

California’s New Taxes Are Paying for Pensions - ericfrenkiel
http://www.bloomberg.com/news/2013-03-27/california-s-new-taxes-are-paying-for-pensions.html

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hkmurakami
_> Teachers, who don’t receive outlandish wages or pensions, didn’t cause this
problem, and the good news for them is that they will get their pensions
because the state is legally required to back up school districts if they
can’t meet their commitments._

How can teachers be completely absolved of responsibility for the current
situation, considering that teacher's unions were at least partly responsible
for negotiating the pension contents? Obviously the individual teachers or
administrators never wanted a bankrupt system, but when you hand off
representation to your union without taking responsibility for long term
sustainability, stuff like this happens. Look at the Automobile Unions;
basically the same sort of setup.

~~~
Ntrails
Final salary pensions are outlandish˜. Utterly so. Using a realistic
(inflation + 5%) investment return and 40 years of service, such a pension
funded through DC would be ~30% of your salary contributed every year.

The fact that they might be based on a relatively modest salary doesn't change
the value of them as a benefit.

˜I am assuming based on article language this is what they have, it is also
consistent with the civil service in the UK.

~~~
_delirium
They were pretty common until recently, in both the private and public
sectors; it's not a particularly unusual arrangement only for these employees.
My father was a non-unionized employee at a Fortune 500 firm and retired on a
variant of a final-salary pension in the 2000s (variant because "final salary"
was defined as an average of the final 3 years). Presumably his company is not
going to decide to retroactively decide they don't feel like paying it,
either, since it was the agreed remuneration.

edit: As one concrete example, it looks like IBM had a final-salary plan until
2009, when it was (non-retroactively) phased out,
[http://www.theregister.co.uk/2009/07/07/ibm_final_salary_pen...](http://www.theregister.co.uk/2009/07/07/ibm_final_salary_pension_killed/)

~~~
Ntrails
Yes, the issue is that when they were introduced you had government bond
yields of well over 10%. Equities were expected to return even more. Pension
promises seemed like a cheap benefit to offer, and one that was mutually
beneficial.

Couple this with mortality rates falling (expected lifetime increasing) and
you have a bunc of completely unaffordable promises. There is a very very good
reason that final (and even career average) salary schemes are being phased
out.

Companies have finally discovered just how expensive their promises are, and
they are closing schemes as fast as they can get away with it. The government,
meanwhile, buries it's head in the sand because the taxpayer cannot go
insolvent. And even small changes to pension terms result in strikes.

The mathematics is pretty trivial for this rough estimate, but 30% of salary
is low ballpark of the contributions required to meet obligations with a 95%
probability over 40 years. Admittedly I'm using an internal asset model which
is relatively prudent, with long term derisking, and merely using todays
retirement age, and mortality tables. It's probably a lot worse than that (but
could be better, I mean this recession malarky can't go on forever right?).

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fusiongyro
> To the extent that school districts pick up the cost, kids in school today
> will be hurt because more dollars will go to pension costs and fewer dollars
> will go to classrooms. To the extent that the state picks up the cost,
> residents will receive fewer services. Either way, voters will get little
> for the tax increase they approved in November.

The only real problem here is how this was presented. As worded, it sounds
like Crane is arguing that the tax shouldn't have gone through. But the
pensions were guaranteed, and taxes are how the voters pay for things. What
the voters will get for their tax increase is fulfillment of obligations
they've already promised. What they're "getting" is teachers in classrooms
rather than rioting in the streets. The article comes across as whining about
having to pay for things already bought.

~~~
anigbrowl
_The article comes across as whining about having to pay for things already
bought._

I'm all about funding public education but it's a fact that there's a lot of
shitty, shitty deals in pension systems across CA - mostly of higher-level
administrators rather than rank-and-file employees, but there you go. There's
an opportunity cost to such deals. In my county (Alameda) the county
administrator makes about $425k/year - more than the President - and is
guaranteed her full salary in retirement, for life. It's nauseating.

~~~
eli_gottlieb
Yeah, so why not just go after those extreme cases rather than broadly and
generally defunding public education and ruining teachers' old age?

~~~
anigbrowl
I mention it because legally, most of these pension contracts stand on a
similar footing in California. I'm not arguing for broad or general defunding
of education, but I do think that sector needs root-and-branch reform from the
federal level down. I'd need several pages to go into how though.

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old-gregg
Why do state employees enjoy the privilege of pensions and free healthcare?
Why can't we force them into the real world of shitty insurance plans,
financial responsibility for their own retirement supplemented by social
security checks, you know, the life style that private sector employees are
"enjoying"?

