99% of pension funds outperform CalPERS -- but count on big bonuses nonetheless!

Ed Mendel's report on CalPERS' horrible investment returns over the past five years -- 99 percent of big government pension funds did better -- brings me back to the point I made two months back: No matter how badly CalPERS does, the bonuses keep flowing. I predict that later this year, we'll find out this is still the case. It's not like, yunno, CalPERS is hard up for cash. Groan. Here's a reminder of CalPERS' insanity -- an AP story from September 2010: As its investment portfolio was losing nearly a quarter of its value, the country’s largest public pension fund doled out six-figure bonuses and substantial raises to its top employees, an analysis by The Associated Press has found. … CalPERS’ plunging value came as stock values tumbled around the world, the state’s economy suffered its worst decline in decades and basic state services faced severe budget cuts. Virtually all of CalPERS’ investment managers were awarded bonuses of more than $10,000 each, with several earning bonuses of more than $100,000 during the 2008-09 fiscal year. The cash awards were distributed as the fund lost $59 billion. … Bonuses also were paid to employees who are not part of the fund’s investment team, including a public affairs officer who received bonuses of nearly $19,000 a year two years in a row and a human resources executive who received bonuses topping $16,000 both years. The number of CalPERS executives making $200,000 a year or more rose from 13 to 15 over the two-year period. Those employees received an average salary raise of 12 percent and an average bonus of $115,705 in the 2007-08 fiscal year and $63,311 in 2008-09, according to the AP’s inquiry into CalPERS compensation. If an institution in the private sector behaved the way CalPERS does -- especially one with stockholders -- its officers would go to jail. If CalPERS' leaders give themselves huge bonuses after a five-year span of incompetence, this will be a fresh reminder of how this state is rigged against taxpayers -- or at least the taxpayers who aren't public employees.

When will pension fallacies be exposed? Lavish benefits not necessary to draw workers

This Sacramento Bee story pointing out that local governments in its region spent more propping up failing public employee pension plans than it would cost to build the Kings a new arena is interesting because it points to a part of the pension debacle that never gets enough attention. A central argument against public spending on sports facilities is that they're simply not necessities and that they amount to giveaways to the politically connected. The exact same thing is true of ludicrously generous pensions. With the possible exception of police, they're just not necessary to attract and retain public employees. Remember, the theory used to justify defined-benefit pensions for public employees in the mid-20th century was that they were necessary because public employee pay was so low. That's no longer true. They exist as a function of political power. Now the new trope used to justify lavish pensions is that without them there would be a massive exodus of talented government workers. This brings me to one of my favorite moments of recent years in California academia: the retromingent way the UC Berkeley labor "think tank" embarrassed itself back in 2009 with a report warning of the huge downside of furloughing state workers a day or two a month: [Because of furloughs] employers are most likely to lose highly productive workers that have greater opportunities for outside advancement and find it more difficult to attract such workers in the future. What were the footnoted sources for this claim? 4 Yellen, Janet L. (1984, May). Efficiency wage models of unemployment. The American Economic Review, 74, (2), 200-205. 5 Campbell, Carl M, III & Kamlani, Kunal S. (1997, August). The reasons for wage rigidity: Evidence from a survey of firms. The Quarterly Journal of Economics, 112, (3), 759-89. The first is a broad, long-term study of the entire U.S. economy that is focused on the private sector, not government. See for yourself. The second deals entirely with the private sector. See for yourself. As I wrote back in 2009, why does this matter? Because if you know even a tiny bit about labor economics, you understand there is an enormous difference between the public and private sectors. The UC Berkeley study posits that the dynamic that exists in the private sector exists in state goverment -- that there is active market demand for state employees that means furloughs would result in an exodus of the talented. Bunk. The public sector's turnover is minuscule. Here's what the ultimate labor think tank -- one that doesn't reach conclusions before it starts -- reports with the latest jobs data, from January: Monthly job turnover in the private sector is far higher than it is in the state government sector. That's from the U.S. Labor Department's Bureau of Labor Statistics. Remember, this tiny turnover is occurring even as public employees face what has been depicted as the roughest stretch they've ever faced. Plainly, the argument that there is heavy market demand for state employees is wrong. Obviously, the UC Berkeley "study" is actually a pronouncement from an interest group, not an academic work. The media have finally woken up to the pension crisis. The focus is usually on the huge cost. But there's not nearly enough focus paid to the fact that the basic rationales for lavish pensions -- they're necessary because of low pay and to prevent brain drains -- are both crocks.

