By David M. Greenwald
Executive Editor
More than a decade ago, the Vanguard was among the first (and initially among the only) voices warning of the impending pension crisis in Davis. It took some time, but the city had to make moves to shore up its system of unfunded liabilities.
California itself is facing a problem of unfunded liabilities. At CalPERS alone it went from about $158 billion in the red in 2019 to $163 billion in 2020.
Earlier this year, that led to calls especially by the Republican side of the aisle to tackle unfunded liabilities with surplus monies.
They argue that these should be paid back immediately. But not everyone agrees there is a dire problem. LAO back in January did find “paying down future pension costs could help smooth out a notable increase in costs currently projected for 2022‑23.”
On the other hand, the investment return was about 4.7%—below the state goal of 7% while the benefits paid out went up more than 6.5%.
State Finance Department spokesman H.D. Palmer earlier this year that the state has met its annual pension responsibilities “but has (also) gone beyond that in recent years to bring down our long-term liabilities.”
Joe Nation, a Stanford Professor, warned that the real problem is with the promises that have been made, which he called “a financial time bomb.”
“The bottom line is that virtually every state and every public pension, regardless of where you look, is not in good shape,” he told the Bee in February.
Nation, who uses a different accounting system than the state, sees California’s unfunded liability as being closer to $1 trillion.
Let us be clear—pensions are a real concern and have been for a long time. A lot of people on the left make the mistake of downplaying these concerns—and that is a mistake.
The problem that I see is that in times of emergency, governments have to take on water. That’s part of their job. Where I think the government goes wrong is not in taking on water during tough times, it’s failing to bank the savings during good times.
The COVID pandemic with the economic shutdown could have been a real disaster nationally and statewide. The federal and state leaders deserve a lot of credit for doing what they did to shore up the economy and prevent the pandemic from turning into a depression.
In fact, and this is something we ought to think about more, two weeks ago we learned that the Supplemental Poverty Measure rate in 2020 was 9.1 percent, which was 2.6 percentage points lower than it was in 2019.
Relief payments moved 11.7 million people from poverty, according to the Census data, and unemployment insurance benefits kept 5.5 million people from falling into poverty.
Unfortunately, pension concerns are going to need to take a back seat to more immediate crises.
$15 billion that goes to tackle the climate crisis and more is not going to be a game changer for pensions, but could be impactful on a number of more dire emergencies.
In my view, there are no bigger threats than the two collateral impacts of climate change in California—water and wildfire.
One of the big pieces of the legislation was a $1.5 billion package supporting a comprehensive forest and wildfire resilience strategy statewide, the largest such investment in California history.
We are not talking about raking forests or clear cutting trees, but rather investing in strategies to reduce fuel for fires, reduce dangerous conditions and help restore landscape and create resilient wildlands.
The impact of fires has been growing with lower precipitation and higher heat and winds. The impact is great of course in areas that are high fire danger, but the impact on the rest of the state in the form of smoke and the accompanying health hazards was perhaps underappreciated.
In addition, the state is facing perhaps its starkest water shortage—and frankly the forecasts I have seen do not hold much promise that we will have a wet winter.
The plan calls for $5.2 billion over three years to support immediate drought response and long-term water resilience. California clearly needs to invest in long term water solutions because, even if this current drought abates at some point, the next one is clearly right around the corner.
By themselves these would be emergencies. Combined together, they are disastrous.
But of course we really cannot address water and fire without addressing climate change, which appears to be the driver of our problems. California proposes to do that, investing heavily in an aspirational plan to get gas-consuming vehicles off the road by 2035. And also investing in carbon sequestration.
Skinner’s office said Thursday, “SB 27 will expand California’s carbon removal capability, also known as sequestration, as well as improve the carbon retention of the state’s natural and working lands.”
Skinner said SB 27 “will maximize our capacity to use nature’s own carbon-reduction tools through capture in soil, grasslands, farmland, wetlands, forests and other natural systems, as well as explore cutting-edge technology like Direct Air Capture that mimic this natural process.”
