California Has Debt, Not Surplus

Dennis Prager interviews California Senator John Moorlach (37th District) about California Assembly Bill 2943, HOWEVER, the conversation started out with budgets and economics. Sen. Moorlach is a CPA after all. This is the section I clipped for use with friends and family that state California is money rich when you speak about our states debt.

Other related audio is here:

Here are half of Senator John Moorlach’s six points in his article entitled, “Budget Primer: 6 Key Measures Of California’s Fiscal Health” (January, 2017):

1. California’s Net Financial Position

California’s “net” unrestricted financial position is a $169 billion deficit ($4,375 per person) according to the most recent Comprehensive Annual Financial Report (CAFR).

This figure should be positive for healthy organizations. It is derived by tallying the state government’s assets (monetary funds, investments, buildings, roadways, bridges, parks, etc.) and subtracting its obligations. The last positive position California had was during Governor Pete Wilson’s final term where the state had $1.5 billion in unrestricted net assets.

California is now ranked the worst state, below Illinois, whose net position is a negative $143 billion, or $11,174 per person. Illinois’ finances are so bad, they’re telling lottery winners that they may have to delay their payments.

Deferred maintenance for the state’s roads and highways is some $59 billion.

2. Estimates of California Unfunded Pension Liabilities

*NOTE: For the 2015/16 fiscal year, CalPERS planned for a 7.5% rate of return, but only managed to achieve a 0.6% rate of return. Seven percent of a $400 billion liability means a shortfall of $28 billion (some 20% of Governor Brown’s general fund budget.)

3. Current Unfunded Retiree Medical Liability

California has the nation’s highest unfunded retiree medical liability at $74.1 to $80 billion.

A John and Ken reality check (posted January 2017):

John and Ken speak to Marc Joffe of the California Policy Center (http://californiapolicycenter.org/) in regard to these recent articles on the subject of California’s fiscal emergency:

One aspect Marc Joffe mentioned would be a way to overcome this “debt” is to increase California’s population… however, we see through some recent stories…

…this is not a viable option… nor will it be as long as Democrats are in charge:

In other words, Californians are doomed if remaining on this course.

See also:

California’s Real Debt Is $1.3-Trillion

John and Ken speak to Marc Joffe of the CALIFORNIA POLICY CENTER in regard to these recent articles on the subject of California’s fiscal emergency:

California’s Total State and Local Debt Totals $1.3 Trillion
Can California’s Economy Withstand $1.3 Trillion of Government Debt?

One aspect Marc Joffe mentioned would be a way to overcome this “debt” is to increase California’s population… however, we see through some recent stories…

California Won’t Fall Into The Sea — It’s Moving To Texas Instead
The Exodus of People Moving Away From California Is Becoming an Avalanche

…this is not a viable option… nor will it be as long as Democrats are in charge:

California Regression – Eco Craziness
John & Ken Discuss CalPERS Ponzi Scheme

In other words, Californians are doomed if remaining on this course.

John & Ken Discuss CalPERS Ponzi Scheme (UPDATED)

California Boondoggles

The pension crisis in California is the worst in the country, and it will continue to get worse as Jerry Brown and the environmentalists strap this state with regulations that choke businesses to death — see:

California Regression – Eco Craziness
Cow-Farts in London – Jerry Brown

IBD has this article on the issue:

Pensions: California, which is known for its earthquakes, just had a major one. Didn’t feel it? You will. This quake isn’t the earthshaking kind, but rather the state’s decision to recognize reality when it comes to its insolvent public-employee pension fund.

Last week, the 85-year-old California Public Employees’ Retirement System, or CalPERS, slashed its official investment forecast going forward, meaning that state and local governments, police and sheriffs departments, and even school districts will have to spend billions of dollars more to CalPERS to support their future retirees. And, no doubt, it will mean higher taxes for all.

Sadly, this move won’t be enough. For years, the state has projected steady investment returns of 7.5% for CalPERS, the largest pension fund in the nation. But returns have been below that. So now CalPERS is trimming its return to 7% per year. But, given the pension fund’s mismanagement and poor performance, even that may be too high. Today the fund is a little over 60% fully funded, meaning it will have to raise billions of dollars more to be solvent. That means higher contributions for government workers, and higher taxes for average citizens.