Miracle of miracles! Skelton figures out gov's tax plan is nuts

I hammered George Skelton as hard as I could in December when the L.A. TImes' columnist wrote that it was "hard to find anyone around the Capitol outside the governor’s office who doesn’t think the promise [to seek voter approval before raising taxes] was wrongheaded." Uhhhhh .... George? George? George? Have you heard about the majority of Californians opposed to tax hikes? But lookie here: Skelton is dumping on Jerry's demagogic, nonsensical tax hike ballot compromise the day it is finalized! Did George's career-long concussion finally wear off? The Brown-CFT deal would cut his sales-tax hike in half. And it would smack the wealthy more than the governor had wanted — raising state income-tax rates by one percentage point for single-filers earning more than $250,000; by two points for those making more than $300,000; and by three points on earnings exceeding $500,000. Currently, the top rate for million-dollar earners is 10.3%. The income-tax increases would last seven years, rather than five, as Brown originally proposed. The tiny sales-tax hike would last four years. The reshaped proposal is bound to be more popular with the electorate than Brown's original. A larger share of the tax load would be shifted to fewer voters. But it's poor public policy. Although it may be satisfying for the majority, smacking the rich worsens a California tax system that badly needs to be overhauled. The top 1% already pay roughly 40% of the state income tax. This results in an extremely volatile revenue roller-coaster. In boom times, the rich prosper and pour money into the state vault. During periods of bust, their capital gains dwindle and so does the state's revenue stream. The state suffers budget deficits. Schools, universities and the poor people's safety net are slashed. But George still isn't fully out of the tank. The implication that schools and universities suffer as much as poor people when revenue lags is a crock. The poor are pounded far worse. Why? They don't have influential unions representing them in Sacramento. Yet I shouldn't gripe. After years of knee-jerk support of the Sacramento establishment, George Skelton has been shocked, shocked enough to finally figure out that the establishment maybe really is rigged for public employees, whether on pensions or teacher tenure or "air time" or a million other things. Maybe, just maybe, after 50 years on the job, George will keep "growing" and end up realizing that California is far more imperiled by the ideologues of the left than the ideologues of the right.

LOL: L.A. Times gives CalPERS credence on pension reform!

I giggled, I really did, when I went to Rough & Tumble on Thursday morning and saw this headline on an L.A. Times story: "CalPERS report undermines Gov. Jerry Brown’s pension overhaul plan." Michael J. Mishak has only been with the Times a couple of years, but doesn't he have access to archives? Doesn't he have editors? Yo, Mike: CalPERS has less credibility on pension issues than Newt Gingrich does on family values. It largely created the crisis in 1999 with a series of lies that would have resulted in prison time if put forth by finance executives in the private sector. Ever since, it's been trying to cover its tracks. For CalPERS to embrace pension reform now after 13 years of deceit and deception would be the institutional equivalent of waiving its Fifth Amendment rights against self-incrimination. In 1999, CalPERS persuaded lawmakers that a 50 percent retroactive increase in the formula governing pensions for state employees would cost little if anything -- as if CalPERS' great tech-bubble investment returns in the late 1990s would never end. This started the dominoes falling that led to huge retroactive pension increases at the local level -- a catastrophic policy bandwagon that CalPERS directly encouraged. Ever since then, CalPERS has been running from responsibility for this debacle on several fronts. As the nutty prediction that returns would always be great proved its nuttiness, CalPERS used gimmicks like "smoothing" local government payment obligations over a long time frame to hide the fact that pensions were far more costly than predicted. As the media picked up on this fiasco, CalPERS turned to juvenile tricks like calling reporters who were skeptical of the agency "anti-pension ideologues" and "vultures" -- the terms CalPERS' top PR person, Pat Macht, used a few years back for a Reuters reporter who dug into and raised questions about CalPERS' confident investment forecasts. The juvenile quality of CalPERS' attitude knew no bounds. In September 2009, on my old blog, I posted an item about CalPERS' now-former actuary, Ron Seeling, warning that its practices were "unsustainable" -- a rare moment of honesty from a top CalPERS official that may have led to its appointing a new actuary. I also quoted leading pension reformer Marcia Fritz questioning CalPERS' assertion that the status quo was fine, just fine.. What turned up in the comments? Remarks mocking Fritz as a poorly informed liar -- posted by someone whose IP address I confirmed was from a CalPERS computer server. And in June 2009, as the 10th anniversary of the SB 400 debacle approached, I sought CalPERS' response repeatedly to how it viewed the fiasco in retrospect. Officials ducked comment for days, before finally grudgingly saying that was for others to judge. Groan. So much for a powerful institution dealing honestly with its history. The capper came in July 2010, when the inestimable Ed Mendel of calpensions.com dug up evidence that CalPERS knew back in 1999 that it was playing with fire by encouraging a 50 percent retroactive pension spike for state employees. Officials were told by number-crunchers that it could go wrong -- disastrously wrong -- if investment returns were mediocre. But they kept the information from the Legislature. Attention, Michael J. Mishak: This sort of behavior would be criminal in the private sector -- persuading people to make a multibillion-dollar commitment while hiding adverse facts from them. On a scale of 0 to 10, with 0 being abjectly stupid, "CalPERS report undermines Gov. Jerry Brown’s pension overhaul plan" is a 0. An accurate newspaperese head would be this: "Despite daunting numbers, CalPERS defends pension status quo." My preference would be this: "CalPERS continues dishonest crusade to hide its past perfidy." per·fi·dy n. pl. per·fi·dies
1. Deliberate breach of faith; calculated violation of trust; treachery:
2. The act or an instance of treachery. If karma is real, and not just a theory, the people who ran CalPERS in the late 1990s are going to hell. Perhaps Michael J. Mishak can do some browsing with Nexis so he grasps that this is the case -- instead of taking the villains at face value when they comment on their villainy.

