When examining the impact of long-range budget figures, no issue is more important than the impact of retiree health benefits and retirement pensions. However, at the city level there has been relatively little discussion of changes to the pension system. What discussion has occurred has focused on the likely increase in cost due to losses that PERS took last year when investments collapsed.
The city’s budget focus has necessarily looked at the next five years where the immediate impact of the economy and economic forecasts are most important. However, modeling now suggests that if the city increases its personnel costs by 5% over the next 15 to 20 years, the city is either going to be looking to substantially cut services or find new sources of revenue. Currently the city spends around 71% of its general fund budget on personnel costs and that number is expected to rise in future as the city shifts to a more realistic model for dealing with retiree health benefits, it continues to grapple with the pension costs, and salaries continue to rise.
In 2005, Richman’s efforts to put forth a ballot measure on pension reform were met with great opposition and weak support. However, he is putting forth another ballot measure now that will likely see greater support. More on that in a second.
A Field Poll released just last week suggests the public is still mixed in terms of what direction to go with pensions. For instance while a solid majority of voters believes that state and local governments should make pension benefits less lucrative for new hires than the existing system, only one third believe that pension for current employees is too generous. Most think that state and local government worker pensions are either about right or not generous enough.
45% of voters who pay most attention to state government however believe that public employee pensions are too generous. That is the group to watch according to most experts including Mark DiCamillo who is the director of the Field Poll.
“They’re the group most critical of public pensions and usually it’s those ‘close attenders’ who pull the rest of the public with them.”
On another note, of those surveyed, by a 52 to 41 percent margin, approve of the current practice of allowing public safety workers, like police and fire, somewhat more generous pensions than other public employees. That finding held across ideologies.
Once one drills down into the numbers, it is not clear that the movement is as strong as some are suggesting. Even among those who pay the most attention to politics only 45% say the pensions are too generous while 49% suggest that they are either about right or not generous enough. Overall, 32% of statewide voters say that pensions are too generous while 56% fill the other two categories. Even among Republicans (45%) and those who are strongly conservative (49%), the numbers for too generous do not break over 50%.
A good look at the polling therefore suggests that the public has not arrived at the conclusion that there needs to be pension reform. I would suggest that is probably a good thing and I’ll explain why in a moment.
First, not all pensions are created equally. There has been a lot of talk about $100,000 pensions but very little context placed on those pension. According to numbers released from CalPERS, only 1 percent of nearly half a million retirees received annual pensions of $100,000 or more. While that is roughly 50,000 recipients, it is not nearly the crisis that some have made it out to be.
The voters here appear more willing to go for change, 60% of voters polled favor setting some sort of upper limit on that amount for newly hired government workers while 31 percent oppose the idea. That suggests people are not willing to take away what has been promised, but they are willing to set limits for those who have yet to be hired.
Part of my concern is that for a lot of people getting pensions they are getting 2% at 60 and making a base salary between $20,000 and $40,000. That is not going to end up making anyone rich. That is a far cry from people who retire making over $100,000 and should not be lumped into the same considerations.
A reasonable place to start would be looking at ways to end 3% at 50. The public is not there yet and there is clearly a sympathy for public safety workers, but in the long run that rate is not sustainable. The logic that public safety workers do not live very long was debunked by the same study by CalPERS that suggested that only 1 percent receive pensions of $100,000 or more.
Another place to start would be to place upper limits on pensions, the public favors that.
Finally, we could probably keep both the 3% at 50 and the $100,000 pensions if we increased employee contributions for those making 3% at 50 and those who figure to making close to $100,000 in retirement pensions.
These polling data suggest we have time to make some common sense changes before the public wave of concern turns to outrage and a draconian system is imposed upon workers and pension earners. The time is now for more moderate voices to look toward incremental reform, because I think the public underestimates the threat in some circles of not acting. The threat really lies not with the state employees, most of whom make modest wages and receive only 2% at 60. The threat lies with local employees making 2.5 and 3 percent at retirement and making salaries over $100,000. And that means that cities like Davis have to act because if we do not, in 15 to 20 we will have a budget problem that dwarfs anything that we have seen.
