roads, which TRIP, a national transportation research group, ranks as the worst in the nation.

But this respite from the nation’s highest gas taxes won’t last long.

The big impact will hit next April 1, when gas prices will have risen not just the 10 cents extra for the summer blend of gas, but also for the additional 12 cents for the new gas tax. Total: 22 cents per gallon. But of course, by then people for five months will have gotten used to the new, stealthy 12-cent gas tax. So they may only “feel” like gas went up 10 cents a gallon, as it always does on April 1.

Yet the new tax will be a collision to people’s wallets. Assume this for an average California family. Both spouses work. Together, they use 40 gallons a week driving to and from work, taking the kids to and from school and soccer practice and performing various errands. So the 12-cent new stealth tax totals $4.80 a week, or about $250 a year.

But what if the family, due to high housing costs, must commute long distances to work – say from Riverside to Orange County or Los Angeles. Then the cost of the stealth tax could rise to $500 or more a year.

But that’s not all. There’s also an additional Transportation Improvement Fee, which is really a tax, just to register your jalopy, bumping this annual ritual $25 to $175 a year, but averaging about $50.

All this detoured money could have gone for healthier food, schoolbooks, a college tuition savings plan, or just recreation for a family that works too long paying all the taxes that already hit them.

And there’s no guarantee the money will actually fix the roads the family drives on. The stealth taxes could be car-jacked during a recession, as Gov. Arnold Schwarzenegger did with earlier tax hikes for transportation during the 2008-10 Great Recession. With the state’s pension crisis accelerating, I predict the new taxes will be too tempting a target for a future Legislature and governor.

Indeed, even the new taxes paid at the gas pump will not fully go to fix the roads the cars ride on. According to the Legislative Analyst, $270 million will go to the transit and intercity rail program, $44 million to commuter rail and intercity rail, $100 million to bicycle and pedestrian projects and $108 million for parks and agriculture. And train and bus ridership is declining.

Although today’s tax increase is stealthy, its effect on the personal budgets of Californians will be substantial. And the state’s national reputation for fiscal irresponsibility continues out of control. It’s time to hit the brakes!

John Moorlach, R-Costa Mesa, is a state senator representing the 37th District.

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MOORLACH UPDATE — What Pension Crisis? — September 27, 2017

I sit on the Senate Public Employment and Retirement Committee, which held a joint hearing with its Assembly counterpart earlier this year. During the hearing I asked a very difficult question of Dane Hutchings, the legislative representative of the California League of Cities (see MOORLACH UPDATE — 37th in the 37th — August 9, 2017 ).

In shaping my question, I used the “F” word — “fraud” — and it caught the attention of CalPERS and its administration. This started a dialogue, which has been very helpful. So, I recently sent two letters, addressed to two separate CalPERS Board members, requesting very specific information (see https://www.calpers.ca.gov/docs/board-agendas/201709/financeadmin/item-6c-02.pdf and https://www.calpers.ca.gov/docs/board-agendas/201709/financeadmin/item-6c-01.pdf).

Instead of writing back with an affirmative response and attaching the requested data, the matter was put on the agenda of this month’s CalPERS Finance and Administrative Committee meeting (see MOORLACH UPDATE — OC’s Newest Landmark Plaque — September 20, 2017 ).

The entire segment of the Committee meeting related to my requests is an amazing watch. To have city managers state that they are facing Chapter 9 bankruptcy and even providing the precise upcoming year they may be filing is a massive disclosure. You would think it would be headline news for the local papers where the cities are located. The California Policy Center certainly thought the discussion was disturbing and provides the piece below.

I’m trying to address the pension crisis in California. It’s getting noticed. Let’s hope the testimony of a dozen plan sponsors wakes up the super majority in the Capitol. Also see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017 august 11, 2017 john moorlach.

BONUS: If you happen to watch the linked video to the CalPERS meeting, you will observe the public employee unions testify as the concluding witnesses to strong arm those CalPERS Board members who just also happen to be public employee union members. The massive influence of public employee unions in Sacramento is evident and detrimental to the fiscal well being of our state. I discuss this in more detail on Rick Reiff’s most recent Inside OC program and it is worth a watch at https://www.youtube.com/watch?v=t-rpMqqQJJE&feature=youtu.be.

DOUBLE BONUS: I don’t want to be in the “me thinkest thou protesteth too much” category, but crime is going up (see MOORLACH UPDATE — Taken to Task — August 23, 2017). The FBI released the 2016 crime statistics on Monday of this week and the news is not good. Allow me to give you just one of the many links, as I spend a lot of time in Sacramento, at http://www.kcra.com/article/sacramentos-violent-crime-rate-was-higher-than-us-crime-rate-in-2016/12473362.

TRIPLE BONUS: To date, the Governor has not addressed any of the top 20 bills Assemblyman Harper and I have recommended he veto (see MOORLACH UPDATE — 2017 Top 20 Veto Worthy Bills — September 22, 2017).

Cities facing fiscal mess plead with CalPERS as pensions consume budgets

By Steven Greenhut

http://californiapolicycenter.org/cities-facing-fiscal-mess-plead-calpers-pensions-consume-local-budgets/

Sacramento – If you ask the union-controlled California Public Employees’ Retirement System about the state’s looming pension crisis, you’re likely to get this answer: What pension crisis?

But the story was much different at CalPERS’ own Finance and Administration Committee meeting held Sept. 19. City officials from across California warned CalPERS board members about the dire fiscal situation their cities face because the pension debt is consuming larger portions of local budgets. The energetic discussion included 18 speakers, many of them local officials who trekked to Sacramento.