A lot of work on sequestration, the process of capturing, securing and storing carbon dioxide from the atmosphere, is being done at UC Davis.
In addition, the package also includes $3.9 billion to accelerate California’s transition to zero emissions vehicles.
There is a notion that California cannot meaningfully reduce greenhouse gas emissions to impact the world. And that is mostly true—although California does have an disparate individual impact on the global system.
However, what I think California can do well is create systems that can work on a global scale. California is on the leading edge of such technologies such as carbon sequestration, some of which is happening in our own backyard, and also on ZEV (zero emissions vehicles) development deployment.
In this case you can act locally while impacting globally.
In the end, you can always quibble on the details, but, for me, spending money on fire, water and climate crisis is the most immediate need. The pension crisis honestly pales by comparison.
Was the 2014 Water Bond an urgent need? I think it was but how much water storage has resulted from it to date?
Keith
I already sent you the link for Prop 1 spending and awards. The $2.7 billion for storage in the WSIP has been awarded. Such immense projects are not built overnight for many reasons. Many are scheduled to start in the mid 2020s.
https://cwc.ca.gov/Water-Storage
Like I stated, there’s no water storage that has been built since the 2014 Water Bond was passed. Cite anything you want, but if this is urgent we certainly aren’t showing the urgency. And I do live in California so I feel I have the right to express my opinion on this topic. I know one’s location is a huge qualifier that some use against others when they try to express their opinions.
It seems like Richard McCann does this stuff for a living and you don’t. Perhaps he understands the process better?
Are you a climate expert David? But yet you give your opinion about what should be done many levels.
I am a climate expert. Thanks. (Also not up here debating with climate experts)
Yes, you showed your expertise here:
David:
What does that have to with the subject at hand? BTW, I was being a bit hyperbolic, but given how dry it is right now, I would be concerned about fire on the edge of town unless I lived next to a golf course.
Keith O
Yes, I do this for a living. I’ve been working on water issues for 35 years and climate issues for 30 years. You can web search on my name to find may reports and articles on these topics. As I said the last time you posted on the WSIP that I worked on an aquifer storage program that was funded through WSIP. It should be on line by 2026. All infrastructure projects take time.
What? What’s this about a golf course? Why a golf course? Maybe a golf course fire would only produce a 30 ft. wall of flames. But you’re the climate expert.
I said “unless” I lived next to a golf course (which is artificially green obviously)
Five comments per person per thread per day rule is in effect.
WOW, that was quick. I guess the moderator is expecting a lot of traffic today.
Yow! A peremptory strike!
So, have they calculated how much greenhouse gasses will be reduced by each of the 24 bills that the $15 billion covers?
And, have they calculated how much additional greenhouse gasses will be created by not using the $15 billion to pay down unfunded liabilities, instead? In other words, the greenhouse gasses that will be generated as a result of (hoped-for) “increased economic activity” needed to generate $15 billion?
(Leaving aside how much greenhouse gasses would be generated to pay-down the $1 trillion dollar total unfunded liabilities throughout the state.)
Clearly, toning down the world economy to a trickle for a virus and killing off a large number of people didn’t change the trajectory much, how are human policies in a ramped-up economy going to help? As I’ve said before, I don’t deny climate change, but this is the result of 200 years of industrialization. We should do our best to clean the air, but more than that stop panicking because some rich people in Malibu are going to lose their cliffside condos a few decades earlier than expected. We need to adapt to the inevitable, not panic and do a bunch of useless things that aren’t going to do squat when 70% of India’s power is generated by coal, for 1.4 billion people and growing (with a pause for Covid-19 deaths). We’ll adapt, they’ll grow corn in the Yukon, and Putah Creek will be Davis’ beachfront. What’s not to love?
I think people are concerned more because of how quickly things are changing in alarming ways. We have felt some of those – fire, drought for instance.