—David M. Greenwald reporting
Do not expect any pension reform until the fit hits the shan, if you catch my drift. It seems as if legislators are only willing to act decisively when I crisis is actully at hand, and not before.
For instance, did you see the article in the Davis Enterprise, about $1 million grant to UCD to improve teaching programs or some such nonsense. The Obama administration and the state gov’t are still throwing around OTM (other people’s money) like it was growing on trees. Well it isn’t, and the collective taxpayers’ pocket is just about picked clean.
Unfunded mandate…
If I were a public employee, that is what would keep me up nights.
Public employee unions have had success negotiating pension deals that will have enormous impacts over coming years. Now, they aren’t really willing to discuss ways to rein in those costs to make them affordable. Why should they?
Because when the budgets start getting tight and costs are soaring, guess where we are going to cut? Those wonderful pension plans look good on paper- but if there is no check going with it, what good is it?
Not fair? Perhaps. But lots and lots of precedent.
In short, as a member of the public, I have little concern about the costs 15 years from now- we will pay what we can afford. If I were a public employee counting on that pension- I wouldn’t sleep well at all…
[i]A good look at the polling therefore suggests that the public has not arrived at the conclusion that there needs to be pension reform.[/i]
But the truth doesn’t come from a poll. For me, the entire topic of a pension crisis for public employees in California has been based far too much on popular sentiment, and not nearly enough on financial judgment. In a way, there has been more than enough financial analysis; people have thrown around a lot of numbers. But the numbers have been used for emotional reactions, and not to calmly decide the best course of action. In practice, the city is up against a hard wall of employee bargaining power. It doesn’t accomplish anything to declare a crisis, if bargaining units think that it’s just song and dance to cut their pay. Instead, the right way to economize is gradually, by avoiding careless concessions, promises, and overstaffing.
For that reason, it doesn’t feel like there is nearly as much to learn from this issue as from fiascos such as DACHA. When I read about DACHA, it’s hard not to get outright angry. I have to step back and realize that there is no reason for me to be angry, because the whole thing only has a tiny intersection with my money. Still, almost nothing about DACHA makes sense to me. For instance, whose idea was it to make housing “affordable” with adjustable-rate loans? Who let the DACHA be steered by members who were behind on their payments? It looks like warnings have been flying off like sparks for years, but the City Council just kept hoping that DACHA’s problems would get solved somehow.
Besides, as expensive as DACHA is, it isn’t very big. If the philosophy of charity in Davis is quality over quantity, the city would have been better off with just one house rather than 20. It could have let one family live in that one house rent-free. Then there would not have been any delinquent payments or risk of foreclosure.
Speaking of public pensions and pension reform, wasn’t it one Willie Brown who raided dedicated CALPERS funds years ago (back in the late 70’s or early 80’s), converted the resource into General Funds, and then balanced the State Budget on the backs of State employees and retirees? It looks like public employees are going to be “screwed without a kiss” again!
Pension reform is occurring, but, unfortunately, it is occurring in the way that is the tragically unfair.
Back when I was arguing that we should not be lowering the age of full retirement benefits to 55 for our City of Davis non-public safety city employees, I pleaded with the council not to do it on the grounds that it was unsustainable and that we would end up with a two tiered system, with the next generation of employees getting much less in defined benefits, or getting no defined benefits whatsoever.
The public obviously doesn’t understand that many of the current enhanced formulas for defined benefits are unsustainable, but the city managers, the finance directors, and some of the elected officials will understand this.
A number of jurisdictions are already on the verge of eliminating defined pensions for new employees, which usually mean the younger generation. How unfair can you get?
However, if the cumulative defined benefits creates too much of a problem on a national level, disinheriting the younger generation will not be enough to “fix” the system. That is what I expect could happen. In that case, the generational unfairness could quickly swing to the other extreme.
If too many state and local jurisdictions become insolvent, the federal government will be forced to take some action. The likely result will be massive inflation. Since our state and local public pensions are inflation adjusted only to the level of about 2% a year, inflation will solve the problem of relieving the state and local jurisdictions of debt, but it will decimate the pensions of the existing retirees and older employees.