It’s no accident. “CalPERS has … steered billions of dollars into politically connected firms,” wrote Steve Malanga in City Journal, back in 2013. “And it has ventured into ‘socially responsible’ investment strategies, making bad bets that have lost hundreds of millions of dollars. Such dubious practices have piled up a crushing amount of pension debt, which California residents — and their children — will somehow have to repay.”

That’s happening now. California’s famous Highway Patrol, for instance, has grossly underfunded its pensions. So it got the state to agree to a $10 hike in car registration fees to help make up the shortfall. No doubt, it will be asking for more soon.

It’s not just California. Across the country, pension funds have been underfunded, mismanaged and in some cases looted by managers. Today, according to the Fed, pension funds across the country are $2 trillion in the red — after being overfunded as recently as the year 2000. That means tax hikes are coming, like it or not…..

500-Billion Unsecured California Pensions and growing; 3.2 Trillion Nationally

State Deficits Budget Shortfall on Pensions from Papa Giorgio on Vimeo.

Pensions in Peril: The funding status of state-sponsored pension plans:

As the races for governor heat up in thirty-six states, the question of how to fix troubled state-sponsored pension plans may be one of the most challenging that candidates will have to face. State pension plans are underfunded by $3.2 trillion when misguided accounting practices are corrected according to research by Joshua D. Rauh, an associate professor of finance at the Kellogg School of Management, and Robert Novy-Marx at the University of Chicago, published in the Journal of Economic Perspectives. Furthermore, because pension funds are highly exposed to market risks, there is only a 5 percent chance that they will perform well enough to meet the needs of retirees in fifteen years.

State governments in the United States had approximately $2 trillion set aside in pension funds and $3 trillion of “stated” pension liabilities in December 2008. By this measure, the funds seemed to be short nearly $1 trillion. But according to Rauh and Novy-Marx, the shortfall is more than three times larger, at $3.2 trillion. The lower estimate, they say, is the result of government accounting standards that require states to apply accounting procedures that severely understate their defined-benefit pension plan liabilities….

New York Times: State debt woes grow too big to camouflage:

…Pensions are debts, too, after all, paid over time just like bonds. But states do not disclose how much they owe retirees when they disclose their bonded debt, and state officials steadfastly oppose valuing their pensions at market rates.

Joshua Rauh, an economist at Northwestern University, and Robert Novy-Marx of the University of Chicago, recently recalculated the value of the 50 states’ pension obligations the way the bond markets value debt. They put the number at $5.17 trillion.

After the $1.94 trillion set aside in state pension funds was subtracted, there was a gap of $3.23 trillion — more than three times the amount the states owe their bondholders.

“When you see that, you recognize that states are in trouble even more than we recognize,” Mr. Rauh said.

With bond payments and pension contributions consuming big chunks of state budgets, Mr. Rauh said, some states were already falling behind on unsecured debts, like bills from vendors. “Those are debts, too,” he said.

In Illinois, the state comptroller recently said the state was nearly $9 billion behind on its bills to vendors, which he called an “ongoing fiscal disaster.” On Monday, Fitch Ratings downgraded several categories of Illinois’s debt, citing the state’s accounts payable backlog. California had to pay its vendors with i.o.u.’s last year.

“These are the things that can precipitate a crisis,” Mr. Rauh said.

Verum Serum points to the recent Stanford study that shows California owing 500-billion (that’s a “B”) dollars in unsecured pensions (and growing):

Yesterday, Stanford released an analysis of California’s pension liability which showed it may be as high as $500 billion, i.e. six times the state’s annual budget. Much of this liability has been hidden behind rosy assumptions of 7.5-8.0% returns on investment.

How did we get here? The Governor’s economic adviser David Crane put it this way:

State legislators are afraid even to utter the words “pension reform” for fear of alienating what has become — since passage of the Dills Act in 1978, which endowed state public employees with collective bargaining rights on top of their civil service protections — the single most politically influential constituency in our state: government employees.

Because legislators are unwilling to raise issues that might offend that constituency, they have effectively turned the peroration of Abraham Lincoln’s Gettysburg Address on its head: Instead of a government of the people, by the people and for the people, we have become a government of its employees, by its employees and for its employees.