By "private sector" I don't mean the tiny group of high-tech workers and other
6-figure professionals, but regular people who represent the median
$61K/household income, just to be clear.

Isn't this just utterly fucked up: to pay for state employees entitlements
while not being eligible to receive any ourselves?

I was hoping that California will simply go bankrupt and we'll be given a
chance to start from scratch, but apparently a State cannot be bankrupted, so
how are we supposed to get rid of Sacramento without resorting to violence?
"Voting them out" is clearly not working because they're simply lying on the
ballots now.

~~~
rdl
I'd far rather move (even just within the US) than resort to violence. WA, TX,
NV, etc. all seem comparatively well governed. The natural environment in CA
is a plus, and it still has the best overall nexus of capital, startups, and
people, but that advantage is rapidly declining vs. other states.

~~~
seanmcdirmid
WA put in the same bucket as TX, that's a bit wrong. Washington has decent
public schools, Texas is notorious for how bad it's schools are...

~~~
rdl
I just meant "has tech jobs, isn't insolvent".

I didn't know anything about TX schools (UT-Austin is great, as is UW, but I
assume the discussion is mainly about K-12).

~~~
seanmcdirmid
UTA is ok, not as good as UW. Washington K12 is in a different league from
Texas, which suffers from a completely dysfunctional non government.

California has much better weather than Texas. There is a reason housing
prices continue to rise in CA while they are basically stagnant in TX. Don't
brush off Cali because of a few gov problems, they will still continue to kick
every other state's ass in the long run. Anyways, I'm happy as long as
Californians move to Texas and not Washington.

~~~
rdl
It is almost as if you have a weird ulterior motive of trying to keep
unproductive yet meddlesome California voters out of Washington, while at the
same time reinforcing that Washington is one of the best states in the US,
particularly for tech entrepreneurs. I wonder why? :)

~~~
seanmcdirmid
As a PNW native, I have lots of in common with our west coast brothers and
sisters, but Californians drive our housing prices up and aren't as friendly
in traffic.

So if you are from California and looking for some place new, please remember
Seattle has LOTS OF RAIN. Texas has lots of sun in comparison, you'll be
happier there instead of Seattle where it rains 49 weeks out of the year.

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ChuckMcM
Actually during the advertising blitz this was pointed out that all of this
wasn't funding education but instead the teacher pension system. Not that most
voters listened.

~~~
gojomo
Indeed, I have at least one friend who voted for Prop 30 who had no idea (and
was rudely surprised when he later learned) that it would retroactively
increase his 2012 taxes. Ah, Democracy!

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maked00
Typical 1% rant designed to flumox the 99%.

Overlooks that teacher pensions is a legitimate expense if you just happen to
be running schools, like CA is.

Just goes to show, when you want to lie, lie big.

Take away teachers' pensions, and you might as well say goodbye to attracting
any new teachers or retaining the good ones.

As Dr. Martin Luther King worked so hard for, everyone, which includes
teachers, has a right to a decent living which includes a decent retirement.

~~~
rayiner
The attracting teachers bit is crap. We have a huge surplus of fresh college
graduates in this country with no jobs. You could get rid of pensions entirely
and still have bright people lining up to fill positions.

~~~
FelixP
Also, I imagine that most potential new teachers would be skeptical at best
about receiving their full pension benefits.

~~~
danielweber
It's very economically difficult to move either into teaching or out of
teaching. There's nothing fundamental about this; it's just the systems we've
set up.

Teaching really should be one of the things that it's as easy as possible to
switch into or out of.

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wildgift
I'm a CA Dem, but wish that the CA GOP would get its act together so there
would be a credible threat to this voodoo economics.

Right now, the CA GOP is in such a sorry state that many people seeking office
switch to Dem to even have a shot. My party is crawling with GOP defectors.

The Republican Party has become the Tea Party, Anti Immigrant, Anti Abortion,
Anti Tax, Anti Gay party. There's no room for compromise.

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vondur
A big part of the pension problem in California comes from Firefighters and
Police. They don't contribute to the pension system, yet used to be able to
cash out at age 50 with a full pension. Also, since their pension was based on
their highest attained salary, they would work one year with a bunch of
overtime, often spiking their salaries to six figures.

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dakinsloss
Check out cacs.org where the author is a board member for more information on
ca govt.

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omegaworks
Please, whine more about what we're paying schoolteachers.

Your words are doing so much good in the world.

SO. MUCH. GOOD.

~~~
wildgift
Teachers get paid OK and have a lot of job security compared to the average
workers. I think they deserve it, for the most part, but let's not fool
ourselves into thinking they are paupers or working class. It's a solid middle
class job with a great retirement package.