“In Hayward, 68 percent of our unfunded pension cost is retiree benefits,” said Hayward City Council member Sara Lamnin, who pointed out that “this means the promises of the past weren’t paid for, frankly.” Hayward’s future is really troubling. She said that “over the next three fiscal years, the city of Hayward’s revenue is projected to grow 1.4 percent, but our cost for PERS is going to go up 30.5 percent.” Lamnin wasn’t asking for someone to rescue Hayward. Officials just want to know how bad the damage will be. “We ask you for data,” she said.

Oroville Finance Director Ruth Wright said her Butte County city has been forced to cut its workforce by a third and negotiated cuts in police salaries by 10 percent. Oroville expects its cash flow to be gone in three to four years, she said. “We’ve been saying the ‘bankruptcy’ word.”

These city officials were there to support state Sen. John Moorlach, R-Costa Mesa, who sent a letter to the CalPERS board of administration requesting detailed answers to two seemingly straightforward actuarial questions.

First, Moorlach wanted to know the financial effect of moving employees from “their current tiers to a PEPRA tier on a going-forward basis.” That would mean providing them with the slightly-less generous pensions offered after the 2013 reforms went into effect. Moorlach also wanted the pension fund to study the cost savings if cost-of-living adjustments to retirees were temporarily suspended until the fund’s liabilities are stabilized. No one is proposing any cuts, but Moorlach was just seeking cost comparison data.

“Cities all across the state of California are gravely concerned about the rising costs of their annual retirement contributions and the growing size of their unfunded actuarial liability,” said Bruce Channing, the city manager for Laguna Hills in Orange County, and chairman of the League of California Cities’ pension-services committee.

He warned of “severe hardship” and cutbacks in staff in many cities if the problem isn’t addressed – and reminded CalPERS officials that “saying we have to invest our way out of this really is not the answer.”

The League’s Dane Hutchings noted a shocking statistic: “I have members who by all accounts are considered financially healthy cities” but their financial models “suggest that by fiscal year ’27-’28 as much as 94 cents of every current dollar of payroll will be allocated to CalPERS contributions.” That’s without accounting for new hires or raises in the coming decade.

Lodi City Manager Steve Schwabauer said his city’s pension costs are expected to double by 2022, which is the equivalent of a fire station and “all of my parks and recreation and all of my library.” These are ominous warnings from actual city officials.

Given CalPERS’ touting of PEPRA as a key reason that the state is “bending the cost curve” regarding pension liabilities, Moorlach’s first request should have been a no-brainer. Why not figure out other PEPRA-related savings possibilities? The second question would make sense, too, if the pension fund were interested in exploring ways to protect cities from potential insolvency rather than simply protecting public employees from any pain.

As expected, CalPERS gave the final say to union officials, who feared that the data would be used to justify lower benefits.

“Yes, it’s painful for employers to deal with those rising costs,” said Jai Sookprasert, a California School Employees Association lobbyist. “It’s doubly more painful for the employees. What part of negotiate, talk to your employees is not clear? … Really, data? This is just data? … Is it data or conjectures?”

So, learning actuarially sound information about what different benefit levels might do to unfunded liabilities is now just a conjecture, at least in the view of some union officials. Apparently, it’s better for local officials not to know what different options will mean for their budgets. They should just pay up and quit their complaining.

The CalPERS board fell in line and didn’t even vote on the request, meaning that Moorlach’s proposal will not be heeded.

In 1999, CalPERS promised that the Legislature’s proposal that would lead to 50-percent retroactive pension increases for public-safety officials across the state wouldn’t cost taxpayers “a dime” because investment returns would make up the difference. The fund was laughably wrong, and their efforts led to the current problems cities across the state are facing.

Now CalPERS and its union allies typically claim that there’s no pension crisis and that Gov. Jerry Brown’s modest PEPRA reform will right the ship. Apparently, there’s no need to worry about what these hard-pressed city officials are saying. But what will they say 10 to 15 years from now, as pension costs gobble up majorities of local budgets and services will be slashed and burned?

For now, denial is the easiest course. CalPERS had a good year with investment returns of 11.2 percent. Likewise, the Democratic-controlled state Legislature totally ignored the pension liabilities and the arguably even-larger problem surrounding soaring retiree-medical costs during its recently concluded legislative session. But the problems only are going to get worse, and other cities are going to hit the fiscal wall.

“The unions will say it wasn’t our fault. We didn’t vote for it. You guys voted for it,” said Sen. Moorlach in an interview Monday. He was shocked by their audacity. No doubt, they’ll also be blaming Wall Street and stingy California taxpayers. But by then the state and cities could be in full crisis mode. Will CalPERS still be in denial if dozens of cities are using about the “b” word?

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut.

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MOORLACH UPDATE — Taken to Task — August 23, 2017

The first piece below, from the California Policy Center, takes the CalPERS Board to task about its harsh treatment of the city of Loyalton and LA Works in their efforts to exit this multi-employer plan.

I have provided a solution for CalPERS in this regard that is fair and reasonable with Senate Bill 681 (see MOORLACH UPDATE — Pursuing Reforms — August 11, 2017 august 11, 2017 john moorlach). California cities have been a little slow in providing their support for the idea, but I’m hoping that they will join in the discussion. Public safety officials have been asking me for assistance. If something isn’t done to address these ridiculous exit penalties, I may suggest to municipalities that if their contract gets too onerous with CalPERS, that Loyalton has provided a path out.

In the second piece, from Politifact, I am taken to task for one sentence in a recent editorial submission in the Sacramento Bee that tangentially mentioned an uptick in crime as a reason to be concerned with fuel theft as the tax increases are implemented (see MOORLACH UPDATE — Changing Behaviors — August 4, 2017 august 4, 2017 john moorlach). Ironically, shortly after my editorial was printed, theAP published a story on the fuel black market and associated theft validating my supposition. But Politifact decided that they were going to take one sentence from my piece and scrutinize it and label my claim, “mostly false”.