In short, we got here because unions demanded levels of benefits which the state could not afford. That happened because liberal Governors (Jerry Brown) gave unions the power to put us all in this position….

California’s governor Schwarzenegger commissioned a study by Stanford University, which has found that California’s three public employee pension funds (The California Public Employees’ Retirement System [CalPERS], California State Teachers’ Retirement System [CalSTRS], and University of California Retirement System [UCRS]) lost $109.7 billion in portfolio value in one year (June ’08 to June ’09) and are currently in shortfall of “more than half a trillion dollars.”

American Thinker has a great article on this as well, naming names even:

California’s governor Schwarzenegger commissioned a study by Stanford University, which has found that California’s three public employee pension funds The California Public Employees’ Retirement System [CalPERS], California State Teachers’ Retirement System [CalSTRS], and University of California Retirement System [UCRS]) lost $109.7 billion in portfolio value in one year (June ’08 to June ’09) and are currently in shortfall of “more than half a trillion dollars.”

By law, California taxpayers are required to pay the public employees’ pensions shortfalls that may occur. Local governments cannot “print money” as the federal government does to cover budget deficits.

What should have been considered a huge scandal in the state pension fund system in the past year got little attention but is more pertinent now: The two largest plans, CalPERS and CalSTRS, were reportedly near bankruptcy in 2009 after it was learned the funds had lost from 25%-41% of their value due to risky investments in real estate and the stock market. Former employees of the state plans were accused in January of getting huge fees to direct pension investments to certain banks or ventures.

There are outrageous examples of abuse in the California public pension system.

PensionTsunami.com, which has been tracking the pension fund liability issue for five years, has found that 9, 233 retired members of CalPERS or CalSTRS receive more than $100,000 per year in retirement benefits, amounting to more than a billion dollars a year.

The retired city administrator of Vernon, California, Bruce Malkenhorst, receives an annual pension of $449,675 from CalPERS. Vernon, a Los Angeles suburb, has 92 residents….

The Author of “Pluder” Interviewed from Papa Giorgio on Vimeo.

Half A Trillion Dollars in Debt (California that is)

This entire article is imported from American Thinker, and even though it is dated, maybe many Californians missed this HUGE problem prior to the election?

California’s Half-Trillion-Dollar Pension Fund Mess: Blame Jerry Brown

By Jane Jamison

California is the nation’s shameful example of what happens when Democrats influenced by big-government labor rule the statehouse for forty years.

With 12.5% unemployment (up from 4.5% a mere three years ago) and a “recognized” budget deficit of $21 billion, California has just found that out it is in much, much more financial trouble than anyone, especially a Democrat, really wants to admit.

California’s governor Schwarzenegger commissioned a study by Stanford University, which has found that California’s three public employee pension funds (The California Public Employees’ Retirement System [CalPERS], California State Teachers’ Retirement System [CalSTRS], and University of California Retirement System [UCRS]) lost $109.7 billion in portfolio value in one year (June ’08 to June ’09) and are currently in shortfall of “more than half a trillion dollars.”

By law, California taxpayers are required to pay the public employees’ pensions shortfalls that may occur. Local governments cannot “print money” as the federal government does to cover budget deficits.

What should have been considered a huge scandal in the state pension fund system in the past year got little attention but is more pertinent now: The two largest plans, CalPERS and CalSTRS, were reportedly near bankruptcy in 2009 after it was learned the funds had lost from 25%-41% of their value due to risky investments in real estate and the stock market. Former employees of the state plans were accused in January of getting huge fees to direct pension investments to certain banks or ventures.

There are outrageous examples of abuse in the California public pension system.

PensionTsunami.com, which has been tracking the pension fund liability issue for five years, has found that 9, 233 retired members of CalPERS or CalSTRS receive more than $100,000 per year in retirement benefits, amounting to more than a billion dollars a year.

The retired city administrator of Vernon, California, Bruce Malkenhorst, receives an annual pension of $449,675 from CalPERS. Vernon, a Los Angeles suburb, has 92 residents.

California’s state employee pension fund liabilities have ballooned for years with increased numbers of state employees, many of whom can retire at age 50, can “spike” their last years’ income with overtime to increase their retirement, and can then move on to other government or private jobs without losing their pensions.