In other words, by pushing too hard, current employees will have done one of two things: They will either end up disinheriting the younger generation, or, if that is not sufficient to solve the problem (and I don’t think it will be), they will have killed the goose that lays the golden egg and destroyed their own pensions.
I expect the end result could well be the worst of both worlds, from my perspective — decimated pensions for older workers and retirees, and the elimination of the defined benefit pension system for younger workers.
How well informed do you think your average person is about this issue on a 1-to-100 scale, with 100 being someone like Ed Mendel? My guess is the average Californian has no idea (yet) about the pension tsunami which is barrelling toward us. I would guess even the average Davisite has no idea that the taxpayers pay 100% of the “employee contribution” for non-safety workers.[quote]A Field Poll released just last week suggests … only one third believe that pension for current employees is too generous. [/quote] I would love for pollsters — in person in this case — to show prospective pollees (if that’s a word) a wordless map of North America which protrayed in outline only the NAFTA countries and ask them, “Point to Mexico on this map.” Once you eliminate the 59.8% who could not find Mexico, I’d then be interested in the Field Poll results.
In case anyone does not know who Ed Mendel is, he writes this blog ([url]http://calpensions.com/[/url]) about California pensions.
[i]My guess is the average Californian has no idea (yet) about the pension tsunami which is barreling toward us.[/i]
I have a PhD in mathematics, and I have seen various blog and news items about CalPERS for months, but I still have no idea about the “pension tsunami which is barreling toward us”. For me, at least, phrases like this are about as clear as mud.
Ed Mendel’s blog also leaves me scratching my head.
Take your gamepiece and return to go , with math skills like that , by the way the answer. 5,000 .
Thanks for educating Rich Rifkin. , he always types long meaningless words. , like a chimpanzee would .
[quote]Thanks for educating Rich Rifkin. , he always types long meaningless words. , like a chimpanzee would . [/quote]Brilliant point.
Prediction:
By the time this does enter the public’s awareness, the public unions will be so unpopular that there will be widespread cheering as they lose their pensions.
[quote]I have a PhD in mathematics, and I have seen various blog and news items about CalPERS for months, but I still have no idea about the “pension tsunami which is barreling toward us”. For me, at least, phrases like this are about as clear as mud.[/quote]I take it that you have already read Dan Walters’ column in the Sac Bee http://www.sacbee.com/walters/v-print/story/2149360.html ,or read Ed Mendel’s original posting concerning Ron Seeling’s quote?
They quote Ron Seeling, the chief actuary for the California Public Employees’ Retirement System, discussing the unsustainability of CALPERS pension obligations.
Seeling told a Sacramento seminar, “I don’t want to sugarcoat anything. We are facing decades without significant turnarounds in assets, decades of – what I, in my personal words, nobody else’s – unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
Since we are facing large deficits already and huge unfunded liabilities on top of the structural deficits, a further increase in costs of 25% and 50% of employee salaries will be devastating.
That is what people refer to when they say “the coming pension tsunami”.
Sue: What leaves me in the dark about all of this is that Seeling quote has two or three percentages hanging in thin air, and otherwise it’s just a lot of words. I don’t mind words, necessarily, but if I’m going to learn from them, they should refer to some quantitative framework that I can understand. That is what happens when I look at reports from the CBO, or when I read material from a good economist such as Paul Krugman. It is not what is happening here.
Seeling (and everyone else so far) is not only handwaving with the amounts of money, he’s also vague on the timeline, and he’s oddly confident about predicting returns decades into the future. A “tsunami” is something that wreaks havoc in the space of an hour. Seeling is talking about some process that will last for decades. One would think that we then have decades to make necessary changes.
David, to his credit, presented some semblance of a quantitative framework for pension costs to Davis. Unfortunately, his chart wasn’t normalized in constant dollars, nor using population or income in Davis. It was drawn to look like a tsunami, using inflationary dollars.
Seeling (and everyone else so far) is not only handwaving with the amounts of money, he’s also vague on the timeline, and he’s oddly confident about predicting returns decades into the future. A “tsunami” is something that wreaks havoc in the space of an hour. Seeling is talking about some process that will last for decades. One would think that we then have decades to make necessary changes.
