Posts Tagged ‘pension reform’

Daily Fix, Dec 30

December 30, 2010

The #snowpocalypse finally came to Utah. Slide-offs, crashes, road closures, jack-knifed semis – this one had it all. Be safe out there. Fox 13

*Curious about the seating chart for the Utah Senate? Ric Cantrell breaks it down, with some amusing commentary. Senate Site

*Governor Herbert will be sworn in on Monday, January 3rd at noon at the Utah Capitol. The public is invited and there is no charge to attend, but seating is first-come, first-served. Governor’s site

*Jay Evenson of the Deseret News makes his political predictions for 2011. One of them? That this is the year that “the economic crisis will grab hold of state governments with a vengeance… This is the year that pension shortfalls hit home and the gaps between revenue and expenditures begin to defy quick-fix solutions. Washington won’t be there to bail them out this time.” Deseret News

*Congressman Rob Bishop becomes Chair of the committee that oversees public lands, national parks and forests. Bishop has been an outspoken advocate for responsible land use and an outspoken critic of the current administration’s public land-use policies. SL Trib

*Senator Ben McAdams is tired of kids dying in hot cars – as we all are – and is introducing legislation that will give law enforcement officers and prosecutors wider latitude in charging the adult(s) responsible. SL Trib

*Former Senate candidate Christine O’Donnell is under investigation for alleged misuse of campaign funds. Not much chance of this staying under the radar. She might be wishing for some magical powers right about now. The Hill

*Speaking of the Senate, when everyone is sworn in on Jan 5th, only 28 Senators will have served more than one full term. That’s pretty amazing, since the Senate has the reputation of being the place you go to die. It appears there is far more turn-over than we give them credit for. The Hill

*And if none of that interests you, just be grateful you are not sharing the road with the the woman who took the driver’s test 960 times before finally getting a license…..

Pension Reform And Why It Matters

October 21, 2010

By guest blogger, John Cheshire

Back in February our State Legislature took on the difficult, but pressing, issue of pension reform.  They attacked the issue head-on and made some dramatic changes to the state URS or Utah Retirement System.  Senate Bills 43 and 63, which were based on recommendations proposed by Sen. Dan Liljenquist of Bountiful, passed through both chambers in February and signed into law by the Governor in March of this year.  Senate Bill 43 did away with the practice of “double dipping”  while Senate Bill 63 replaces the defined benefits pension for state employees hired after July 1st, 2011.  While they were tweaked here and there through the process, for better and worse, they represent a huge step in the right direction.

So why am I bringing this up now?  Well, because the consequences of inaction are springing forth all over the place recently.  Not just with our sister states and local municipalities nationwide, but globally in places like France and Greece where public sector employees have taken to the streets to riot in protest of proposed pension reforms. 

One of our states in big trouble is California, whose debt has tripled in the last seven years and they are paying 5.5 billion a year in interest payments alone.   As of May they had a 20 billion dollar budget gap that does not even take into account nearly the 200 billion in loans and other unstated debt.  They currently have half a trillion dollars in unfunded pension liabilities.  In other words, California has stepped in it big time.

I know what your thinking; how did clear thinking adults let it get so bad?  Why didn’t they see the writing on the wall years ago?  To answer these questions one must resist the partisan desire to just blame democrats.  It won’t stick because it just ain’t true.  Period.  RINO’s beholden to public sector unions had a lot to do with it as well.  In other words, they weren’t clear thinking adults after all. 

For starter California simply allowed compensation and pensions to soar out of control.  A quick search of the salaries of the CA  Highway Patrol shows us that there are almost 500 employees making 150k or more per year.  What I found most troubling is that many of these salary figures jumped dramatically from 2008 to 2009 (the report shows salary figures from 2007 through 2009) and in some cases salaries more than doubled.  This is due to pension spiking whereby public sector employees grant themselves hugeraises in the years leading up to retirement so they get larger pension payouts.  Payouts which they wouldn’t get without the huge raises.  It’s a good example of the principle-agent problem.

From Wikipedia;

In the case of pension spiking the general public (the principal) elects officials to hire the bureaucrat who then hires the public servants, who are the ultimate agents of the general public. Thus, the principal is three steps removed from the bureaucrat. In the case of pension spiking, the public has allowed a pension system to be created which is based on the compensation in the last year of service and delegated the setting of this cost to the bureaucrat.  The bureaucrat, who will often himself or herself benefit from a spiked pension or the same laws permitting pension spiking, fails to stop the practice, a clear conflict of interest.

[emphasis mine]

No better example can be found then Bell City California.  The public (the principle) simply had no idea because the people they elected are looking the other way.  Why?  Because that is what the unions pay them to do in the form of campaign contributions.

So be thankful that we have strong leadership here in Utah who is looking out for you, the principle, while doing their level best to be fair to the agent. 

And that’s why pension reform matters.  It’s why it is important for us to know which one of our choices in every election cycle is beholden to a public sector union.

