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Archive for September, 2016

Both the New York Times and LA times have recently published informative articles about the status of public pensions, particularly Calpers. LA Times’ Jack Dolan and James Koren have provided sober analysis in recent weeks.

The reporters have echoed the same concerns I, Jack Humphreville, respected members of academia and many in other publications have been sounding for years – concerns over the diminishing sustainability of the defined benefit plans that almost every politician at the state and local government levels have ignored. A few, including Governor Brown and former Governor Schwarzenegger, have attempted modest reforms and failed, because of the death-grip public unions have on our elected officials.

The NY Times article, by Mary Williams Walsh, is particularly interesting because it reads like a case study. For all intents and purposes, it is one. It deals with a small fund managed by Calpers. Since this particular fund is so small, it is easier for readers to wrap their heads around the math. But it is the same math behind every other defined benefit plan, large and small. Just as a lab experiment on a single cancerous cell can speak volumes about the greater disease, so can this case shed light on the cancer of public pensions.

Basically, the problem boils down to using aggressive favorable assumptions to gauge the financial health of plans, plans which are required to fully guarantee the promises made to their members. The assumptions have masked the weakness of the underlying numbers.

The important difference between a market vs actuarial approach to funding defined benefit plans is critical, as the article suggests. As the small pension unit in the article learned, Calpers charged them the market rate to liquidate the plan, which was a sum far greater than the actuarial value Calpers uses to assess the health of any plan.

Quite a shock to the participants who assumed things were just peachy.

Calpers wants it both ways: use the blue-sky view for public disclosure, but penalize participants based on reality. It’s called “having your cake and eating it too” (a few of my colleagues at Citywatch know how much I detest that expression, but it applies here).

The truth is, Calpers should not be hanging its hat on one approach vs the other. A range of values needs to be shared with the public, and funding should be based on at least a blend of outcomes.

That means either taxpayers fork over more money, or the participating employees contribute more. The taxpayers are already covering too much, not to mention bearing the risk if there are insufficient funds to pay participants.

How much more participants should pay is arguable, but it would cause some degree of pain in any event – manageable pain.

In the private sector, typical employees pay 6.2% for SSA retirement and contribute at least 6% into a 401K. State employees contribute anywhere from 5% to 11.5% of their salaries. Pretty good compared to the 12.2% absorbed by their counterparts. Safety workers are at the higher end, but can retire much earlier and collect up to 90% of their salaries.

A private-sector worker would pay $1 million to purchase an annuity comparable to an average CalPERS’ benefit starting at age 60. A state employee earning an average of $100,000 and contributing 10% would pay in $300,000 over 30 years in gross terms. Obviously, discounting the amount would lower it considerably.

That’s a pretty large gap. In any event, Calpers would still be a good deal for employees if their contribution rates doubled.

And why not?

Investors pay more, in the form of a lower yield, for less exposure to risk. Why shouldn’t public employees pay a premium for what is a risk-free, lifetime benefit?

The system is not going to collapse tomorrow. It’s similar to a sinking ship, which takes on water but stays afloat….that is until buoyancy is lost.

When that happens, it goes down faster than the Edmond Fitzgerald.

Time to start pumping and sealing the leak.

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Through the efforts of Valley Village Homeowners Association and Neighborhood Council Valley Village, a homeless encampment along the 170 embankment, adjacent to Valley Village Park, was cleared.

Since the camp was on Cal Trans property, we asked for and received support from our State Assembly Member. The CHP posted warnings before arranging for the removal of the personal items and trash – there was a considerable amount of the latter.

I was not around to witness the intervention, but there is every reason to believe it was handled as responsibly as possible. No complaints were filed; no reports of violence or excessive force.

The North Hollywood side of the 170 has a homeless problem of its own, too, especially along Tujunga Avenue, where a dozen or so RVs and vans have become permanent fixtures, and homeless prowl the grounds of the Amelia Earhart Regional Library.

While I am pleased by the removal of the Valley Village Park camp, I acknowledge society’s failure in dealing with the underlying problem.

The knee-jerk reaction would be to cast a vote for the city’s proposed $1.2B bond measure, the objective of which is to acquire land and construct housing. It is certainly preferable over a parcel tax, but the cost ultimately still flows through our property tax bills.

But I am not ready to support handing the City Council (or the County Supervisors, for that matter) massive amounts of money when there is no outline or plan to organize, manage and, most importantly, perform timely audits of effectiveness. I would feel a little optimistic if the activities were supervised by financially responsible officials – competent individuals, say someone comparable to City Controller Ron Galperin. Unfortunately, there isn’t enough of Ron to go around.

Whatever the plan, if it does not recognize the distinct challenges posed by the two major component groups of the homeless population – economic victims and those afflicted by mental illness or substance abuse – it is doomed to fail. The plan must allow for triage: the chances of helping the former group are far greater than the latter. $1.2 Billion may sound like a lot, but is is less than $50K for each of the estimated 26,000 homeless. How much housing and services can $50K buy?

We need to focus, then, on making the maximum impact and accept the fact there will be many who are beyond assistance. I am referring to the persons who require institutionalization. Sadly, our laws prevent involuntary medical intervention.

Progress has its own issues, too. There is truth to the line from the film Field of Dreams, “Build it and they will come.” Even if we achieve a degree of success, there is a risk: we will create a magnet for new waves of homeless persons from other regions, which would offset, if not overwhelm, our capacity to deal with the problem.

Triage is the practical approach, then. Help the homeless in manageable increments. Also, a one-size-fits-all style of housing will not work. Everything from dormitories to well-organized, military-type camps must be considered. Experimentation will be required. We should not hand over a billion dollars until officials can provide evidence of success on a limited scale first.

Lastly, we must not dig ourselves a deeper hole. It is absolute insanity to encourage the destruction of serviceable, affordable housing units, as the city presently does. I was heartened to hear the news that the Neighborhood Integrity Initiative received many more signatures than necessary to qualify for the March 2017 ballot. Without it, our elected officials would be content to create the next generation of homeless in exchange for campaign contributions from developers.

And you are unlikely to find a homeless politician in this city or any other.

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