I too am concerned, but this is like turning an oil tanker that is headed straight off the edge of Flat Earth. It’s too late, and world direction of industrialization and energy use aren’t going to change for decades. Also, many of the “zero emission” technologies are new and expensive and untested — and many have life-cycle damage to the environment and back-door energy use that aren’t considered or that we don’t fully understand or consider yet. Too many ’emergency’ multi-billion dollar programs with ‘for the children’ purposes end up being giveaways to construction companies, unions, consultants, blooming energy industries, etc., that lobby the state government with language worded so that only their companies get the contracts. There are legal firms in Sacramento that specialize in this. Beware the legislation industrial complex. It’s 15 miles east.
Actually it’s not too late. But if we don’t do something soon, it will be.
There are environmental consulting firms which specialize in this, as well. Some of them would also likely benefit from the legislation.
Ron O
That’s a general equilibrium economic modeling exercise. The state does have access to a computable general equilibrium (CGE) model.
https://ww2.arb.ca.gov/sites/default/files/classic//cc/capandtrade/auctionproceeds/ucb_lit_rev_on_jobs.pdf
The model was used for an a study by Next10 to estimate overall impacts.
https://www.next10.org/publications/land-carbon
What are the GHG emissions changes that you imagine from paying down unfunded liabilities instead? As an economist I can’t see how any emission changes would be any different than just business as usual.
My first reply went to the wrong comment (a website glitch).
Alan M
There’s much more at risk than just sea level rise in California. Please don’t trivialize the situation. Read this article in Atlantic which lays out what’s really at stake:
https://www.theatlantic.com/magazine/archive/2021/03/extreme-climate-change-history/617793/
I’m not trivializing – I’m saying we should do our best to clean the air, but not delude ourselves into thinking we can reverse climate change – and instead focus and adapting to the inevitable. Yes there’s a lot more that will be affected. Sea level rise affecting Malibu was an example, not a comprehensive list for a peer-reviewed scientific paper.
I’ll read the Atlantic article when I have a free weekend. That was an “Atlantic articles are very long” joke.
Who is the beneficiary of this?
Is the purpose to support more growth (thereby providing no net benefit to the state’s existing water users)?
Similar to how freeway expansion works, in reality? (Or, as another example – taxpayer-funded levee improvements adjacent to land that would otherwise not be developed)?
Or if you want another example, subsidies which encourage people to build (and rebuild) in high-risk fire zones?
First, why don’t you read the bill yourself rather than speculate? You can do your own research rather than trying to impose research tasks on others.
Second, much of this is to address water shortage problems among existing low income communities where water tables are falling due to the ongoing drought. Here’s what I wrote about the underlying water condition trends:
https://mcubedecon.com/2021/06/01/a-new-agricultural-electricity-use-forecast-method-holds-promise-for-water-use-management/
Keith you’re at five comments.
And so am I, thank you.
I am at four! Now I’m at five! #doh!#
https://calmatters.org/explainers/solving-california-wildfires-why-dont-we-do-these-things/
From the guy you all voted to keep, and who the Vanguard and the media in general is now “singing the praises of” in regard to the pork-barrel climate bills.
So many problems with that proposal, but let me just ask you this: would you be in favor of trading off lower risk areas for a higher risk ban? (Notice I used lower and higher, because that’s one of the problems with the proposal – everywhere that is unbuild is pretty much high risk these days).
I don’t understand your question, but I disagree that everywhere is a “high risk”. There are maps which show where the highest risk is. They’re hammering nails into new/replacement buildings in those areas as I type this.
In any case, would you trade lives lost (e.g., in a future Paradise fire) which would be much less-likely to occur if those folks had to absorb more of their costs as a result of their decisions?
I’d suggest that this topic is probably the most important of all, in terms of mitigating risks (of all kinds related to climate change).
Not to mention the enormous, ongoing costs to “everyone else”.
Note that the article cites problems with other “solutions”, as well – including controlled burns in a state with 40 million people.
In any case, the “choice” that I believe you’re implying doesn’t exist. Instead, the answer is “build everywhere, and continue doing so indefinitely”.
Apparently my question was too subtle so I’ll be blunt – would you in exchange for a ban on higher risk areas accept development on lower risk areas (ie Davis)? You’ll have to answer tomorrow as you are out of posts on this subject today.