How will unfunded “pensions” affect the local economy?

[FlyerInHi]

[quote=EconProf]CAR: You report how business donations far outweigh labor donations. But don’t a lot of businesses support liberal causes? Solyndra comes to mind. With crony capitalism under Obama, big business is “persuaded” to help out the existing administration, whether Democrat or Republican. Let’s remember that true conservatives do not automatically support big business.
[/quote]

I think true conservatives would not focus on solyndra, which is small fish. They would focus of the homeland security and military industrial complex that has built up in the DC area and across the country.

They would also focus on how our military has screwed things up that we have to keep on using the military on unscrew things. That situation seems like the perfect climate for the security/armament/defense business.

[CA renter]

[quote=livinincali][quote=CA renter]
Yes, public employees would be less effective without these benefits, and turnover rates would be much higher. These jobs value experience, because that’s the ONLY way you’re going to know how to do your job in many of these positions. The costs to recruit, train, and equip many of these employees are extremely high, so turnover is a huge cost to public employers.

Defined benefit plans encourage the most experienced and valuable employees to stay, and this reduces costs for the public employers, while also ensuring that they have the highest-qualified workforce.
[/quote]

It also encourages the worst and most disgruntled to stay as well. Once you get 10-12 years into city employment the benefit to stay on even though you hate doing what you’re doing is too high. Why do we want to lock down the best and the brightest shouldn’t they have freedom to pursue other opportunities like the rest of us. If you have someone that is truly great and want to keep them throw out the silly bucket pay scales and pay them what they are worth on the free market. Seriously where is the 10-15 year teacher making $60K in pay, $15K in medical benefits and probably another $10K in pension benefit going to go in the private sector and make a comparable amount.[/quote]

The worst employees tend to leave before benefits vest to any large extent. That doesn’t mean that some dead wood isn’t hanging around after too many years — and I absolutely support making it easier to fire truly bad employees. It’s more important to keep the good ones than to worry about the average or slightly less-than-average ones. Also, there’s no guarantee that if you got rid of the bottom 10%, that you’d get a new group that is better. Churning costs money, and it doesn’t necessarily mean that you’re getting better quality employees. And many of the best employees might not want to stick around, either, if they think that management is indiscriminately or wrongly terminating their coworkers.

As for the argument that there is any kind of a “free market” in labor…you clearly aren’t looking at the same things that I am. Employers are always conspiring to drive down wages and benefits, and they do so on many levels, including political, which is why we desperately need politically active unions…”united we negotiate, divided we beg,” and all that.

And that teacher going into another profession where s/he can make the same or better compensation? Lots of them do exactly that. Again, look at the attrition rate for teachers. Many teachers also come from the private sector where they were making more money, but they change for lifestyle or other factors (often to get hours that match their children’s hours). But since you’ve asked the question, how many professional athletes can leave the profession and make more money in another field? How many CEOs can leave that position and make anywhere near the same amount in another position? How about investment bankers? And how about the techies? Think they can leave tech and make more money elsewhere? Obviously, people tend to gravitate toward positions that give them the best of what they’re looking for with respect to job satisfaction, freedom, lifestyle, compensation, etc. That goes for everybody, not just teachers and other public servants.

[CA renter]

[quote=FlyerInHi][quote=EconProf]CAR: You report how business donations far outweigh labor donations. But don’t a lot of businesses support liberal causes? Solyndra comes to mind. With crony capitalism under Obama, big business is “persuaded” to help out the existing administration, whether Democrat or Republican. Let’s remember that true conservatives do not automatically support big business.
[/quote]

I think true conservatives would not focus on solyndra, which is small fish. They would focus of the homeland security and military industrial complex that has built up in the DC area and across the country.

They would also focus on how our military has screwed things up that we have to keep on using the military on unscrew things. That situation seems like the perfect climate for the security/armament/defense business.[/quote]

I don’t get distracted by non-economic issues where politics are concerned. That’s not to say that these issues are unimportant, but that they pale in comparison to economics. I’m far more concerned about what the donors are doing WRT the position of labor (union and non-union workers), and how their actions and activities affect workers’ compensation and general quality of life vs that of “capital” (those who do not work for their living, but invest/speculate for a living, instead). When looked at from that perspective, there is no question that capital has been outspending labor by many multiples. See my link, above, for the info.

