A disastrous decade

State descent began with CalPERS push for pension spike

Ten years ago today, California's march toward its present fiscal
chaos began. On June 16, 1999, the board of the California Public
Employees Retirement System (CalPERS) -- its investment portfolio
bulging after several years of large gains -- voted to ask Gov. Gray
Davis and the Legislature to broadly increase benefits for more than
800,000 government employees and retirees.

There was some skepticism. An aide to Davis, who was then
cultivating an image as a pragmatic, can-do centrist, said the
governor worried about the prudence of such a broad benefit boost.
Assemblyman Tom McClintock, R-Thousand Oaks, questioned how CalPERS could assert that the massive benefits hike could be enacted with little or no strain on the state budget. The contention presumed CalPERS' huge portfolio would continue its big annual growth indefinitely.

But the Wall Street dot-com boom was at its zenith, with some
technology mutual funds, not just individual stocks, quickly
doubling in value. And after 16 years under Republican Govs. Pete
Wilson and George Deukmejian, the state's public employee unions
were spoiling for a huge victory.

Three months after the CalPERS board made its recommendation, Senate
Bill 400 swept to passage and was signed by Davis.

It revised sharply upward the formula under which retirement
benefits were calculated for state and public school workers; it
based the benefits on the final year of pay (normally the highest),
not an average of the final three years; it erased a previous
money-saving reform by ending a tier system under which new hires
received smaller pensions; and it conferred a vast array of pension
sweeteners on retirees and their survivors. It also paved the way
for local governments throughout the state to offer similar
retroactive gifts of public funds to their employees and retirees.

CalPERS' argument that this enormous pension spike would have little
long-term fiscal consequence had carried the day. Its official
estimate was that in 2008-09, the state's employer contribution
would be only $379 million.

The actual figure: $4.6 billion. The likely figure in the next few
years, thanks to the stock market's huge slide, will probably be
much higher.

In other words, the annual cost of the allegedly benign 1999 pension
spike is likely to be at least a dozen times the original estimate.
And if state leaders did the prudent thing and started setting aside
money to cover at least $48 billion in unfunded retiree health
benefits, that would add at least $2 billion more to the annual tab.

It's hard to imagine how the state could be more irresponsibly
managed.

CalPERS officials chose not to respond to our request for comment on
the catastrophic fallout of its board's decision 10 years ago today.
They seem to be under the impression, however, that things have gone
well. Last year, CalPERS gave a $209,000 bonus to executive Russell
Read, on top of his $555,000 salary.

How dumbfounding. How ridiculous. How Sacramento.


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http://tinyurl.com/calpers-disastrous-decade