California’s Massive Public Pension Liabilities Offer a Warning to Other States
“Nearly 80,000 Californians collected six-figure taxpayer-funded pensions in 2018”
Unfunded liabilities such as pensions for public retirees can become a strain on any city or state. In California, we are seeing a situation which should serve as a warning. Taxpayers are on the hook for massive amounts.
Yuichiro Kakutani reports at the Washington Free Beacon:
Calif. Taxpayers on Hook for Six-Figure Government Pensions
Nearly 80,000 Californians collected six-figure taxpayer-funded pensions in 2018, as retirement costs leave half the state’s cities at “high risk” of serious financial distress, according to an analysis.
Transparent California, a free-market think tank, found that 6 percent of retired government workers collected more than $100,000 in 2018, an 85 percent jump since 2013. Those payouts represented 20 percent of the $51.7 billion in total pension payments. Taxpayers spent a record-high $40 billion to cover the costs of public sector retirees in 2018, the report also found.
The median household income in California is $75,277. The six-figure payouts propel thousands of retirees into the top 38 percent of all earners in the state, according to census data. About 1.2 million people received pension checks in 2018, including a retired deputy police chief who collected nearly $1.5 million in 2018.
The burden of funding this is almost never fixed by cutting the size of government or programs, it is shifted to taxpayers. Also consider that in California, there is now a push to fund healthcare for illegal immigrants.
This is simply not sustainable. How is it any different from what happened in Greece a few years ago?
A recent editorial from the Orange County Register explained how tax increases are often sold to the public as safety issues, without mentioning pensions at all:
California’s 100k club grows as tax hikes mount
Almost 80,000 retired public employees in California are drawing pensions in excess of $100,000 per year, according to an analysis of 2018 pension payout data by Transparent California. The $100,000 club members collected 20 percent of the $51.7 billion in total public pension payments made last year in California.
Both the number of six-figure pensions and the total payout were new record highs. If public pensions were a competitive sport, California’s trophies would weigh enough to sink the state…
Why do voters approve tax increases? The ballot language of Measure C in South Pasadena was typical of the genre:
“To maintain 9-1-1 emergency response times, including to home break-ins and thefts; neighborhood, school and park police patrols, fire/paramedic services, fire station operations, emergency preparedness; retain/attract local businesses; maintain streets/infrastructure; provide other general services and maintain City finances, shall the City of South Pasadena establish a 3/4¢ sales tax providing approximately $1,500,000 annually until ended by voters, all funds remaining in South Pasadena?”
The word “pension” is never mentioned, because pension obligations have first call on the tax revenue already collected, pulling money away from priorities listed in the ballot language.
This is a ticking time bomb.
Other states are having similar issues, but California is in a category of its own just given its sheer size.
What happens when there is simply nothing left to tax?
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Comments
To put this in some perspective. To achieve $100,000 of income in your retirement from a risk free asset (10 year treasuries) would require savings of about $5.2 MILLION dollars based on the closing yield on the 10 year yesterday.
Politicians have bought off public sector unions with unsustainable pension schemes that will lead to the bankruptcy of numerous states. IL will be first but will be followed closely by several others mostly those run for decades by Democrats.
Progressive pensions that are justified, ostensibly, by progressive prices forced by diverse destabilizing economic, social, political, and ethical policies.
The public employee unions have funded progressive fascist politicians election campaigns. In return they have received insane salaries and pensions.
We solve California’s pension problem by passing an initiative that requires government entities to purchase annuities annually that will pay the prorated portion and thus guarantee that public employee’s pensions will be paid.
This would have the positive effect of financially hamstring the progressive state of California.
Politicians have bought off public sector unions with unsustainable pension schemes that will lead to the bankruptcy of numerous states.
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Only thing you missed was adding that the political whores who bought these public union votes have long since passed from the scene. They could not have cared less about the future of the country when they could pillage the treasury for votes today.
New marketing tagline: “Visit California, where you can see the third world without a passport”
And see the open sewer sidewalks, the petty theft, and take XDR Typhus home with you.
The pensions are just one of the lies told by the state. Eventually it will collapse and they know it.
On the one hand, the MSM/DNC axis has successfully obscured the magnitude of this problem from the citizens of the People’s Democratic Republic of Kalifornia.