[CA renter]

And in case you’ve missed this:

———

McConnell opened his remarks at the California resort with a tip of the hat to the wealthy conservative activists hosting the summit — whose network raised over $400 million for the Republican cause in 2012 alone — saying “I want to start by thanking you, Charles and David (Koch), for the important work you’re doing. I don’t know where we’d be without you…”

The senator devoted most of his speech to his desire to free up unlimited political spending, or what he calls “free speech.” He described the campaign finance reform movement beginning during the Watergate scandal as an effort by “the political left” to control the political process, though neglecting to mention his support for strict contribution limits and public financing of elections during the 1970s, when he called the corrupting influence of money in politics a “cancer” on democracy.

Referring to the Supreme Court’s 2010 Citizens United decision that freed up unlimited political spending by corporations and Super PACs, McConnell said the decision “leveled the playing field” for corporations, ushering in “the most free and open system we’ve had in modern times.” McConnell added, “I pray for the health of the five” justices who ruled his way in the case.

While most of McConnell’s comments on campaign finance mirrored his public statements, he did add this eye-opening quote on the passage of the 2002 McCain-Feingold bill that regulated electioneering communications.

“The worst day of my political life was when President George W. Bush signed McCain-Feingold into law in the early part of his first Administration,” said McConnell.

Commentators have noted that McConnell’s tenure in the Senate has included two government shutdowns, multiple wars, the 9/11 attacks, and the financial collapse of 2008. Regarding the latter, McConnell said at the time that the passage of the $700 billion Wall Street bailout for firms directly implicated in the crash was “the Senate at its finest.”

In other words, legislation limiting political spending by the wealthy was his worst day in the Senate, and legislation giving a $700 billion handout to the wealthy was his finest day in the Senate.

Regarding the newly proposed amendment to the Constitution to overrule Citizens United, McConnell fielded a question from David Koch and told the crowd that this is radical legislation seeking to silence the wealthy.

http://insiderlouisville.com/metro/leaked-audio-mcconnells-speech-koch-summit-reveals/

————-

Yet, some people still claim that we don’t need unions, or that we don’t need politically active unions. And these very same people will say there is a “level playing field” in politics… The level of ignorance out there is off the charts.

[Anonymous]

Right, organized labor has no political power, they are helpless victims of “wall street.”

Of course compensation is important for retention. That explains why police officers in one nearby community get more than five times the people that they serve:

The average pay and benefits package for a police officer here had been worth $177,203 per year, in a city where the median household income was $31,356 in 2011, according to the Census Bureau. All of this had gone largely unnoticed until becoming the center of debate during the recent municipal election.

Defined benefit pensions make it way too easy for politicians and unions to hide the true cost of services and to defer those costs until long after the politicians are gone. This is why we are seeing a wave of municipal bankruptcies. Politicians and public-sector unions gave themselves a sweet deal years ago, using the arcane pension system to hide the cost, until eventually the day of reckoning comes.

Defined benefit pensions for public employees are a completely unnecessary risk.

Of course there is the alternate explanation: That big, bad wall street “forced” these modest public servants to take their $177K compensation.

Wall street made them do it!

[livinincali]

[quote=CA renter]
And that teacher going into another profession where s/he can make the same or better compensation? Lots of them do exactly that. Again, look at the attrition rate for teachers. Many teachers also come from the private sector where they were making more money, but they change for lifestyle or other factors (often to get hours that match their children’s hours). But since you’ve asked the question, how many professional athletes can leave the profession and make more money in another field? How many CEOs can leave that position and make anywhere near the same amount in another position? How about investment bankers? And how about the techies? Think they can leave tech and make more money elsewhere? Obviously, people tend to gravitate toward positions that give them the best of what they’re looking for with respect to job satisfaction, freedom, lifestyle, compensation, etc. That goes for everybody, not just teachers and other public servants.[/quote]

But your argument was that we need defined benefit pension plans to keep people yet you say people stay and leave for other reasons. Just like how they do in the private sector. If that’s you argument than don’t you have to give up the argument that you NEED to offer guaranteed benefit contribution plans in order to make people stay.

[FlyerInHi]

Why not pay them compensations up front?

If they’re not good at managing their money for retirement, then they’re are not the cream of the crop, are they?

[CA renter]

[quote=livinincali]

But your argument was that we need defined benefit pension plans to keep people yet you say people stay and leave for other reasons. Just like how they do in the private sector. If that’s you argument than don’t you have to give up the argument that you NEED to offer guaranteed benefit contribution plans in order to make people stay.[/quote]

Of course, there will always be somemovement. The goal is to keep the churning to a minimum and to keep the most valuable employees in place once you’ve spent all that time and money on hiring and training them.