Good grief! It’s no wonder that the term “fake news” is gaining traction.

As someone who has served as the Chair of the Orange County Criminal Justice Coordinating Committee for some seven years, with members that included the Orange County Sheriff, the Chief Probation Officer, the Presiding Judge for the Superior and Juvenile Courts, the Director of the Health Care Agency, the Mental Health Administrator, the director of the Office of Independent Review, and a representative from the District Attorney’s office, their admonishment is a serious charge. Hasn’t crime been rising?

Let me start with a recent graphic from the OC Register (seehttp://www.ocregister.com/2016/04/08/crimes-up-in-orange-county-whats-to-blame/):

crimerise0330.gif

The Politifact piece refers to the most recent reports for 2016 on violent crime increasing, so it’s interesting that I’m judged by it and with it, even though it came out after my piece. For more, see http://www.sacbee.com/news/politics-government/capitol-alert/article167879952.html, https://calmatters.org/articles/uptick-california-crime-make-political-issue/ and http://www.mercurynews.com/2017/08/22/walters-californias-uptick-in-crime-has-political-repercussions/.

I won’t give a long lecture here about the impacts of Gov. Brown’s AB 109 on local communities, but it has been dramatic (see my reactions to its passage in MOORLACH UPDATE — AB 109 & CalOptima — December 12, 2011 december 12, 2011 john moorlach). We now have so many former state inmates in Orange County that our homeless population has boomed in the last five years. And, they hang around public spaces, like shopping centers and grocery stores. Look at the higher level of security staff at these venues in recent years. The number of housewives that have told me they are afraid when they go to purchase groceries has been alarming. And we’re talking cities like Costa Mesa and Newport Beach!

The voters were also duped into approving Propositions 47 (2014) and 57 (2016). With former felony crimes being reduced to misdemeanors, I would postulate that our public safety officials are not making as many arrests as they had in previous years. A suspect who will only be charged with a misdemeanor is back on the streets within hours and may even be visited by the same police officer later in the day for committing the same crime. Because of the unintended consequences of so many changes in the classifications of crimes, and the prohibitions and lack of incentives that peace officers have in detaining people for crimes, I believe our crime statistics are not accurate. Don’t trust me on this bold claim, ask the Police Chief of your city. Those that participated in my December hearing on what is happening in the communities in my District as a result of Gov. Brown’s policies certainly argued that crime is getting worse (see MOORLACH UPDATE — Propositions 47 and 57 — December 8, 2016 december 8, 2016 john moorlach).

It looks like Politifact is not even familiar with what is really happening in California. All the same, I’m honored that someone in this country is reading my editorial submissions and I’m happy to include critical pieces in my UPDATEs. It’s too bad they didn’t address the topic of my piece and honed in on one short sentence. It must have been a fun project for the writer. But, twisting some facts and disregarding others makes my piece, in their estimation, “mostly false.” Consequently, as I do not believe I am flippant in my published remarks, I requested a columnist with more than three decades of experience, to provide a more thorough review of Politifact‘s piece and his analysis taking them to task is presented as the conclusion below.

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TAPped out: The method to CalPERS’ madness toward tiny Sierra County city

By Steven Greenhut

http://californiapolicycenter.org/tapped-method-calpers-madness-toward-tiny-sierra-county-city/

Sacramento — Observers have wondered in recent months why the California Public Employees’ Retirement System, the nation’s largest state pension fund and one of Wall Street’s most muscular financial players, has taken such a hamfisted approach toward one of California’s tiniest and least-powerful cities. There’s a rational, albeit troubling, reason for its approach.

After the Sierra County city of Loyalton (pop: 862) could no longer afford its monthly payments to CalPERS to pay the pension benefits for its one employee and four retirees, the City Council voted in 2013 to pull out of the pension fund. In response, CalPERS slapped it with a $1.66 million “termination fee” – far more than the city’s annual budget. That means that, as recent news reports reveal, Loyalton’s retirees will soon have their pension benefits slashed by 60 percent, which is a massive hit for a small number of people.

CalPERS is sending a message to other cities that want to leave the fund: agencies will pay dearly if they attempt to loosen CalPERS’ grip on their finances. The pension fund is taking a similarly hard line with some agencies in Southern California.

“The CalPERS Board of Administration in March voted to cut the pensions of close to 200 retirees from the East San Gabriel Valley Human Services Consortium,” reported the Los Angeles Times this month. That agency, known as LA Works, folded in 2014. On July 1, “CalPERS sliced the pension checks for the consortium’s retirees by 63 percent.” The Timesalso pointed to the Niland Sanitary District in Imperial County, which is currently negotiating with CalPERS over exit terms.

Every city’s payment for the “defined benefit” pensions that CalPERS administers is based in part on financial assumptions. The most important of these: the fund’s assumption that it will earn 7 percent on its investments (down from 7.5 percent). It calculates the fees that cities and other agencies have to pay based on benefit formulas and these assumptions about investment earnings.

As soon as an agency decides to leave the pension fund, CalPERS places its investments in what it calls the Terminated Agency Pool, or TAP. For agencies in the TAP, CalPERS assumes a rate of return of around 2 percent.

As I explained last month, this highlights a dirty little secret: The pension fund is bullish about the stock market when the public’s money is at risk, given that any shortfalls in investments ultimately are backed by California taxpayers. But when agencies leave the fund, CalPERS can no longer rely on taxpayers and future returns for those dollars. Its own money is at risk, so it then assumes a minuscule rate of return. That assumption increases dramatically what a local agency owes CalPERS.