================
Greg, are you sure you have a PhD in ANYTHING?
My suggestion to you Greg is this- go study the City of Vallejo, and figure out why they went BK, then comeback here and figure out which way up is, OK 🙂
(here is a hint Greg, when you are spending MORE money on paying your public retirees than your current public employees you have a big problem, or when the retirees are making MORE in retriement than when they worked you have a big problem…see my drift)
Retirement plans were designed to provide economic security to people when they were no longer able to do their jobs, so they could live out their remaining years with dignity and self reliance, not so they could double their income at the public’s expense, or retire as millionaires at age 50.
Greg: Seeling is the chief actuary at PERS. He is not just throwing out numbers. If you want to redo his calculations, maybe PERS could tell you where to locate the raw data. Seeling deals with statistics, not mathematics. He is saying where things are likely headed. You say:[quote]One would think that we then have decades to make necessary changes. [/quote]That is the point that Seeling is trying to make too. The problem is that our options are limited by both political and legal realities.
We are not allowed to change the unsustainable formulas for existing employees, which is why I argued so strenuously against lowering the age of full benefits to 55 for non-public safety employees. Since our expenditures already exceed our revenues, we have limited options. We can require current employees to start contributing a much higher percentage of total compensation toward retirement, we can wait and let future generations of taxpayers or future generations of public employees pay the bills, or we can wait and see if the problem will be solved by future bankruptcy or future inflation, both which could have severe negative impacts on the pensions of retirees.
[quote]A “tsunami” is something that wreaks havoc in the space of an hour. Seeling is talking about some process that will last for decades. [/quote]Maybe the tsunami metaphor* is off. No reason to get excited because someone (I) used a metaphor which is imperfect.
More important is to 1) understand that we have a serious fiscal problem ahead of us, which began with policy changes made more than a decade ago and, perhaps, a long-term unrealistic expectation of the annual ROI (7.75%) for the pension system. And 2) the longer we put off dealing with the problems which are coming — that is, much higher costs to all public agencies — the more damage will be done to public agencies, none of which has the revenues to cover the substantial marginal costs ahead.
Reform is fairly obvious: change the pension formulas back to what they were prior to the late 1990s; raise the retirement age** to 65; and keep wage and benefit increases capped at the long-run CPI.
———–
*The parallel with a tsunami is the idea of a problem which originated far away (in this case, back in 1998) and causes terrible destruction far off in the distance.
**Obviously, for employees who become disabled, they can retire early. For other employees who, due to age or injury, can no longer perform their same jobs, you can retrain them. A 51-year-old fireman does not have to retire full-time to a golf course. He can be retrained to keep the grounds ([url]http://media.canada.com/9ef63c09-385e-4b40-bac2-da66c75d8b27/caddyshack.jpg[/url]) on the golf course Monday through Friday and play games on the weekends.
[i]Greg, are you sure you have a PhD in ANYTHING?[/i]
I have to admit, sometimes I’m not sure. Also my training was pretty abstract stuff; it’s not the same as concrete economics. Even so, I’m still struggling with how so many other people came to such emphatic conclusions. For instance, it would help to see comparisons between pensions in California and pensions in other states, but people aren’t spending very much time on that.
[i]My suggestion to you Greg is this- go study the City of Vallejo, and figure out why they went BK,[/i]
I’ll admit this too, that I can’t “figure out” the real reasons that Vallejo went bankrupt. Whenever I see anyone or anything going bankrupt, it always seems to be the fault of the last expensive thing that they couldn’t or didn’t want to pay for.
At the personal level, it’s usually taxes; whenever a guy goes postal, half the time it’s the IRS who drove him bankrupt and drove him crazy.
At the institutional level, it always seems to be pensions. Pensions killed the auto companies, pensions killed Vallejo.
I get the feeling in both types of cases that there is more to the story than that. Let’s accept that public safety was more expensive than it should have been in Vallejo. They saw a long time ago that a larger share of their budget went to that than it did in other California cities. If better labor contracts were impossible, and if raising taxes was impossible, why didn’t they live with a smaller fire department and a smaller police department? Why did they wait for everything to fall apart in the past few years?