Why should Californians care about this confusing, complicated budget problem with a huge, unfathomable invoice attached? David Crane, writing for the Los Angeles Times, says that today’s pension fund shortfall is tomorrow’s budget cut to something some Californian is likely to miss.

In California’s case, past pension underfunding means reduced funding of current programs. This explains why pension costs rose 2,000% from 1999 to 2009, while state funding for higher education declined over the same period.

Californians are feeling the pain of the budget crisis, but they often misplace their criticisms.

Let’s go to the videotape this year of the many demonstrations on the many University of California campuses, where students have rioted against proposed 32% state tuition increases and program cuts.

Approximately 22,000 California teachers have just received “pink slips” indicating that they may be laid off due to budget cuts next fall. An additional 20,000 were laid off last year. California is cutting “live” teachers out of classrooms in order to pay for retired teachers.

California schools have gone from number one in the country in the 1970s to at or near the bottom in performance and funding.

Who is to blame for this ticking-time bomb of unfunded public pension liability?

“Thank” Jerry Brown. As Governor “Moonbeam” of California in 1978, he signed the “Dill Act,” which gave California public employees the right to collective bargaining.

Brown, who has been governor, Oakland mayor, and attorney general, now wants to be California governor…again. Four big, grateful government labor unions are backing him…again.

Speaking recently to the Service Employees International Union, Jerry Brown “the populist” said he was proud to have given state employees “the choice” to belong to unions in the ’70s, and he will “take a look” at the pension funds to make sure that they are actuarially sound. Big applause line.

Speaking to another union group in Sacramento, Brown was caught on videotape asking the labor leaders to “do the dirty work” and “attack” Republican candidates who oppose him in the governor’s race. (Hear it here.)

Who else is to blame?

Since Brown gave them a green light in the 1970s, public employee unions have become a muscular, dominating force in California politics. State employee unions spent a whopping $31.7 million on state races just from 2001-2006, according to the California Fair Political Practices commission — higher than any other group, including corporations. The majority-Democrat California legislature has voted accordingly.

What can be done?

Jerry Brown the rerun, who is running technically unopposed by any other candidate in the Democratic primary, has been oddly silent on his state’s dire budgetary woes. His campaign site news releases do not mention budget problems.

At the same time, it has been noted by the tabloid media that Jerry Brown has been weirdly over-involved as California’s attorney general, his current job, in the celebrity death investigations of Anna Nicole Smith, Michael Jackson, and Corey Haim. His office spent several months investigating ACORN employees who were caught in a videotape sting organizing houses of prostitution in government housing. Brown has just determined that there will be no prosecution of ACORN in his state.

Brown also went to the unusual extra step to seal his gubernatorial records from his 1970s-’80s term for fifty years. (U.S. presidents can seal records only up to twelve years for national security purposes.)

Brown refuses to join with fourteen other states’ attorneys general in challenging the recently-passed health care reform law, even though it will mandate billions more in unfunded expenses to the financially-strapped California Medicaid program. He says that to challenge Obamacare would be to engage in “poisonous partisanship.”

Republican gubernatorial candidates are tacking the pension fund liability:

Steve Poizner says he supports a “two-tier” system for current and new state employees but doesn’t think that a new governor will be able to come in and “steamroll” the unions.

Meg Whitman has campaigned on cutting state employee rolls and advocates “401(k)” style pensions for government workers and higher retirement ages (from age 50 to 55 or 65).

What can California do?

The U.S. Constitution technically does not allow for states to go bankrupt. Vallejo, California was the first city in the country to go bankrupt and has been establishing new “tiers” of retirement plans for police and fire employees.

The newly-elected governor of New Jersey, Chris Christie, is tackling government employees’ unions to some effect. Christie has announced his intentions to cut substantially from government executive positions, privatize other state jobs, and cut positions.

There has been criticism of increased funding and budget overruns for state prisons due to the influence of the California prison guards’ union.

The Citizen Power Campaign seeks to “unplug” the public employee unions and is endorsed by many of the conservative candidates for office in California, including Republican Steve Poizner for governor.

One thing California clearly does not need is the déjà vu “hair of the dog” in the person of 1970s retread Democrat Jerry Brown.