CalPERS could have negotiated a deal for Loyalton, says Dan Pellissier, a former aide to Gov. Arnold Schwarzenegger and well-known pension reformer. He points to California law that states the CalPERS “board may negotiate with the governing board of the terminating agency” regarding the “terms and conditions of the termination” from the pension fund.

“CalPERS offered to negotiate payment options under the government code that you cited, but Loyalton said they couldn’t make those payments either,” CalPERS spokesperson Amy Morgan told me. “That is when they were moved into the terminated agency pool.”

But CalPERS also confirmed that “the negotiations were based on what the city could afford on the $1.6 termination liability cost that they owed, not the discount rate.” There’s obviously no way that a city that said it couldn’t afford its modest annual payment (reportedly around $3,500 a month) in the 7.5 percent fund could begin to afford the higher payments based on 2 percent earnings.

This is par for the course for CalPERS “negotiations.” When the city of San Jose tried to extricate its small pension plan for council members from CalPERS and move to a 401(k) system, CalPERS hit back. CalPERS had calculated the city’s liabilities at around $900,000 for that fund, but CalPERS wanted San Jose to pay around $5 million to exit.

“CalPERS does everything it can to keep the rats from leaving the sinking ship,” former Mayor Chuck Reed told me. “And they treat you like rats, too.”

Reed says CalPERS could have come up with a deal to let San Jose pay off the remaining pensions without adding new members. The pension fund has claimed that it isn’t statutorily allowed to do so, but that’s an open question. Moreover, CalPERS itself could push for a legislative change. “They do not want to help,” Reed said. “Clearly, they do not want people to leave.”

The point of the termination pool is to deal with agencies that become defunct. Loyalton still has an annual budget and government-owned assets such as a city hall. It’s a different story with LA Works and those handful of agencies that actually have dissolved. Those sorts of situations are what termination pools were designed to address.

Even when agencies actually go out of business, there’s room for a settlement. CalPERS’ termination pool has a surplus of $111 million, so it’s 200 percent funded. The idea is to have extra funds to cover shortfalls. LA Works would appear to have a good argument that this is an appropriate use of some of those funds.

“Upon termination, CalPERS becomes the guarantor of benefits for all members and beneficiaries whose benefits are paid from the TAP and has no future ability to obtain funds from former contracting employers,” wrote CalPERS CEO Marcie Frost, in a letter last month to the state Senate. She was responding to Sen. John Moorlach, R-Costa Mesa, who harshly criticized the disparity between the assumed rates in the two investment pools.

But Frost’s rebuttal bolsters what pension reformers have been arguing. The TAP makes investments in “low-risk, U.S. government-issued securities” as a way to “minimize funding risk” because CalPERS then becomes the guarantor of all benefits. These are the investment assumptions CalPERS uses when it wants to be sure that it doesn’t lose any money.

“If you felt that 2 percent is the interest rate, you should be basing it on that rate the whole time,” Moorlach told me, rather than basing it on 7.5 percent and then lowering it to 2 percent once an agency wants to leave the system. “I’ve paid what you charged me. You’ve undercharged me. That’s your problem,” he added.

The bigger problem, of course, is that if CalPERS tried to move the entire system to a sustainable basis – i.e., one that is priced like a private fund that didn’t rely on public subsidies and future bull markets –it would need to increase dramatically what it charges member cities and agencies. Those public agencies already are slashing services to pay their current, escalating bills.

CalPERS’ “number one strategy is to preserve the defined benefit and get more employees into defined-benefit plans,” Pellissier said. So the fund “absolutely” is making an example of Loyalton to keep other cities from getting the wrong idea.

In the meantime, a reasonable negotiated settlement with Loyalton and other exiting agencies would quietly preserve the relatively small pensions of a handful of employees. However, it could also send the message to other cities and agencies that leaving CalPERS might be a doable alternative. Given its current union tilt, the pension fund certainly can’t allow that idea to gain traction.

Steven Greenhut is a contributing editor to the California Policy Center. He is Western region director for the R Street Institute. Write to him atsgreenhut.

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Has crime been getting worse in California since Jerry Brown was elected governor?

By Chris Nichols

http://www.politifact.com/california/statements/2017/aug/22/john-moorlach/has-crime-been-getting-worse-jerry-brown-was-elect/

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California State Sen. John Moorlach / Associated Press file photo

Republicans including California State Sen. John Moorlach have railed against Democratic Gov. Jerry Brown for signing a gas tax increase earlier this year.

The Orange County lawmaker took his criticism a step further in a recent op-ed in which he predicted the gas tax hike, combined with California’s cap-and-trade extension, would boost gas prices so much that thieves would start siphoning fuel from cars.

Moorlach went on to declare that crime has been on the rise under Brown.

“Crime has been getting worse since Jerry Brown was elected governor,” Moorlach wrote in the Aug. 4 piece in the Sacramento Bee. “The Bee reported, three-quarters of California’s largest cities saw violent crime rise in 2015, with Sacramento’s up 25 percent.”

We’ve fact-checked similar claims about increasing crime rates from other California lawmakers including State Sen. Jeff Stone of Riverside County and Assemblyman Travis Allen, an Orange County Republican running for governor.

There’s been some truth in those claims, but those who made them also ignored key context or distorted the facts.

We wondered how Moorlach’s statement, specifically the portion about crime getting worse since Brown was elected, stacked up.

California crime trends

Before diving into the senator’s claim, here’s some background on California crime trends.

Like the rest of the United States, California has experienced a dramatic long-term reduction in crime over the past several decades.

