The pension issue is one of the most important topics regarding the financial health of our state, our cities, and NOW our school districts.
California Teachers Pension Fund Will Seek Taxpayer Rate Boost
"Oct. 7 (Bloomberg) -- The California State Teachers’ Retirement System, the second-largest U.S. public pension, said now is the best time to ask lawmakers for an increase in taxpayer contributions toward employee pension benefits.
Calstrs, as the $146.6 billion fund is known, wants to include the step in a pension proposal Governor Jerry Brown has said he plans to roll out as early as this month, said Jack Ehnes, the system’s chief executive officer. The increase would be the first in 21 years and may be as much as 14 percent (not a 14% increase but an additional 14% of payroll or an additional 14k per 100k of payroll), though that likely would be phased in over years, he said.
The pension’s unfunded liability, or what it will owe compared with projected assets, has more than doubled since 2008 to $56 billion, in part because of investment losses (and in part from BAD policy). That’s something that state Auditor Elaine Howle has said is a “high- risk issue” since California is on the hook for the difference (taxpayers).”
““We think we’re at the right moment where it’s time to move on the funding strategy politically,” Ehnes said yesterday at a board meeting in Huntington Beach. “We’re going to see where we come out on this. There may be competing priorities, educational and otherwise.”
Yes, there may be competing priorities Mr. Ehnes. The timing of the CalSTRS pension funding proposal is politically driven when it really should be fiscally driven, driven by sound accounting practices, or even a suspension of the teacher’s union/CalSTRS side agreement to redirect 25% of their contribution to a side benefit fund. Instead, the CalSTRS board has deferred making the request for increased funding, for several years, for fear it would adversely impact teacher union negotiations. CalSTRS, CalPERS, and union employee groups were hoping to extend contracts for a few years with the expectation that the recession would subside, the taxpayers would lose interest in their desire for pension reform, and markets would rebound to the point it would be business as usual. The markets haven’t rebounded, the PUBLIC employee unions haven’t conceded anything during the great recession (they have received raises - while private sector unions in the building trades are experiencing 40% + unemployment), and the Public Employee Union pension funds are claiming there isn’t a problem. Unfortunately for the union controlled boards their actuaries, and more importantly their independent actuaries, are claiming the 7.75% rate of return is unrealistic in the present environment.
CalSTRS claims the increased 14% of payroll will likely be “Phased in”. What that really means is the increased “phased in” cost won’t even cover the 7.75% interest expense for several years. In other words the taxpayer cost/funding will increase substantially and so will the unfunded liability, because CalSTRS will imbed the equivalent of a negative amortization loan into their payment structure (the same thing CalPERS has done).
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The pension funds unfunded liability has MORE than doubled since 2008, to 56 BILLION dollars? Think about that in relation to our city, county and state budgets. Since 2008 the unfunded liability has risen from less than 28 BILLION to 56 BILLION dollars, as of June 30, 2011 (four years), even though the CalSTRS board has boasted about double-digit returns in the fiscal years ending June 30, 2010 & 2011. Based on dismal first quarter returns (beginning July 1, 2011) that are down 10% on average in the first 90 days of the fiscal year, the taxpayer- state-county-school districts problem is accelerating rapidly.
ADD up the under funded pension liability of all the above mentioned pensions plans that include all public employee unions at every level of our states government, as well as the unfunded liability of the public employee union retiree healthcare plans, and it is easy to see where California is headed. Our state legislators, city council members, county supervisors, and Public Employee Unions have negotiated contracts that can NOT possibly be supported without EXTRAORDINARY sacrifice from taxpayers - if even then. Every one of the groups mentioned, with the exception of the taxpayers, have benefited from a relationship that can best be characterized as incestual; employee union groups bargaining with management employee groups that have a “me-too” clause in their contract.
The incresed funding shouldn't be unexpected. I would like to know what the PUSD has done to prepare for this upcoming day?