SES Foundation

Are your leaders "Living In Denial"?

Rhonda L. Rundle From the WSJ Dec 18 2008... Pacific Grove CA is cheating bankruptcy thanks to poor management of their employee pension plans.

Mrs. Rundle from the WSJ reports that "Dan Davis, a former city councilman who has crunched the numbers for Pacific Grove says that other municipalities "are trying to live in denial."

Is there anyone at the negotiating table for the taxpayer?

Sounds Like Grass Valley- Different Numbers/Same Game

Michael McDaniel Dec 2008

Sutter County was one of the first "local" communities to acknowledge the unfunded liability crisis at the proverbial door.  Pat Miller reports (HERE)  "In just six years, from June 2001 to June 2007, Sutter County went from $28.8 million in the black to $44.8 million in the red — a minus $73.6 million. The increase in costs can be attributed to two factors: 1) decreases in CalPERS investment returns and 2) the 2004 formula increase from 2 percent at 55 to 2.7 percent at 55 passed by the Sutter County Board of Supervisors without a financial analysis and without public discussion."  

The same 2 factors have crushed the health of the Grass Valley's financial position. Local Communities across the country could learn from the Sutter County Taxpayers Association suggestions (below):

"Sutter County Taxpayers Association recommends:

1. Change the formula for new employees to 2 percent at age 60+ or aligned with Social Security retirement.

2. Base retirement pay on the more typical three-year average instead of the current last year salary. People are living longer, are healthier and many routinely choose to work into their 70s.

3. Have employees pay their 8 percent or 9 percent share. State employees pay a share into their retirement accounts, the vast majority of the private sector pay into their own retirement; county employees should too.

4. Require a vote of the people for any county pension increases. Orange County voters just passed a local measure with a 75 percent majority to require that any increase in county pensions first has to have an actuarial report of expected future costs and be approved by the voters.

Please contact your county supervisors and urge them to act now to address the problem before the county ends up cutting essential services to pay these padded pensions that are absolutely unheard of in the private sector, and that drain the pocketbooks of Sutter's citizens."

Who will bailout our local employee pension plans?

Michael McDaniel November 25th 2008

Bailouts have dominated the headlines of 2008.    Recently released CalPERS information strongly suggests that the “bailout era” is just getting warmed up. Employees of Nevada County, Grass Valley and Nevada City all participate in a dinosaur Defined Benefit Pension Plan that is dangerously underfunded.

Unfunded liabilities for Nevada County rose 17% and Grass Valley’s increased 23.75% as noted in the recently released CalPERS Annual Valuation Report (from June 2006 to June 2007).   The scariest fact is that the unfunded liabilities reported are as of June 2007; before the recent market crash.  In case you have been hiding under a rock real estate, stocks and portions of the bonds markets have crashed since June 2007.  Folks, the bailout will ultimately come at the expense of public employees or tax payers.

• Nevada County Retirement Unfunded Liabilities (June 2007 SIDE FUND) = $56,334,707

• Grass Valley Retirement Unfunded Liabilities (June 2007 SIDE FUND) = $3,207,085

The problem lies in the outdated defined benefit pension plans currently offered to public servants. In a defined benefit pension plan the employer promises each employee an income stream at retirement based on the number of years worked and the highest annual wage earned.  Each agency is instructed by CalPERS to set aside a certain amount of money annually to insure that enough money will be available upon the public servants retirement. Instead of setting aside a dollar today for a dollar promised tomorrow, agencies set aside less and hope that CalPERS can invest the money for a net annual return of 7.75%.  CalPERS invests the pension funds primarily in stocks, bonds and real estate in hopes of attaining an annual return of 7.75%. 

 How did we get here? The current crisis is created primarily by two factors.  First, pay raises in the form of salary increases or plan improvements to public employees add considerable expenses to the pension plans.   Second, poor market conditions that do not allow CalPERS to earn a net after expense annual rate of return of 7.75% crush pension plans. Nevada County, Grass Valley and Nevada City pension plans have been hurt by both of these factors.

The private sector has overwhelmingly flocked towards defined contribution plans like 401ks to protect themselves and employees from the assumptions and lack of accountability inherent in defined benefit pension plans.   

 What are some possible solutions?

• The voters of Orange County voted overwhelmingly (75% voted in favor of the proposition) to take the power to provide lucrative pension pay raises to public employees out of the hands of future board of supervisors.  From here on out the taxpayers will decide if the public employees should be awarded pension plan increases.

• Updating retirement packages for new hires to a 401k style program.

• Longer probation periods before employees become eligible (Kentucky)

• Raising retirement age (Rhode Island)

•  Using a lower assumed rate of return (currently a net after expense of 7.75% annually)

• At least five states—including Ohio, Washington and Oregon—offer hybrid pension plans that combine elements of both defined benefit and defined contribution plans.

 

 

Step in the Right Direction

Michael McDaniel November 2008

Orange County Taxpayers Vote to Help Curb Future Pay Raises

Kudos to Jon Ortiz of the Sacramento Bee for covering the successful protest of Orange County taxpayers who recently voted to make all future pension plan raises to public employees subject to voter approval.  The voters of Orange County voted overwhelmingly (75% voted in favor of the proposition) to take the power to provide lucrative pension pay raises to public employees out of the hands of future board of supervisors.  From here on out the taxpayers will decide if the public employees should be awarded pension plan increases. 

It is noteworthy to mention that Orange County Board of Supervisor's themselves were in favor of the proposition.

It is expected that this vote will provide the push needed for other communities to use similar solutions to the current unfunded liability crisis across the country.

What Does the Market Madness Mean for Pension Plans; Taxpayers?