Between 1980 and 2015, the state’s overall crime rate declined by about 60 percent, according to the nonpartisan Legislative Analyst’s Office.

SOURCE: California Legislative Analyst’s Office.

The property crime rate peaked in California at nearly 7,000 crimes per 100,000 population in the early 1980s. Three decades later, it had dropped by more than half.

The violent crime rate saw a similar dramatic drop during this period.

Moorlach’s claim

In his op-ed, Moorlach focuses on crime “since Jerry Brown was elected governor.”

We took that to mean Brown’s current stretch as governor, which started with his election to a third term in 2010 and continued with re-election to a fourth term in 2014.

Brown served his first two terms as governor from 1975 to 1983.

For this current stretch, we looked at crime data from 2010 through 2016, the most current year available. We also considered the period 2010 through 2015 because Moorlach’s spokesman said the senator did not have had access to a California Department of Justice report on crime for 2016, given that it was released two weeks after his op-ed published.

No matter the exact years selected, California’s crime story during over the past half decade is not as simple as Moorlach’s statement implies.

The statewide crime rate, which measures both violent and property crimes, ticked up in 2012 and 2015. It decreased, however, in the other four years during Brown’s current stint.

This overall crime rate includes violent and property crimes. Violent crimes are homicides, rapes, robberies and aggravated assaults. Examples of property crimes include burglary, theft and vandalism.

Jonathan Peterson, a fiscal and policy analyst at the California Legislative Analyst’s Office, cautioned that year-over-year changes can make it look like crime is growing rapidly, “but it could be a blip.”

Peterson said the past six to seven years have been marked by fluctuations in California’s crime rate, not a steady increase or decrease.

Stanford Law School Professor John Donohue, who researches crime trends, said Moorlach’s claim might contain an element of truth but overall is flawed.

“One has to be very cautious about politicians making statements about crime because they will often try to make the numbers say something that isn’t quite representative,” said Donohue. “The broad trend for the last 25 years has been down and very benign. Crime is at a much lower level in practically every place today than it was 25 years ago. But in the last couple years there has been an uptick (in California and nationwide), and that’s a reason for concern.”

Deeper look at crime data

To fact-check Moorlach’s claim about crime getting worse, we examined statistics from the California Department of Justice’s recent report Crime in California 2016. It includes crime rate data from 1966 through 2016.

The data show that from 2010 through 2015, the most recent year from which Moorlach likely drew his conclusions, California’s overall crime rate declined slightly from 3,069 crimes per 100,000 population to 3,047 crimes per 100,000.

This casts doubt on Moorlach’s claim that crime has been getting worse.

Even when examining the violent crime rate alone, the results are mixed. In three of the years since Brown was elected, the violent crime rate notched up, while it dipped in the the other three years.

Had Moorlach narrowed his claim to 2011, Brown’s first year back as governor, through 2015, the crime story would be slightly different. California’s overall crime rate inched up between those years, from 3,007 crimes per 100,000 population to 3,047 per 100,000.

Moorlach’s response

Sen. Moorlach’s spokesman provided us with links to about a half-dozen news articles that detailed crime increases across California. None of the articles, however, showed a sustained increase from 2010 through 2016.

In his op-ed, Moorlach cited a spike in violent crime in 2015. He’s right for that single year for that type of crime: state justice department figures show an 8.4 percent rise in violent crime in 2015 compared with the prior year.

In recent months, politicians such as Assemblyman Allen have pointed to this period as evidence for growing crime concern in California.

Many have cited a PPIC analysis comparing the first half of 2014 to the same period in 2015. It found widespread increases in crime rates in California cities with a population greater than 100,000. Of the 66 California cities that size, 49 saw an increase in violent crime and 48 experienced increases in property crime. Many saw double digit percent increases.

A subsequent report comparing the first half of 2016 with the first half of 2015 showed overall crime decreasing, driven by a drop in property crimes. That report was published by the Center on Juvenile and Criminal Justice, a policy research group that makes recommendations on alternatives to incarceration.

Two weeks after Moorlach’s op-ed was published, the California Department of Justice released statewide crime statistics for 2016.

That report showed a slight decrease in the total crime rate, driven by a nearly 3 percent decline in the property crime rate. Violent crime, meanwhile, increased about 4 percent in 2016. We won’t use these statistics as a determining factor in our rating for Moorlach’s claim since his spokesman said the senator didn’t have the report.

The 2016 data, however, appear to support the idea that crime has not followed a consistent pattern in California over the past half dozen years.

Our rating

Republican State Sen. John Moorlach recently claimed “crime has been getting worse since Jerry Brown was elected governor.”

His spokesman pointed to news articles that cite an uptick in crime in 2015, when many large cities in California saw double-digit increases in violent crime. But neither those articles nor state crime reports show a sustained increase from the time of Brown was elected governor in 2010 through the current period.

In fact, there was a slight decrease in the state’s overall crime rate from 2010 through 2015, the most recent year Moorlach was likely referring to.

Crime researchers emphasized that California and the nation have experienced a dramatic decrease in crime in recent decades. They say California’s crime rate increases in 2012 and in 2015, however, are reason for concern but are not evidence that crime has gotten worse over the past half dozen years.

We rate Moorlach’s claim Mostly False.

MOSTLY FALSE – The statement contains some element of truth but ignores critical facts that would give a different impression.

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Refutation of Politifact Article

 

Politifact misrepresented Sen. John Moorlach’s Aug. 4, 2017 op-ed, and inadvertently affirmed the op-ed’s claims on crime rising under Gov. Jerry Brown.