Ugly pension power play pays off for union tool Kamala Harris

Are Kamala Harris' parents proud of her today? Dr. Shyamala Gopalan, a breast cancer specialist, and Stanford University economics professor Donald Harris had Kamala after emigrating to the U.S. from crypto-democracies in India and Jamaica, respectively. Is this what they hoped for from their daughter? That she'd use her law degree to move up the ranks of the state Democratic Party and help maintain California's status as a crypto-democracy? That their child, in her role as the state's attorney general, would betray democracy by writing slanted ballot language that doomed two pension reform measures that polls showed voters loved? The doctor and the prof must be proud. With this act of sabotage, Kamala Harris is now the equivalent of a made man in the mafia that run the Golden State. The sky's the limit now. Who knows how much more Harris can achieve in her chosen role as union tool masquerading as public servant? She's a thug in a dress. But then this is nothing new when it comes to California and public employee pensions, is it? Rank-and-file taxpayers are being abused on a 24-7-365 basis. As I have written before, the title and summary for the pension reform measures that Harris put out are full of red herrings and loaded language, as the California Pension Reform group has detailed: While the Attorney General accurately describes parts of the initiatives, she provides other statements that are either provably false or grossly misleading: 1. “Reduces pension benefits for current and future public employees…" This is an absolutely false statement. The proposals do not change pension benefits for current employees. The proposals simply require current employees to pay more for future benefits and then only if the fund is at risk of not being able to pay the employees the benefits they are due. 2. “… including teachers, nurses, and peace officers, but excluding judges.” The AG selectively lists three positive poll-tested jobs out of thousands of government employee job classifications when both measures apply to all public employees, except constitutionally-protected judges. 3. “Prohibits public retirement systems from providing death or disability benefits to future employees.” The AG includes the words “prohibits” and “death or disability benefits” in the same sentence when our measures actually specifically provide for those benefits. To avoid any confusion about death and disability benefits, both initiatives say: “Sec 12 (d) All government agencies that provide pension or other retirement benefits for their government employees may also separately provide death and disability benefits for the benefit of their government employees, regardless of the date of hire. The cost of such death and disability benefits is not subject to the cost limitations established in this section.” As I noted last month, what's so infuriating about this is that "direct democracy" is the only means that Californians have to do an end run around the unions, green cultists and trial lawyers who control Sacramento. While California may be a liberal-leaning state, when it comes to ballot measures, many of those liberal voters show common sense, and warm, for example, to the argument that a state with high taxes should be able to make ends meet. There are plenty of signs that many of these liberals were quite willing to believe that pensions are far too generous for public employees. But not union thug Kamala Harris. She's in the tank for the union status quo. This is only the start of how the state government is rigged against the interests of regular Californians. For years, the California Public Employees' Retirement System has tried to discredit anyone who questioned its lies about the health of pension programs up and down the state. The main cause of the problems local governments faced? A 1999 state law that led to massive retroactive pension giveaways to hundreds of thousands of public employees. How was it justified? With CalPERS' lies to lawmakers in 1999 that benefits could be sharply increased with no downside to taxpayers. When Arnold tried to name someone to the California State Teachers' Retirement System board in 2006 who wouldn't go along with the fiction that CalSTRS was well-funded, three Democratic state senators blocked the nomination on the grounds that David Crane was, according to the L.A. Times, .... ... too concerned about the burden of pension shortfalls on taxpayers. As I have written before, who took Crane's place? Surprise, surprise. A teacher. How should Californians think about what we face overall? Here's how: We are all Bell. The nightmares destroyng the small city in Los Angeles County, in one way or another, haunt every taxpayer in California. Virtually every local government, every special district, must make decisions about compensation policies that are directly influenced by public employees, and, in many cases, dictated by public employees. Is it any surprise the resulting policies are crazy? For years, education reformers have observed that K-12 school policies seem to be much more about protecting the interests of adult employees than students. With the Kamala Harris-orchestrated destruction of pension reform in California, it's time this thesis be broadened. In Sacramento, state leaders decide on policy in ways that are much more about protecting the interests of public employees than taxpayers in general. Great, just great. Yo, Kamala: Congratulations for continuing this repellent, anti-democratic tradition. If your parents were capable of judging you with the impartial smarts one would expect of a sophisticated cancer doctor or econ professor, they would be puking all over the place. Think about that as you celebrate your ascension to the top ranks of California's union thugs.