[i]and, perhaps, a long-term unrealistic expectation of the annual ROI (7.75%) for the pension system.[/i]
Yeah, perhaps. How do you know that 7.75% is unrealistic?
[quote]How do you know that 7.75% is unrealistic? [/quote]I don’t know it. That’s why I qualified it with “perhaps.”
What I do know is that CalPERS has not been able to meet that standard over the 10-year period ending June 30, 2009, according to CalPERS. (I don’t recall what their annual return was, but it was closer to 4% than 7%.) The reason CalPERS has announced this year that it will be raising its rates ([url]http://www.calpers.ca.gov/eip-docs/about/board-cal-agenda/agendas/full/200905/item14.pdf[/url]) (by a large amount) in the coming years is because CalPERS has failed to meet its long-run 7.75% target. If they had averaged 7.75% or more, the rates would not be going up.
Now, just because they had a bad 10 years, which included the post-9/11 collapse and also the sub-prime collapse, does not mean that going forward they won’t be able to achieve a 7.75% APR (annual percentage return). It’s obviously an unknown.
However, when I first learned — from Sue Greenwald — that 7.75% was their expected annual rate of ROI — I thought that was a little bit (not a lot) higher than a normal long-run expected return for a balanced portfolio. My recollection (from studying finance) was that a mix of stocks and bonds will normally bring in a 20-year average around 7% (not adjusted for inflation). But, I concede, the difference might be due to what the stock/bond mix is or comparing an individual investor (who might have higher trading costs) with a large institutional investor. So I don’t know.
Also, the expected inflation rate can have a large effect. If we experience rampant inflation (say over 6% per year) in the coming years, then achieving 7.75% will be much easier than if our inflation rate is more in the normal range (3%).
FWIW, in a May, 2009 letter to its investors, Charles Schwab & Co. published this statement: “Our estimated return for large-cap stocks during the next 20 years is 7.4% annually.”
Other than when inflation is running really high, bonds will pay much less than that. Thus, if 7.4% is a good guess as to what the DJIA will return (the S&P is usually about the same, but small or midcap averages can be different, depending on the length of period) and you mix in some bonds (and far worse, real estate), then I think it is not terribly unreasonable to think 7.75% per year is quite optimistic.
Sue can speak for herself on this, but she has a much more pessimistic view than I have with regard to future market returns. Her belief, if I’ve heard her right, is that the good times for corporate America, which started in the late 1940s, have played themselves out and going forward we should expect much worse corporate profits.
The 3% @50 is CLEARLY a non-starter, but lets look at rest…
Quoting …”Part of my concern is that for a lot of people getting pensions they are getting 2% at 60 and making a base salary between $20,000 and $40,000. That is not going to end up making anyone rich.”
So the Civil Servant making say $40,000 gets 70% of salary at age 60 after 35 years of service. Granted, its not a huge pension, BUT (and that’s a BIG but), the Private Sector worker with the SAME pay, the SAME Years of service, and the SAME age at retirement MIGHT get half that pension (and that’s if they are one of the lucky few still working for a company that has a pension plan).
My POINT is that at ALL (yes ALL) salary levels the Civil Servant’s pension formula results in a pension AT LEAST twice as generous as the similarly situated Private sector worker.
Tell me WHY Private Sector workers should pay for this!
Quoting … Greg Kuperberg
“My guess is the average Californian has no idea (yet) about the pension tsunami which is barreling toward us.
I have a PhD in mathematics, and I have seen various blog and news items about CalPERS for months, but I still have no idea about the “pension tsunami which is barreling toward us”. For me, at least, phrases like this are about as clear as mud.
Ed Mendel’s blog also leaves me scratching my head. “
************
Sounds like you either skipped or failed economics.