  1. Misdirection.The body of the Politifactarticle is 1,269 words. Of that, 158 words are spent on crime statistics going way back to 1965.  Another 255 words are spent on statistics from the California Department of Justice report on crime for 2016 which was released on Aug. 17, 2017, almost two weeks after Sen. Moorlach’s Aug. 4, 2017 op-ed.

If a sentence or two had been used to refer to those two time periods, that would have been acceptable. But Politifact’s out-of-time-period  presentation, combined, comes to 403 words, or 33% of the total words of the article. It thus misdirects the reader from the actual period at hand, 2011, when Brown became governor again, to 2015, the last year for which data were available as of Aug. 4, 2017. (See below for the segments and their word tallies.)

  1. Politifact’s own statements. Let’s look at the other statements in the Politifact article. Direct quotes:
  2. “Stanford Law School Professor John Donohue, who researches crime trends, said Moorlach’s claim might contain an element of truth but overall is flawed.

“ ‘One has to be very cautious about politicians making statements about crime because they will often try to make the numbers say something that isn’t quite representative,’ said Donohue. ‘The broad trend for the last 25 years has been down and very benign. Crime is at a much lower level in practically every place today than it was 25 years ago. But in the last couple years there has been an uptick (in California and nationwide), and that’s a reason for concern.’”

Assuming the quote is correct, note: Donohue did not directly mention Moorlach’s name, but, within the quote marks, use a generality about “politicians,” plural. And here’s what Donohue said, within quotes, about the recent period in question: “But in the last couple years there has been an uptick (in California and nationwide), and that’s a reason for concern.”

  1. Politifact again: “Had Moorlach narrowed his claim to 2011, Brown’s first year back as governor, through 2015, the crime story would be slightly different. California’s overall crime rate inched up between those years, from 3,007 crimes per 100,000 population to 3,047 per 100,000.”

And that’s precisely – narrowly – the time period in question: 2011, Brown’s first year back as governor, and 2015, the last year available at the time the op-ed appeared. And crime went up.

  1. “In his op-ed, Moorlach cited a spike in violent crime in 2015. He’s right for that single year for that type of crime: state justice department figures show an 8.4 percent rise in violent crime in 2015 compared with the prior year.”
  2. “Many have cited a PPIC analysiscomparing the first half of 2014 to the same period in 2015. It found widespread increases in crime rates in California cities with a population greater than 100,000. Of the 66 California cities that size, 49 saw an increase in violent crime and 48 experienced increases in property crime. Many saw double digit percent increases.”
  3. Conclusion.Parsed correctly, the Politifact article in fact – or in Politifact– affirms what the op-ed claimed, “Crime has been getting worse since Jerry Brown was elected governor.”
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 This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District.

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MOORLACH UPDATE — 37th in the 37th — August 9, 2017

First, I would like to wish my lovely, wonderful and patient wife a happy 37th anniversary! Thank you, honey, for putting up with the public service sacrifices for more than half of our married bliss. You’re incredible.

Second, the LA Times had a great Sunday California section front-page piece on the city of Loyalton (see http://www.latimes.com/politics/la-pol-ca-loyalton-calpers-pension-problems-20170806-htmlstory.html).

This city’s efforts to escape from the CalPERS “lobster trap” was the genesis for my legislative effort in Senate Bill 681, which is now a two-year bill. On June 28th, a joint hearing was held with the Senate Public Employment and Retirement Committee, on which I sit, and the Assembly Committee on Public Employees, Retirement, and Social Security. The California Policy Centerpiece below links to this hearing.

The little fact that a State Legislator was actually trying to address this matter, what is known as the Terminated Agency Pool procedure at CalPERS for exiting municipalities, was not addressed in the article. But, the California Policy Center’s Steven Greenhut realized it and provides his coverage in the first piece below.

Since this was missing from the LA Times article, I decided to let them know through a Letter to the Editor submission, with links to various segments of the hearing. Here’s what you may see in one of its upcoming editions:

Re “A tiny town’s massive pension trouble” Aug. 6: http://www.latimes.com/politics/la-pol-ca-loyalton-calpers-pension-problems-20170806-htmlstory.html

Your article ably reported on the problem the small city of Loyalton is facing with its unfortunate and expensive withdrawal from CalPERS. But, CalPERS created the problem some 40 years ago and Loyalton is the tip of the spear in reacting to the implications of this tightening fiscal straightjacket. The current procedure of withdrawing from CalPERS is in dire need of reform.

I authored a solution to help fiscally strapped municipalities get out of this “lobster trap,” as I called it during a recent joint hearing.

.

John Moorlach,

Costa Mesa

The writer is the Republican state senator for the 37th district

Third, Steven Greenhut is on a roll. In the second piece below he discusses the results of SB 185 that were prophesied in the same publication that he writes for today, CalWatchDog (see MOORLACH UPDATE — SB 185 — November 6, 2015 november 6, 2015 john moorlach). If you choose not to go to the link, let me at least give you the headline: “California pension systems stand to lose millions by divesting from coal.” Spot on. Again. When will the monopoly party learn? This piece may provide a hint as to why many cities want to exit CalPERS.

BONUS: The summer evening BBQ and Taco Bar fund raiser at the home of Scott and Wendy Baugh tomorrow evening is almost at capacity. This is going to be a fun party. Thanks to those who have RSVP’d and to those who are making generous contributions, even though your summer schedules prevent you from attending. I am most grateful

There is still a little bit of backyard space available and I would love to see you there! For more information, contact Scott@MoorlachforSenate.com or go to MOORLACH CAMPAIGN UPDATE — BBQ Invitation — July 22, 2017 july 22, 2017 john moorlach. My thanks to Cox Communications for being our corporate sponsor.