On the other hand, times have been good (until recently) in the PDRK, and most of the citizens have been too greedy and lazy to understand, let alone even care.
The gripping hand is that thanks to ballot harvesting, illegals voting, and other forms of fraud the citizens have very little power to change things. As Mark Steyn observed, sometimes societies become too stupid to survive. The PDRK may be at that point.
I’m in SoCal right now…. it’s busy and bustling… traffic… all the signs of a robust economy… but an economy on borrowed money and borrowed time. When I moved down to SoCal for residency I was surprised by what looked like…it took 6 months to realize that all those BMWs, Mecedes, Z-cars, Porsches… large houses on small lots.. all of it was on time payments or leases with the adage of “Living the California Dream”. The Left thinks it created and creates the California lifestyle… no… California has endured despite the Left… but that endurance is gone. The long range plans for Cali has told by Victor Davis Hansen for the groundwork to power California into the future was diverted to reap early benefits squandered away on Leftist socialist dreams.
What is happening in many states reveals what the problem is of letting elected officials determine salaries and pension payments. There should be a certified financial board that controls all decisions on budget issues. Allowing elected officials to make those decisions without any concern for the future is what has happened to many states. Now they and we all know that there is no way possible to ever make up the shortfall in pension benefits. Under a Dem POTUS, the radical left will demand that ALL taxpayers bail out these funds. That will be another example of the left using a salary/pension issue as an election crutch. The issue exists mostly in blue states and flyover country need not be concerned will be the mantra.
Declare bankruptcy and let the Feds take over the pension obligations. The advantage is that the Feds are only obligated to pay a resonable pension, not the extravagant ones that were set up. So the state workers take a haircut, which is the proper response.
Why would the Feds take over? They have no obligation. (FYI PBGC only covers private.)
Declare bankruptcy and then simply don’t pay the pensioners anything. Problem solved and the rest of the nation doesn’t have to bail out California for its incompetency.
Pensioners may collect on Social Security, if they paid any into that fund, or go on welfare. Since Californians like to share welfare with illegal immigrants and able-bodied adults, no problemo.
Sometimes one suffers from the slings and arrows of outrageous fortunes, then welfare for a fixed period of time is understandable. “You got caught in a storm: here is a refuge while you put your life back together.” is fitting of a kind and generous people to fellow citizens. To allow able-bodied adults to welfare without condition or limit, is to contribute to the destruction of their soul.
Under ERISA, the state can unilaterally reduce pensions.
Government plans aren’t subject to ERISA. 29 USC Sec. 1003(b)(1)
It’s not allowed by bankruptcy law. States can’t declare bankruptcy because they have the power to increase tax revenue and the power to decrease funding … among other things.
No wonder Ex-Ca residents are moving out of Ca.
They can retire on those 6 figure pensions to places such as Texas and live like the Obamas!
I wish they would stay. When they move out they forget to leave their voting patterns behind and try to bring the very policies that have sunk CA to their new homes in AZ, UT, TX, etc.
Seeing as how the state of California is suffering from an epidemic of hepatitis and is threatened by outbreaks of typhus/typhoid fever, bubonic plague, and leprosy perhaps the other states should pass laws prohibiting the citizens of California from traveling to or establishing residency in their states. Just as a precaution you know. Wouldn’t want them to import those third-world diseases into other states after all.
I’d like to take credit for this, but I like the idea that any state going bankrupt and bailed out by the federal government reverting to territorial status. Readmission to the Union would be contingent on putting a fiscally-responsible state constitution in place.
Better yet, put them up to be governed by conservative red states!
LOL
Yes.
I would say pensioners got their shot at the feeding trough when employed, and they are last in line at the bankruptcy. They should have saved more in the “7 years of plenty”.
Then territory status, with likelihood of dividing the state into smaller territories. Let us revisit the original idea in states, that the Senate reflects area, not people. Then the U. S. Senate is voted on from the state Senate. Since the direct election of U. S. Senators, we have had the longest serving Senators. When the state Senate selected the Senators, they rarely served many multiple terms: they were on short leases to do represent the State. Now, they take care of themselves.
It’s not allowed by bankruptcy law. States can’t declare bankruptcy because they have the power to increase tax revenue and the power to decrease funding … among other things.
