California Dreaming: Bankruptcy, Pensions and Taxes
The California Public
Employees' Retirement System lives in the rarified air where financial magic somehow materializes to pay for their irrational
exuberant pensions. When the drug high is over, the real world requires a harsh penalty for ebullient irresponsibility. The
Chicago Tribune reports:
"San Bernardino, a city of 210,000 about 60 miles
east of Los Angeles, filed for bankruptcy protection on August 1. Since then, it has halted its bi-weekly, $1.2 million payment
to Calpers, saying it wants to defer any payments to the fund until fiscal year 2013-2014. Calpers says the city is already
$6.9 million in arrears since August 1.
The San Bernardino bankruptcy is fast emerging as a precedent-setting case over
how creditors, especially Wall Street bondholders and insurers, are treated in a municipal bankruptcy, because never before
has a city seeking bankruptcy halted payments to Calpers or threatened its historical primacy as a creditor.
state law, the contract between Calpers and debtor cities is viewed as inviolate and has been treated as such by state courts.
Unlike Calpers, other creditors have historically been forced to renegotiate or forgive debt to debtor cities."
concept of an inviolate obligation tied to public employee retirement payouts is a sacred cow that needs purging
from law and, more importantly from populace endorsement.
Notwithstanding, expressing such supportive government
orthodoxy, that bastion of objective news as reported by the Sacramento Bee, writes on the pro taxation argument of Jerry Brown: California tax vote start of national tax hike
"Revenue means taxes, and certainly those who have
been blessed the most, who have disproportionately extracted, by whatever skill, more and more from the national wealth, they're
going to have to share more of that."
The Democratic governor's remarks
follow passage last week of Proposition 30, his initiative to raise the state sales tax and income taxes on California's highest
According to Governor Brown the expanded role for government programs and, by inference, public
employee unions, is never ending. Just ask the taxpayers who live in San Bernardino if they are paying enough. Next, ask the
municipal bond creditors, who stand to lose significant capital from the forthcoming bankruptcy.
Defining the extent
of the self-inflicted injury, California: Anatomy of an exploding government obligation, reveals an alarming example of the cold hard truth why the state is financially broke.
"A promise to pay a retiree's health care coverage is essentially a kind of defined benefit plan, in which
government pledges to cover a certain percentage of the cost of health insurance regardless of how much money it has actually
set aside for this benefit. As the State Budget Task Force's recent report on California explains, right now workers covered
in California by this retirement benefit are earning credits that should be financed to the tune of $4.7 billion a year, if
California is going to have enough money to pay off this obligation over the years.
of pre-funding the benefit, California has chosen to pay for it on a pay-as-you-go basis, taking the cash for the health insurance
premiums of retirees right out of its annual budget. Right now that's only costing the state $1.7 billion annually because
of the limited number of retirees who qualify for the benefit. But over time more and more workers will qualify, and those
workers will live on average decades in retirement, swelling the rolls of those whom California must provide health coverage
Where in the present distressed economy are there new corporate employment contacts that include
defined benefit plans? The old name is a pension. In the corporate world, IRAs and 401 K are common. The dinosaur companies
that accepted union contracts with future defined benefit obligations are out of business, either escaped offshore or are
hanging on by their fingernails.
Why should government employees have a privileged position, when the realities of further
municipal bankruptcies are growing daily? It seems that Governor Brown forgets his own rhetoric.
Populism, Progressives and Public Unions cites a quotation from the current California governor.
unions have agreed to larger employee contributions for their members. Taxpayers are living with cuts and making sacrifices
to deal with the reality of California's budget crisis, state workers are going to have to do the same." Jerry Brown
quote referenced in a Public Employee Unions Guarantee National Bankruptcy article, also confronts the unrealistic mindset that exists in "The Golden State". Someone
needs to explain to public officials that the state has used up their precious metal riches and their union members are not
willing to do the hard labor of mining new veins of revenue benefit reductions that will balance their budgets.
"The Assembly Public Safety Committee today is considering one of the most noxious, special-interest
pieces of legislation we’ve seen in a while—one that will endanger public safety, tread on the California constitution
and reinforce the perception that some government workers are part of a special, coddled group that’s exempt from the
normal legal and ethical standards that are applied to other Californians." The Registry
this same BATR essay the Steven Greenhut’s critique in the WSJ, Public Employee Unions Are Sinking California, is emphasized. California legislators inhabit the same psychotropic mental escapism, exemplified with the
double dippers that create the public employee entitlement culture. Financial reality never hits the retirement paychecks
of the civil service sector, while the tormented taxpayer is told they must pay more.
The rush to leave the state has Californians
perplexed for solutions as long as the Sacramento progressive ‘pols’ refuse to challenge the public union
mafia. Those who remain will bear an even higher tax burden to feather the nests of the most unproductive elements in society,
Governor Brown preaches. "And everyone is going to have to realize that building roads is important,
investing in schools is important, paying for the national defense is important, biomedical research is important, the space
program is an indicator of the world leader - all that takes money". Just maybe a bankrupt state and municipalities
needs to reduce the size and scope of government itself.
James Hall – December 5, 2012
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