[quote]Part of my concern is that for a lot of people getting pensions they are getting 2% at 60 and making a base salary between $20,000 and $40,000. [/quote]FWIW, there was not one full-time permanent employee for the City of Davis whose annual salary + medical benefit was less than $48,000 per year in the 2008 calendar year. The operative number for 2009 is in all likelihood a minimum of $50,000, given across the board salary increases and the fact that the cafeteria benefit is now $18,137.76, up from closer to $15,000. It is true that some employees have lost salary due to furloughs. But for that, I think the minimum for 2009 would be around $52,000.
I’m sure some people will question the validity of including a medical benefit as part of income. But I think doing so is absolutely right. It’s actually worth even more than regular income, because the employee gets the benefit and does not have to pay income taxes on it. If the same employee making a salary of say $90,000 a year plus an $18,000 cafeteria benefit took the $18,000 in cash, he would be far worse off after paying taxes and buying his own $18,000 per year medical plan. That is the reason why ALL highly paid employees insist on getting medical coverage through work — our strange tax laws. But for that, many highly productive employees (who are perfectly healthy) would just assume to have a cheap medical plan they could buy, one with a very high deductible that covered them in case of serious illness, and instead take the income in salary. But they are worse off doing that, due to the tax laws.
One more thing, here, as far as the City of Davis goes: the employees’ “base salary” (not counting other income or overtime pay) is operative when it comes to calculating the pension starting point. Hence, if someone’s final salary were $60,000 and he had a 75% pension (2.5% x 30 years), his pension would start at $45,000 per year. (Note that CalPERS inflates the pensions every year, based on a COLA formula.) So even though about 5% of the employees for the City of Davis make annual base salaries lower than $40,000/year, those are all entry level (non-college educated) positions. Those are not the jobs that people are retiring from. Once someone moves up (after a few years with the City) to a job like “Park Maintenance Worker II), his annual base salary is over $50,000 a year (in 2009). With overtime and other non-salary benefits, his annual income is around $80,000 a year.
[i]I don’t know it. That’s why I qualified it with “perhaps.”[/i]
“I don’t know whether their 7.75% forecast is realistic” is miles apart from “we have a serious fiscal problem ahead of us”, much less “the pension tsunami which is barrelling toward us.”
[i]However, when I first learned — from Sue Greenwald — that 7.75% was their expected annual rate of ROI — I thought that was a little bit (not a lot) higher than a normal long-run expected return for a balanced portfolio.[/i]
One moment where I’m going to part company with other people is that I’m not going to take a figure like 7.75%, and more importantly its interpretation, on faith second-hand. Here is a key document ([url]http://www.calpers.ca.gov/eip-docs/about/board-cal-agenda/agendas/full/200905/item14.pdf[/url]) from CalPERS explaining their actual rate smoothing plan. They don’t actually use 7.75% in their contribution formulas; they only use it to discuss whether their contribution formulas are reasonable.
So where did the 7.75% come from? It was exactly the return that CalPERS obtained over the past 20 years. They figure that, in discussing whether their formulas are reasonable, a good guess for the next 20 years
is the past 20 years. So let’s say that it was 7% (according to your rule of thumb) or 7.4% (according to Charles Schwab). The discussion wouldn’t be all that different.
The actual rate policies at CalPERS use 15-year rate smoothing and 30-year amortization, and a switch to invoke 30-year amortization based on a ratio “corridor”. The formulas don’t seem so awful, and they have the property that CalPERS will gradually respond to liabilities with higher fees. They’re doing everything they can not to drop a bomb on public budgets; they don’t want to be a Vallejo and they don’t want to cause Vallejos.
Anyway, again, as a critique of CalPERS, this 7.75% is a strawman, because it’s not the policy.
[i][Sue’s] belief, if I’ve heard her right, is that the good times for corporate America, which started in the late 1940s, have played themselves out and going forward we should expect much worse corporate profits.[/i]
First, this prediction is not directly the same as CalPERS’ returns. CalPERS does not have to invest in “corporate America”, and for the same reason a lot of companies that fly the American flag — like Microsoft and Coca-Cola — are actually global companies. Let’s say that profits in the US were pathetic for the next 20 years. It wouldn’t necessarily matter, if “American” companies made it up with profits in Europe and East Asia.