Same problem in IL. The politicians even amended the state constitution to protect their pensions from any adjustments. They want us to vote for a graduated income tax amendment but until now anyway are resisting the calls to allow the pension amendment to be voted on also.
Here is my question. Does the amendment to the state constitution allegedly protecting the public employee pensions violate the US Constitution? If so, then the amendment is void and the state can change the benefits. Now the question to ask becomes exactly how it violates the US Constitution. Equal protection (providing more protection to public employees than private employees), contract clause, an improper restriction on sovereign immunity, violating the rights of future elected officials on how to govern. Any other thoughts?
We in IL have a billionaire gov who actually removed the commodes from one of his homes to lower the property tax. And now he wants us to vote for his tax proposal which he claims will only affect the rich. What happens when all the rich people figuratively remove their commodes? Or just leave the state entirely? Giving IL politicians more money is like throwing it away.
Impossible. Gov. Newsom has bragged about a $27B surplus. /
Newsom is the special kind of stupid who can’t understand why he’s broke “because I still have checks.”
Territory status. Absolutely. These plans for when states go bankrupt are both important and urgent. Important because it will be a mess, and urgent because ironing this out after a bankruptcy isn’t going to work.
My feeling is that Illinois is already bankrupt, as is Chicago, but they don’t know how to manipulate the system to their advantage, so they have not yet declared bankruptcy. If the State of Illinois isn’t paying their debts in a timely fashion, aren’t they bankrupt?
“What is happening in many states reveals what the problem is of letting elected officials determine salaries and pension payments. There should be a certified financial board that controls all decisions on budget issues. Allowing elected officials to make those decisions without any concern for the future is what has happened to many states.”
Govenrment unions vote and contribute to democrats. Democrats raise pay and pensions. A vicious circle. California teachers union most powerful political influence in the state. ALWAYS news about how ‘poor’ teachers need raises and more benefits
I wonder if Illinois will learn…
Oh wait, too late!
I doubt that the politicians that agreed to it will be publicly tortured – maybe waterboarded since some don’t consider that real torture – until the collective GoFundMe “fufill the stupid promise they made” is met.
Instead it is likely the PBGC will end up being authorized by congress to pay a fraction of what was promised.
This is the #1 reason we left CA. The pension liability is a ticking time bomb. The gov surpluses are not used to pay down some of the pension liability instead they just spend every dime like drunks… We have kept our conservative values in AZ.
California double dip: state agency then move to PG&E.
And then sweet retirement.
The Feds had much the same problem in 1986 when they moved from Civil Service Retirement System (CSRS) to the Federal Employee Retirement System (FERS). CSRS was going to explode, and nobody had the guts to reform it until Reagan. CSRS bennies were crimped, FERS was given both a smaller pension fund and a 401k plan as well as requiring contributions to Social Security, and the screaming was… epic. (similar to the screaming a couple of years ago when they said “Oops, FERS is a bit busted too, so we’re making some more changes and if you planned on that money, so bad.”)
If any of the states had a smidgen of fiscal responsibility, they’d do the same. They don’t, so they won’t, because they all *know* that when their state retirement system detonates, they will be able to milk the US taxpayers for a bail-out.
I don’t think states can declare bankruptcy. Cities can, but not states. When Stockton Ca was in bankruptcy, a federal judge was about to come out and rule that pensions are not as off limits as the State Constitution say they are. Stockton found a work around before the decision got made. But expect that to come up again in the future.
Right … it’s not allowed by bankruptcy law. States can’t declare bankruptcy because they have the power to increase tax revenue and the power to decrease funding … among other things.
I would agree states can’t file bankruptcy under the current code but not with your rationale.
Various posts discuss bankruptcy or the lack of that availability. Under the current bankruptcy code there is no such provision and Supreme Court precedent regarding municipal bankruptcies ran into 10th amendment issues. However, a path forward might be the Puerto Rico model called PROMESA. Part is pending before the supreme court right not and a difference is that PR is a territory not a state. (There is not a path to revoke statehood.)
These ‘pensions’ were bribery: the unions kicked money to the Democrat party, keeping the left in power, and keeping the pensions fat.
The pyramid scheme is being exposed.
Am I supposed to be experiencing anything other than schadenfreude, because I never feel bad when states get what they vote for. I just hate that Californians leave to go poop in someone else’s nest.