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Same old story as Loyalton’s woes echo growing pension crisis

By Steven Greenhut

http://californiapolicycenter.org/old-story-loyaltons-woes-echo-growing-pension-crisis/

The tiny Sierra Nevada mountain town of Loyalton, Calif.—population: 862—has become the poster child for cities that want to check out of the California Public Employee’s Retirement System, but can’t swallow the insurmountable cost of leaving. Loyalton’s oft-repeated tale appeared again this week, on Sunday in the Los Angeles Times.

All the familiar characters are there, in the Times story. There’s CalPERS demanding far more money than the city spends on its entire annual budget. There are cash-strapped city officials struggling to make ends meet (even though their spending priorities were criticized by a 2014 grand-jury report). And there are retirees looking to get by on 40 percent of their promised pensions.

The only thing missing is a solution.

Sen. John Moorlach, R-Costa Mesa, has proposed a serious solution in the state Capitol, but the legislation has a ballpark-zero chance of passage given the power of union-allied Democrats. His Senate Bill 681 would allow an agency to “terminate its contract with CalPERS in a manner that does not result in excessive costs or penalties” while ensuring that the agency is responsible for the full costs of its employees without shifting them onto other CalPERS participants.

Though it would seem fair – and would better protect promised benefits in Loyalton and other agencies facing a similar situation – the measure is opposed by several unions. They know that once an agency has exited the system, CalPERS cannot collect anything from it in the future. That’s why CalPERS’ current approach reminds Moorlach of the lyrics from the Eagles’ song, Hotel California: “You can check out any time you like, but you can never leave.”

In 2013, the Loyalton City Council voted to end its contract with the California Public Employees’ Retirement System, the $300 billion behemoth that manages pensions for the city’s four retirees and single full-time employee. Loyalton “voted to pull out of CalPERS when its last pension-eligible employee retired,” according to the recent Times article, “deciding the monthly payments were too steep for a town that for years flirted with insolvency.”

But CalPERS wasn’t about to let the city go. In June 2014, it handed Loyalton a bill for a $1.66 million “termination” fee. Given its small $1 million annual budget, Loyalton couldn’t come up with the funds. The result was every public employee’s nightmare: Beginning last November, retirees had their modest pension checks cut by 60 percent. Some other small agencies that left the CalPERS system are looking at major cuts in retiree benefits, too.

The fund, whose sole purpose is to protect the retirement benefits of California public employees, was remarkably cold-hearted about the situation. “As a board, we have a fiduciary responsibility to keep CalPERS Fund on secure footing, and as part of this duty we must ensure that employers adhere to the contracts they agreed to,” CalPERS wrote in a November statement.

Certainly, contracts need to be honored, but there’s something seedy about the way the system is designed. During a recent legislative hearing, Moorlachfocused on the most relevant point: “When you want to exit, they use a whole different discount rate … It could be like 2 percent.” That’s a shocking revelation, although it needs some explanation.

The predicted rate of return on CalPERS’ investments determines the size of the system’s unfunded liabilities – i.e., the shortfalls to meet promises made to California public employees. CalPERS expects to earn 7 percent(recently lowered from 7.5 percent) on those investments. The higher the predicted return, the better the financial shape of the system.

Public employees are promised a pension based on a formula (the number of years worked multiplied by a percentage of the final years’ salary) and taxpayers are responsible for any shortfalls. So the pension fund, and the unions and politicians, have a vested interest in keeping the earnings assumptions as high as possible to downplay any predicted shortfalls.

Moorlach revealed a dirty little secret. The agency is bullish about the stock market when the public’s money is at risk, figuring that 7 percent is a fair rate to expect. But when cities want to exit the fund, CalPERS becomes shockingly conservative, given that its own money is on the line. It then assumes a miniscule rate of return. CalPERS assesses those high termination fees to make up the difference between its overall fund and the special fund for terminated agencies, which can no longer depend on taxpayers to make up for future downturns.

As that Times article noted, the federal judge handling the Stockton bankruptcy case “called the fee a ‘golden handcuff’ and ‘poison pill’ that prevents cities and other local governments from leaving CalPERS to find other options for employee pension benefits.” When the fund tried to assess a $1.6 billion fee on Stockton, that city stayed in CalPERS and didn’t reduce pensions for current employees and retirees. Those current and former employees still enjoy lush deals, even as the city raised taxes.

Ironically, CalPERS’ defenders criticized a 2011 Stanford study that projected a 4.1 percent rate of return as realistic, yet the fund’s handling of the Loyalton exit is a tacit acknowledgment that the system’s expected returns are unrealistically high and that pension debts are far larger than the state will acknowledge.

Meanwhile, CalPERS maintains big surpluses in the special fund for those agencies that terminated their accounts — $111 million, according to the Times. CalPERS apparently has thrown a handful of low-earning, small-town public employees under the bus to make an example for other agencies and protect the inordinately high earnings of many public employees, especially those in the public-safety and management professions.

Former San Jose Mayor Chuck Reed, a Democrat who had placed a pension-reform measure on that city’s 2012 ballot (it passed with 70 percent support, but was gutted by the courts), has described the Loyalton situation as a “wake-up call” for underfunded pension systems. “Failure to fund pension obligations as they are incurred makes retirement security impossible,” he wrote in the San Diego Union-Tribune in December.

For now, these retirement-security issues fall heaviest on some small agencies with the audacity to try to leave the nation’s largest state pension fund. Presumably, public employees and retirees in agencies deemed “too big to fail” can continue to sleep without fear. But it reminds one of another line from Hotel California: “Up ahead in the distance, I saw a shimmering light.” How long will it be before Loyalton’s problems afflict bigger California cities?

Steven Greenhut is a contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut.