[CA renter]

[quote=FlyerInHi]Why not pay them compensations up front?

If they’re not good at managing their money for retirement, then they’re are not the cream of the crop, are they?[/quote]

Not that they are necessarily bad with money (some are, some aren’t; but public employees do tend to have better credit than most*), but the skills that make a good money manager don’t necessarily translate into making a good cop, firefighter, teacher, etc.

*Most public employers do run a credit check during the hiring process, and candidates with low credit scores are unlikely to get a job with the government.

http://money.msn.com/credit-rating/3-jobs-where-good-credit-counts

[CA renter]

[quote=harvey]Right, organized labor has no political power, they are helpless victims of “wall street.”

Of course compensation is important for retention. That explains why police officers in one nearby community get more than five times the people that they serve:

The average pay and benefits package for a police officer here had been worth $177,203 per year, in a city where the median household income was $31,356 in 2011, according to the Census Bureau. All of this had gone largely unnoticed until becoming the center of debate during the recent municipal election.

Defined benefit pensions make it way too easy for politicians and unions to hide the true cost of services and to defer those costs until long after the politicians are gone. This is why we are seeing a wave of municipal bankruptcies. Politicians and public-sector unions gave themselves a sweet deal years ago, using the arcane pension system to hide the cost, until eventually the day of reckoning comes.

Defined benefit pensions for public employees are a completely unnecessary risk.

Of course there is the alternate explanation: That big, bad wall street “forced” these modest public servants to take their $177K compensation.

Wall street made them do it![/quote]

That’s Desert Hot Springs. They seem incapable of managing their finances, and not just because of pensions.

From your link:

This is not Desert Hot Springs’ first experience with fiscal problems. In 2001, it went bankrupt after losing a $10 million lawsuit brought by a developer who complained that the city was thwarting his efforts to build affordable housing. The city had to borrow to pay the judgment and is still paying off that debt — a struggle for a working-class town.

…

Also from your link:

The city, Desert Hot Springs, population 27,000, is slowly edging toward bankruptcy, largely because of police salaries and skyrocketing pension costs, but also because of years of spending and unrealistic revenue estimates. It is mostly the police, though, who have found themselves in the cross hairs recently.

In other words, the other spending that caused the crisis is already spent, so the easy targets are the public employees whose pay is deferred and still under the control of the public entities.

…

And the city council was unwilling to consider options that would fix the problem (the claim that it would only “delay the reckoning” is subjective, and not fact-based).

Mr. Phillips, the police union lawyer, said the current crisis had been driven by the new majority on the City Council — including Mayor Sanchez and Mr. Betts — that was philosophically opposed to tax increases. The union’s own proposal to address the budget shortfall — by cutting the size of the force and filling in with overtime work for which the officers would defer payment for 17 months, as well as raising the local sales tax — was rejected by city officials, who said it would only delay the reckoning.

==========================

Now, there IS a real problem with the changes made to pension benefit formulas under Gray Davis, as mentioned here:

Mr. Adams said that California’s rich police pensions were first offered to prison guards by former Gov. Gray Davis more than a decade ago. The move set off a chain reaction, with the California Highway Patrol soon clamoring for the deal, and then city police officers all over the state.

I have ALWAYS been opposed to these pension changes, long before you were ever aware of how public pensions worked, and long before the “pension crisis” that was 100% caused by Wall Street (and they were also responsible for those pension changes during the internet/stock market bubble in the late 90s…I was there, and I was warning about it back then).

Additionally, while the pension system might be “arcane” to you, it’s perfectly transparent and easy to understand to those who know what they are looking at. All of the numbers are available on the CalPERS website.

I also want to point out that while contribution amounts were raised after the Wall Street crisis, these public employers were paying very little, and usually NOTHING AT ALL during the years of the stock market bubble. That’s what enabled them to enhance the pension formulas…because the pension funds were OVER-funded.

[no_such_reality]

It’s going to resolve itself the same way any significant health issue resolves itself that you ignore, like being too fat, eating poorly and not exercising.