This also helps illustrate why Jerry Brown will not take his fiduciary responsibilities very seriously if he wins November 2nd.   If this “time bomb” known as California is allowed to keep ticking it will affect every US taxpayer and very likely have a global impact.

Here’s what leadership looks like

September 13, 2010

Governor Christie of New Jersey is getting quite a reputation as a “fiscal hawk”. He held a town hall recently and had the following confrontation. He stays quite calm as he talks about the financial realities – and living with union leaders who pray for his death. There’s a nice touch.

California’s pension cliff

August 30, 2010

Governor Arnold Schwarzenegger penned an op-ed for the Wall Street Journal last week that lays out the stark reality of California’s budget crisis. Bluntly stated, without significant public pension reform, the state budget is shot all to heck – leading to its inevitable demise.  “Here’s the plain truth,” says Schwarzenegger. “California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.”

Right now, 80 cents out of every government dollar is being spent on public employee compensation and benefits. The costs over the last decade rose THREE TIMES faster than revenues. There must be trade-offs, so on the chopping block has been higher ed, state parks and even one of California’s sacred cows – environmental protection.

It gets worse. According to the governor, “much bigger increases in employee costs are on the horizon.” He continues:

Thanks to huge unfunded pension and retirement health-care promises granted by past governments, and also to deceptive pension-fund accounting that understated liabilities and overstated future investment returns, California is now saddled with $550 billion of retirement debt.

The cost of servicing that debt has grown at a rate of more than 15% annually over the last decade. This year, retirement benefits—more than $6 billion—will exceed what the state is spending on higher education. Next year, retirement costs will rise another 15%. In fact, they are destined to grow so much faster than state revenues that they threaten to suck up the money for every other program in the state budget.

Over the last TWO years, the private sector has seen the loss of almost 1.2 MILLION jobs in California. The public sector? Virtually none. 401K’s have declined 20% nationally since 2007. Public sector? Up in value, to the point that in California public employees who retire at age 55 can look forward to a million bucks for their retirement.

Before he signs a state budget, Governor Schwarzenegger insists that the Democrat-controlled California assembly:
#1: Reverse the massive and RETROACTIVE increase in pension formulas enacted 11 years ago.
#2: Prohibit “spiking” – the practice of giving someone a big raise in his last year of work so his pension is boosted.
#3: Require public pension funds to make truthful financial disclosures to the public.
#4: Require public pension funds to use REALISTIC projected rates of return.
#5: End the “annuity give-away” they passed in 2003.
#6: Require employees to up their contributions.
#7: End the immoral practice of pension fund board members accepting gifts or even campaign contributions from lobbyists, salesmen, unions and other special interests.
#8: Establish a rainy day fund.

So far, his demands are falling on deaf ears. The Washington Examiner published a piece two days before the Guv’s op-ed titled “California rejects even modest pension reform.” In fact, recent California legislation allows government employees to PAD their pensions during their last year on the job. “We should be taking away the candy, not adding more,” Marcia Fritz of the California Foundation for Fiscal Responsibility complained to the Los Angeles Times.

There is one state, though, that has addressed the pension black hole. Any guesses? Yep – it’s Utah. In March, the state legislature became the first in the nation to pass a major overhaul of the state’s defined benefit pension system after it lost 30 percent of its assets ($4 billion) in the stock market. All current employees are “held harmless” and will continue in the current system. All new workers hired after July 1, 2011 can choose to enroll in either a 401(k) or a hybrid pension system that caps state contributions at 10 percent of employees’ salaries – no matter what the stock market does.

I admit – this one flew under my radar during the last session. I went to a couple of committee meetings where it was discussed and heard blah, blah, blah, actuarial tables, blah, blah. I did understand Representative John Dougall who said something like this on the House floor: “Without these changes, pensions blow a HUGE hole in the state budget and we go bankrupt.” (Dougall didn’t think Utah’s changes went far enough, by the way.)

According to the Washington Examiner,

Utah state Senator Dan Liljenquist, who sponsored the legislation, said it was the only way to honor current pension commitments and also keep unfunded pension liabilities from bankrupting his state.

Other states have tried increasing retirement age, scaling back retiree benefits, freezing cost of living increases and requiring employees to start contributing to their pension plans, but hybrid plans like Utah’s are increasingly viewed as the best way to keep government promises to current employees while scaling them back to sustainable levels for future workers.

We’ve completely eliminated the pension-related bankruptcy risk. This is exactly what California needs to do,” Liljenquist told The Examiner, adding that all the public unions in Utah were initially opposed to the idea. “But they eventually realized that we preserved benefits for current employees, and if we go bankrupt, all pensioners will be out of luck.”

Contrast that with California’s irrational ability to make even minor adjustments to its unsustainable pension system, virtually guaranteeing its own demise.

I still don’t fully understand all the ins and outs of pension systems – but I do recognize a broken, unsustainable system when I see one. I don’t buy for one second the line that “California is too big to fail” (nor do the companies leaving CA and flocking to Utah, apparently). I wish Governor Schwarzenegger luck in pulling his state back from the brink.

State budgets without pension reform

August 27, 2010

Got it? Good.


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