CalWatchdog.com

CalPERS’ divestment goals in crosshairs as coal stocks soar

by Steven Greenhut

http://calwatchdog.com/2017/08/09/calpers-divestment-goals-crosshairs-coal-stocks-soar/

SACRAMENTO – A newly released report from the California Public Employees’ Retirement System confirms that, fulfilling the Legislature’s directive to divest from coal-related investments, the pension fund has now largely exited from coal stocks. But as news reports this week suggest, this “socially responsible” investment policy has come at a price, as coal stocks soar under the Trump administration’s fossil-fuel-oriented energy policy.

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The Public Divestiture of Thermal Coal Companies Act of 2015 required CalPERS to “identify, engage and potentially divest from companies meeting the definition of ‘thermal coal companies.’” The pension fund was directed to do so “consistent with its fiduciary responsibilities,” providing some wiggle room for the fund, whose primary duty is to maximize investment returns to make good on its public-employee pension obligations.

Nevertheless, CalPERS promptly identified two dozen publicly traded companies that generate at least 50 percent of their revenue from mining thermal coal, as required by the law. As the recent report explains, three companies adapted their business model and redirected their investments toward clean energy. As such, they were exempt from divestment. CalPERS had no holding in eight other companies identified under the act.

But 14 companies “failed to indicate applicable business plan adaptations, or failed to respond to CalPERS engagement efforts and were subject to divestment,” according to the report. As the Sacramento Bee explained, “stocks for 13 of the 14 companies are worth more than they were a year ago when the pension fund was divesting from the industry.” The shares of one of those firms were trading at 15 times their April 2016 levels.

There’s little question that the act was designed to achieve a social goal, rather than one related to increasing CalPERS’ investment returns. “Coal combustion for energy generation is the single leading cause of the pollution that causes global climate change,” said the bill’s author, Sen. Kevin de Leon, D-Los Angeles, as quoted in the Senate bill analysis. He added that coal is “a leading cause of smog, acid rain, and toxic air pollution” and that “most U.S. coal plants have not installed these technologies.”

CalPERS’ investment staff tends to oppose socially oriented investments, but the CalPERS board has the final say. The issue was debated at the CalPERS Board of Administration meeting in May. The Sacramento Bee reported on union officials who criticized the policy at the board meeting. “We cannot afford to lose funding for law enforcement officers in exchange for a socially responsible investment policy,” said Jim Auck, treasurer of the Corona Police Officers Association.

This isn’t the first time that there’s been tension between the fund’s politically oriented investment goals and its desire to increase investment returns. At a board meeting last year, CalPERS investment officials argued for an end to a 16-year ban on tobacco-related investments made by the system’s own investment officers. (Tobacco investments by outside firms were still allowed.) Because tobacco stocks had rebounded since 2000, news reports estimated that the pension fund had lost about $3 billion because of that decision. The fund’s total investments are valued at more than $300 billion.

Instead of following the investment team’s advice, the CalPERS board continued to ban tobacco investments and also decided to divest about $547 million in tobacco-related investments handled by outside firms. That decision also was based on social goals. Advocates for tobacco divestment argued that CalPERS ought not invest in firms that sell deadly products.

At the time, the tobacco-divestment decision was particularly controversial because CalPERS faced investment returns of a measly 0.61 percent. Now, with CalPERS’ latest returns showing a robust 11.2 percent gain, it makes continuing with the coal divestment plan – and other socially oriented investment strategies – an easier option to pursue.

Regarding coal, CalPERS isn’t the only state agency to pursue divestment. Last summer, California Insurance Commissioner Dave Jones launched his Climate Risk Carbon Initiative, which called for any insurance companies that do business in California to divest “voluntarily” from most of their thermal-coal investments. The state vowed to publicize the names of companies that didn’t comply and ramped up mandatory reporting requirements.

Insurance commissioners regulate insurers to assure they have the resources to pay any claims. Yet the department’s divestment request clearly had a social (and some say political) goal. Jones justified it by arguing that such investments put the companies at risk. “As utilities decrease their use of coal and other carbon fuel sources … investments in coal and the carbon economy run the risk of becoming a stranded asset of diminishing value,” he said in a statement.

But critics of the policy, including a 2016 study by this writer, note that insurers are invested in extremely conservative positions, mostly in fixed-income bonds, and that even the insurer with the largest percentage of coal-related investments (TIAA-CREF) had only 1.76 percent of its total assets in such holdings. Furthermore, the value of the stocks already reflects the well-known uncertainties that the insurance commissioner raised. Jones’ office argued, in response, that “since 2011, coal prices, cash flows, and company valuations have fallen sharply thus adversely affecting and bankrupting numerous coal companies.”

The broad question, especially for CalPERS, is the one raised by the union officials at the recent board meeting: Are the political and social gains of divesting from these industries worth the costs in investment returns?

Chief investment officers “invest for value and don’t appreciate being hamstrung by legislators who don’t know how to manage a diversified portfolio,” said Sen. John Moorlach, R-Costa Mesa, who voted against Sen. de Leon’s divestment act. “I think I’m the only legislator who managed a $7 billion portfolio. And the studies I’ve seen have shown that social investing has produced lower returns.”

Despite the recent good-news returns, CalPERS has an enormous amount of unfunded liabilities – the shortfall in assets to make good on all the long-term pension promises made to government employees. The system is only funded at around 68 percent. This should be of concern not only to the agency, the Legislature and public employees who depend on a CalPERS retirement, but to California taxpayers. Ultimately, they are the ones who will pay for any pension shortfalls.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut.

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This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District.

If you no longer wish to subscribe, just let me know by responding with a request to do so.

Follow me on Facebook & Twitter @SenatorMoorlach.