Wednesday, March 10, 2010

Non-Partisan Opinion of California: They're Pretty Much Screwed

I strongly urge the loyal readers of this site to read this article in the Opinions section today's Wall Street Journal. Before you (accurately) start scoffing that the WSJ's Opinions sections is generally a farcical extremely right-wing view of the world, allow me to preface your reading by stating that the article is, for the most part, a factual depiction of one FUBAR aspect of the state of California's sorry financial condition.

Here's a snippet for you too lazy (or too liberal) to mind-graze on their web site. It references a bill passed about a decade ago that determines pensions for many public employees:

The bill refigured the compensation formula for pension benefits of all public-safety employees who retired on or after January 1, 2000. It let firefighters retire at age 50 and receive 3% of their final year's compensation times the number of years they worked. If a firefighter started working at the age of 20, he could retire at 50 and earn 90% of his final salary, in perpetuity. One San Ramon Valley fire chief's yearly pension amounted to $284,000—more than his $221,000 annual salary.

In 2002, the state legislature further extended benefits to many nonsafety classifications, such as milk and billboard inspectors. More than 15,000 public employees have retired with annual pensions greater than $100,000. Who needs college when you can get a state job and make out like that?

The article broadly references why the state schools are squeezing kids in California - to pay the bloated pension obligations the state signed into law years ago. Makes you wonder if bankruptcy might be the best bet for the state. I read this article the same morning that I received a New Jersey Transit notification that fares will increase 25% and the number of trains in service will decline, in response to the state finally atoning for its own fiscal sins and closing its budget shortfall. It makes a man re-think his mission in life. And then return to attempting to pick his nose at his desk without getting caught.

Brutal juice for many to drink. Not this brutal juice, but brutal juice nonetheless. Happy hump day.

19 comments:

rob said...

sweet fancy moses. california's political system is fucked up like a football bat. it seems designed to accomplish nothing.

more importantly, this post needs pictures.

Dan said...

the san ramon fire chief has a pretty nice gig at 221k...
if the market does/did meet the expectations of 8.5% in perpetuity, i don't understand how you make the decision to award pensions of that size...nutty.
they do themselves no favors - they attract no new biz, and many are leaving. work comp there is a f'ing joke and if you get sued by anyone, as an employer...you've got no chance regardless of the situation. however, they do have nice weather so they've got that goin for 'em

rob said...

whoa. pour out something for corey haim.

Dan said...

well, it's one less billboard inspector they have to pay upon retirement...
sorry corey. loved ya dawg.

Mark said...

Well, Haim's death sure as hell isn't going to help California's economy. He had to be supporting at least one drug dealer's family.

rob said...

nomar's retiring. i'm pouring a little out for him, too. there's a part of me that will always be sad that he wasn't on a sox team that won the series.

TR said...

The pension return estimate that municipalities and corporations come up with is one of the most intentionally mismanaged figures you'll find in the pension investing business. If corporations are squeezed for cash, they nudge up their return assumption so the pensions are no longer underfunded. Given today's low interest rate environment, return assumptions should be no higher than 5%. But entering that number will make pension funds look that much more underfunded. Vicious cycle.

TR said...

I did want to enter a picture. I decided against some comical shots of a withered Governator in a speedo b/c it was too early in the morning to do that to you all. But as gross as those shots are (you can google them if you so desire), they are better than a shot of Governor Christie in a speedo would be.

Marls said...

There was a good article in the NYT yesterday discussing the Investment assumptions made by municipalities and corporations. according to the article, corporations have been dumping US equities in favor of more stable fixed income assets. They are also modifing their rate of return assumptions downward due to predicted headwinds for the US economy. On the other hand, state pension funds like CALPERS have been dumping everything into equities because they are being forced by budget restraints to increase their rate of return assumptions and the are desparate for growth. When the govt and corporations are doing the opposite things with their money, i think it is a safe bet that the govt is making a mistake.

TR said...

CALPERS has to double down to get back to a healthy level. Unfortunately, nobody knew that doubling down a year ago, when the indices hit their lows, was the right move. Doubling down now, after they've run 80% in a year, is dicey.

zoltan said...

I think it's classy to have an occassional post consisting of only words. Very austere.

zoltan said...

Here's a video of the donkey from the 90 MPH Prius incident. He was too scared to put the car in neutral. He thought it would flip. Take his license away.

http://tinyurl.com/yz6e7ot

Dan said...

he showed some nice moves there...he could probably take danica.
i guess my decision to buy my first toyota, in december, wasn't too swift?
as i knock on wood, in my pants, the forerunners have yet to be recalled.

Marls said...

I think TR is right, and bankruptcy is a real possibility for California. My father lives out there and it is insane how out of touch the people are with the reality of the state's finances.

The real fun will begin when CA & NY ask for a federal bailout. Not good times.

TR said...

There was a great photo of Arnold and David Patterson from the recent Governors' Summit in DC that I wanted to use for a post recently. They are both emphatically smiling at each other, yet Arnold looks ruthless and Patterson looks slightly drunk.

Dan said...

don't know if you guys have seen the almost weekly SNL skits w/paterson...they are good to quite good. in typical fashion, i include no link for your inconvenience.
and if you haven't been tuned into snl, i recommend that you give it a shot...it's very good this year.
that's todays, Did You Know?

rob said...

whole foods sells draft beer now. this is an intriguing development.

Mark said...

Finally catching up to Petty's I see (hopefully Rob will remember this discussion from last year). Not many things are as enjoyable as sipping a draft beer whilst shopping and running amok with your shopping cart.

rob said...

petty's was the first thing i thought of when i saw the taps at whole foods this afternoon.