Second, although I don’t want to get too personal about this, if I did think that the glory days are over for corporate America, I certainly wouldn’t embrace adjustable-rate mortgages for limited-income housing in Davis. I wish that the city council would avoid mistakes like that, before it draws crosshairs on pensions.
Mr Rifkin fits one of the following:
ignorant
lies
tries to obfuscate
[quote]FWIW, there was not one full-time permanent employee for the City of Davis whose annual salary + medical benefit was less than $48,000 per year in the 2008 calendar year. The operative number for 2009 is in all likelihood a minimum of $50,000, given across the board salary increases and the fact that the cafeteria benefit is now $18,137.76, up from closer to $15,000. It is true that some employees have lost salary due to furloughs. But for that, I think the minimum for 2009 would be around $52,000.[/quote]
Benefits are not “PERSable”, so in Mr Rifkin’s example, the retirement benefits would be based on $30,000.
[quote](Note that CalPERS inflates the pensions every year, based on a COLA formula.)[quote]
Yes… and that is the maximum… if real inflation exceeds 2%, retirees are SOL… not the case this year, but, think 70’s…
It’s obvious that either Mr Rifkin is unemployed or has little or no benefits… a lot of professional level city employees give up 20%+ of compensation (salary) to have the stability, other benefits of the public sector…
[quote]Mr Rifkin fits one of the following:
ignorant
lies
tries to obfuscate [/quote]
This is exactly what we are looking to get away from. You are perfectly capable of arguing your points without the insults.
Greg K:
Consistency across arguments over different issues is not Sue’s hallmark. She has very clear and specific ideas about different local issues, but she uses inconsistent arguments from multiple sides of more global issues or theories to support a given position on a local issue. I respect her passion for specific issues (though I am sometimes suspect that personal gain sometimes drives her passion), but I no longer consider her thought process to be consistent and unbiased, and therefore, her arguments about an issue are no longer a persuasive or important consideration for me.
FOR THE RECORD (Bobby?) says I am a lying, obfuscating ignoramous. However, Bobby, you failed to show where anything I said was incorrect.
You pointed, for example, to the base salary issue with the low-skilled, entry-level position making $30k and note, as if you have revealed something new, that the pension would be based on the $30k, not the $48k. Is that a revelation? Is that a correction? Is that what makes you a high producing professional?
No. You just repeated what I already said above: “the employees’ ‘base salary’ (not counting other income or overtime pay) is operative when it comes to calculating the pension starting point.”
So your argument is that I am a liar, yet your restate what I wrote. And that makes you what, brilliant, Bobby? [quote]a lot of professional level city employees give up 20%+ of compensation (salary) to have the stability, other benefits of the public sector… [/quote]Apparently, given your inability to mount a sensible argument, you are not one of those professionals.
I found “For The Record’s” comment that since COLA increases are capped, …”if real inflation exceeds 2%, retirees are SOL”.
Gee, where that does that leave the Private Sector retiree (you know, those people … called TAXPAYERS … who pay for most of YOUR pension)?
I well versed in pension design/funding, and almost NO Private Sector plans include ANY COLA at all.
Civil Servant pension formulas need to be REDUCED for FUTURE years of service for CURRENT employees. If reductions only apply to NEW employees we will save nothing for 20-30 years until they begin to retire … and we’re near broke NOW.
I still think the best way to save money immediately would be to increase the employee share and decrease the employer share.
The pension formulas are too RICH, and every day, CURRENT employees continue to accrue additional pension benefits adding to the unfunded liability.
We need to “STOP the bleeding” by immediately REDUCING the formula for CURRENT employees for (NOT past but all) FUTURE years of service.
Other than decreasing the employer share, what do you think needs to be done?
Defined benefit pension formulas = FACTOR X YEARS OF SERVICE X PENSIONABLE COMPENSATION.