We wil either wake up one day and address it and start making improvements, eating better, putting the cigs down, and exercising. Or we won’t. There are some signs we
Ve taking baby steps in addressing the blatant problems

When the bubble burst Cali had its first heart attack. We’ve made some changes but I give it 50/50 odds we just go back to the old patterns of financial management and political graft

[Anonymous]

Tony “Mack” Rodriguez, a retired sergeant on the Desert Hot Springs police force describes how the situation came about. “The union told us that the revenue estimates were unrealistic, and we should do something about it. We were talking about deferring some raises, or maybe cutting back overtime. We had a plan.”

But Rodriguez said the union proposal never made through because of interference from a number of investment firms. “Our plan never got too far. These Wall Street guys came in and made us take raises. They increased the pension payouts and lowered the retirement age. They were ruthless, there was no stopping them.”

Now Rodriguez , 51, is not working but is forced to receive 90% of his prior salary of $132.000. “I’m stuck with these paychecks, for life” he said. “I could live till I’m eighty-five, and I’ll have to deal with this for the next thirty years.”

The situation has required him to fill his garage with motorsport vehicles he rarely uses. He recently was forced to purchase a fifty foot RV. “We had to buy a bigger house because of all this stuff” lamented Rodriguez. “I even had to get a disability tax break because the Wall Street guy told me that my knee hurts.”

[CA renter]

Blah, blah, blah…

Nice try, pri.

For those of you who haven’t figured it out yet, that wasn’t an actual quote. This is what harvey/pri does — quotes or claims things that aren’t real.

[phaster]

[quote=CA renter]
But to think that these debt problems are solely due to public pensions is to ignore all of the other deficit spending done during the monetary free-for-all. Pensions are only one piece of the puzzle, and they’re not even the major piece in many cases.[/quote]

Let’s try and stay focused, and look at only the public pension vs the local economy.

I am ignoring federal programs like social security, medicare, military spending, because the federal government has tools like a printing press, and deficit spending, but local and state governments do not (unless I am mistaken).

The way muni and state governments can raise funds, is by property taxes, sales taxes and selling bonds.

Given new accounting rules which put public pensions on the balance sheet, I think there will be “downgrades” as what just happened with NJ just a few days ago

http://www.bondbuyer.com/news/regionalnews/fitch-downgrades-new-jersey-go-to-a-from-a-plus-1065917-1.html

My concern is “realistic estimates” not the B$ there is no problem view of politicians who seem to be on various drugs:

http://www.webmd.com/depression/depression-medications-antidepressants

will reveal the magnitude of unfunded pensions BILLIONS higher than TPTB are saying “publicly” now.

Or put another way, think what would happen to bonds floated by SD if they are poorly rated w.r.t. other muni bonds (I’d think this would start some kind of death spiral “feedback loop,” because bond bought by large pension funds would avoid SD bonds because of a negative rating, etc.). Its kinda like the problem detroit has right now with trying to raise money in the bond market (in other words because detroit has bad press, its bonds are looked upon as being garbage that will only pay cents on the dollar, so the city of detroit gets more bad press, the bonds get harder to sell, etc., etc., etc.)

If I was a poker player, I’d see the actions of the SD pension reported in the WSJ strike me as being one of desperation, basically asking why double down now?

Seems like a bluff when they say their investment strategy is sound, when I have shown the simple odds of success is 1 in 3 (and that “win” covers a range of values from small to big) AND it seems SD is betting big because they are short big time…

Putting 10 billion down into a margin account (so they can bet as if they have 20 billion, in the pot), either means they have have a good hand or they are desperate (I’d bet good money, its the latter).

Consider in investing, an actively managed account is less likely to beat the market average (i.e. index fund)

http://www.marketwatch.com/story/with-actively-managed-mutual-funds-more-is-less-2013-08-15

As I said I don’t pretend to be a market expert, nor do I have a degree in economics or finance. But I think my three case(s) of a portfolio outcome are one good way to explain why actively managed accounts, fail to beat their index benchmark 2/3 of the time…

So the way I see things, the unfunded SD pension and the strategy to try and make the pension whole, is an armed weapon of financial mass destruction.

One other thing that worries me about local RE is

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the impending second wave of the lastest mortgage crisis, this time due to Helocs (Home equity lines of credit) and HAMP (Home Affordable Modification Program) interest rate resets. In the second half, Max interviews Aaron Krowne on the true state of the housing market across America – from home ownership rates to mortgage arrears.

[spdrun]

Why worry? If rates reset and we end up with a lot of short sales slamming prices down, it will be an opportunity to pick up cheap(er) r.e. before the gov steps in again and kicks the can further down the road.

[Author]

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