Michael McDaniel Oct 2008

Girard Miller documents the deepening crisis with tax payer funded defined benefit pension plans.  What do horrible real estate, stock, corporate bond,and commodity markets mean for taxpayer funded defined benefit pension plans? 

FULL TEXT HERE

"Here's the ugly aftershock math: The average public pension plan was roughly 85 percent funded before this bear market in stocks got underway last October. Since then, equity market indexes have declined almost 35 percent on average through Monday's 900-point Dow rally. Stocks and other related forms of equity represented over 60 percent of most larger plans' asset allocations, so if the other asset classes offset each other (bond gains offsetting recent commodity declines, for example), the average decline in total investment value is probably 20 to 25 percent of the overall portfolio. In addition, the major public pension funds had assumed that investment returns would average 8 percent rather than actually losing money, so the actuarial shortfall is probably closer to 28 to 33 percent of the investment portfolio. Given that plans were 85 percent funded, this represents a roughly 25 percent decline in the average plan's funding ratio to a new level around 65 percent, marked to market."

Who can save these mis-managed "dinosaur plans?"  You guessed it, Mr. and Mrs. tax payer.

Anatomy of a Murder

Michael McDaniel Sept 2008

Will your "leaders" simply shrug or will they learn from the crash of Vallejo?

Kudos to The Sacramento Bee for continuing coverage of the Vallejo California financial crisis (HERE). 

Analogy: It is not enough to drive by a terrible auto accident and simply shrug.  It may be wise to reduce your speed and check your seatbelt.  The financial crash that has unfolded in Vallejo could be the wake up call to municipalities across the USA to do more than just shrug. 

Check out his excerpt from George F. Wills article,"Its [Vallejo] crisis – a cash flow insufficient to cover contractual obligations – came about because (to use figures from the 2007 fiscal year) each of the 100 firefighters paid $230 a month in union dues and each of the 140 police officers paid $254 a month, giving their respective unions enormous sums to purchase a compliant City Council."

It continues, "So a police captain receives $306,000 a year in pay and benefits, a police lieutenant receives $247,644, and the average for firefighters – 21 of them earn more than $200,000, including overtime – is $171,000. Furthermore, police and firefighters can store up unused vacation and leave time over their careers and walk away, as one of the more than 20 who recently retired did, with a $370,000 check. Last year, 292 city employees made more than $100,000.

And after just five years, all police and firefighters are guaranteed lifetime health benefits."

Will your "leaders" simply shrug or will they learn from the crash of Vallejo?

Dinasaur Defined Benefit Pensions = higher taxes

Michael McDaniel Aug 26th 2008

New City Manager of Springfield Missouri Cries Uncle After Pension Review

Wes Johnson of News-Leader.com reports the ills facing Springfield Missouri's pension "New City Manager Greg Burris isn’t ready to recommend a solution to the city’s police-fire pension fund. But after listening to a nearly hour-long Powerpoint presentation on the topic this afternoon, he did make some observations. “The public needs to know we can’t invest our way out of the problem and we can’t cut our way out,” Burris said of the shortfall in the pension fund, which already totals $140 million and will only get worse without a sizeable infusion of money."

Springfield's name can be added to the list of municipalities burdened by "dinosaur" defined benefit pension plans.  The only viable option for them now appears to be raising taxes; again.

See http://www.pensiontsunami.com/ for continuing coverage.

Score a Point for Nevada County Taxpayers

BOS Prove Fiscally Conservative

Michael McDaniel August 20 2008

Nevada County has made improvements to their health care unfunded liability problem. Two Nevada County BOS's have confirmed that as of July 1 2008 new hires are not to be given retiree health care benefits at the expense of Nevada County taxpayers.  This amendment to Nevada County's employee benefit package will provide considerable savings to taxpayers down the road (assuming future BOS's don't re-amend this positive change). 

Please join me in thanking the current board on a job well done.  This is a big step in the right direction.

Let The Tax Payers Vote

Michael McDaniel
July 30 2008

Many thanks to Jack Dean of FACT.  Jack spoke yesterday morning to the Orange County BOS to strongly suggest that the OC BOS put a proposition on the ballet this November that would require the county to get tax payer approval before dishing out pension benefit increases.

The LA Times reports,"Orange County supervisors voted unanimously Tuesday to place a measure on the November ballot letting voters decide if future pension increases for county government workers should be put to a public vote. If approved by voters as part of the Nov. 4 general election ballot, the measure would amend the county's charter to require that retirement benefit increases for county workers be approved by a majority of voters, with a study of the benefits' cost published in ballot pamphlets."

Jack Dean's comments can be reviewed HERE. 

To quote Mr. Dean,"I was motivated to launch the Pension Tsunami website four years ago in 2004 shortly after that Board of Supervisors voted to change Orange County’s pension formula, thereby giving employees an outrageous 62% increase in their pensions.A year earlier -in 2003 - the Orange County Grand Jury had addressed the escalating costs of public employee pensions and benefits in a report it issued titled, “Who Represents Orange County Taxpayers?” By their vote in 2004, it was apparent that the Supervisors then in office DID NOT."

Government Agency Salaries and Benefits

Michael McDaniel June 2008

I received an email from an unhappy reader.  To quote, "Mr. McDaniel you have it all wrong.  The cost to taxpayers for county employees has gone down.  The County has less people working their today than they did last year at this time..."

It has been noted that the county has become far more efficient this year than last, fewer employees while keeping all the same services to tax payers. However, to assume that the cost for employees has gone down is dead wrong.  Let's check the facts.  In the counties own 1999/2000 budget their was an expense of $40,248,212 for "Salaries and Benefits."  In the most recent budget released (2007/2008) the amount has soared to $78,152,769, an increase of 94%! Just last year that expense column was $75,502,470.  Which means the salary and benefits column increased by 4% even though their were fewer employees employed.