My suggested changes (which would STILL result in more generous pensions that Private Sector workers get):
(1) the FACTOR should not exceed 1.5%/yr
(2) the minimum retirement age for an unreduced pension should be 60 for safety workers and 65 for all others. You can retire at an earlier age, but with a full actuarial reduction in benefits (just as Social Security does if you begin to collect at age 62 instead of you “full retirement age”)
(3) Pensionable compensation should include ONLY BASE PAY, no overtime, no sickday/vacation payout, and no “allowances” .. such as parking, uniform, housing, etc. etc. etc. End of career “spiking” via out-of-the-ordinary raises/promotions should not be included in pensionable compensation.
(4) There should no of Year of service credit for any year in which the worker is PAID for less than 1000 hours of work (yes, this is the way it works in Private Sector plans). This requirement should replace the very minimal “salary” requirements now used.
(5) AND … retirees pay AT LEAST 50% of healthcare costs …. 95+% of Private Sector workers get ZERO.
Can the city increase the employee share without renegotiating union contracts? If so, then this is an important type of wage leverage for the city. But the city needs to be a little careful, because you only get to use it once — and also because morale takes the same hit as with any other type of pay cut. (Unlike some in this discussion, I understand cost concerns, but I don’t want to talk as if I’m gunning for people’s salaries.)
The Unions (especially Safety) will NEVER “negotiate” the very deep reductions needed. Unfortunately, the only workable solution seems to be to outsource entire departments .. even police & fire.
Yup… Pres. Regan did it to the air traffic controllers & we can do it to police & fire.
[quote]Can the city increase the employee share without renegotiating union contracts?[/quote]I think the only way the city could do that unilaterally would be if 1) it went into this year’s negotiations and made an offer to the unions which included a provision whereby non-safety workers* pay some or all of the “employee share” to PERS; and 2) the city then never backed off from that demand; and 3) the City Council declared an impasse; and 4) the City imposed its ‘last, best’ offer as the operating contract.
In reality, I don’t think those four factors stand. First, I don’t sense that this Council is interested in ever declaring an impasse. That’s apparently not seen as a friendly maneuver, and the council seems to be on very friendly terms with the staff. If they never declare an impasse, they can never impose any provision on the employees. Also, I doubt that the council entered this round of negotiations with that demand. If they didn’t, then the ‘best offer’ they made (from the employees’ point of view) could not include such a change in an imposed contract.
All that said, I think at some point non-safety employees in Davis, just like the vast majority of all employees, safety or not, up and down the state today, will pay the employee share. What might happen in Davis going forward is the change will apply now to new hires; and the existing employees will have to (by way of negotiation) agree to paying their share down the road.
*Cops and fire in Davis pay the maximum employee share allowed already. However, the City’s employer share for them is higher than it is for non-safety, due to the 3% at 50 formula.
[quote]the City’s employer share for them is higher than it is for non-safety, due to the 3% at 50 formula. [/quote]The difference is not all that big. Take, for example, a beginning firefighter in 2008 making a base pay of about $73,000 a year. The City paid CalPERS approximately $16,400 toward his pension. For a WWTP SR MAINTENANCE TECHNICIAN who made $73,800 in 2008, the City paid approximately $14,800 toward his pension.
The big difference is that in the second case that includes both the employee and employer share. In the former case, that is just the City share. The firefighter has to shell out 9% (~ $6,570) for his employee share.
Going forward, the real problem for the City is that the rate of the contributions are going to go up (quite a lot over time). But the employee shares are capped, based on the formulas. So for a beginning firefighter ($73,000 is the bottom end for them), he will keep paying roughly $6,570 out of every $73,000 he makes, regardless of how many annual raises he gets. But if CalPERS soon charges its agencies say, 36% (as opposed to 31% now), for a 3% at 50 worker, the first 9% ($6,570) of the $73,000 will come from the firefighter; but the rest ($26,280) will come from the agency. In other words, the City will face a $10,000 increase, even if it freezes all its wages. And Davis does not have that $10,000 multiplied hundreds of times at least.
David, could you point me in the direction of your data sources for Davis’s budget? Specifically, I would like to see the data from which you came up with this statement: [quote]”Currently the city spends around 71% of its general fund budget on personnel costs and that number is expected to rise in future…”[/quote]
Thanks
My source was the City Finance Director, Paul Navazio, who said it at the last Finance and Budget Commission meeting.