San Jose Mayor Working To Cut Government Pensions
From today's headlines (h/t to Saxplayer):
San Jose Mayor Chuck Reed filed papers Tuesday for a statewide ballot measure to allow governments to cut pensions for current workers.
The Pension Reform Act of 2014 would change the state constitution to cut pensions to current workers moving forward. Benefits already earned would not be cut.
Reed said skyrocketing retirement costs are pushing cities, counties and other government agencies to insolvency and crowding out other services.
“Public employee pensions are deferred compensation, a key part of the compensation of public employees, and a valuable tool for those employers who choose to use them,” said a response from the Sacramento-based California Public Employees’ Retirement System.
The CalPERS statement continued to say “courts have clearly established that California public employees have a vested right to the level of benefits promised to them when they are first employed."
File this in the "Expect To See Much More of This" folder.
Pension obligations are increasing exponentially while governments continue to deficit-spend during a stagnant economy, while municipal, state and federal debt levels accelerate from their already staggering sizes.
In short, way too much has been promised in benefits than can be delivered on. It's just simple math.
Per the recent Jim Kunstler piece, we need to focus on managing contraction: figuring out how the smaller pie can be most intelligently divided. But instead, we're still acting if there will be ample pie for everyone forever. And we're wasting precious time.
An easy prediction is that less will be actually given out in benefits than retirees are expecting. How much less is the critical question, and the only sure answer at this time is: The longer we ignore the issue, the less that will ultimately be left to go around.
Of course, there is one way honor the letter of the pension promise. But it betrays the spirit of it. Policymakers may indeed prefer to print the money to meet the obligations in nominal terms. But this is simply a default by another name. Is getting your full pension check each month worth it if the currency it's in is so badly debased that it buys you nothing?
Expect to see many more mayors, governors, and eventually Congressmen and Presidents follow Chuck Reed's lead; in form or in spirit. Government pensions simply cannot be honored as intended in the coming future.
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"The FMQ is therefore comprised of the sum of cash and coin, plus all accessible deposits, plus our bank’s deposits held at the central bank. This for the US dollar is illustrated in the chart below."
"The dotted line is the long-term exponential trend rate, and it is immediately obvious that the FMQ is now hyper-inflating. It currently requires a $3.6 trillion contraction of deposits to return this measure of currency quantity back to trend."
It is unfair to promise deferred compensation to a public employee … only to yank it out in the future. It is unfair to the taxpayers to hide the real cost of any government service by delaying part of an employee's compensation into the future. The end result will be very bad for everyone and unexpected by most.
It is much better to offer simple compensation packages and let the market do its work. If too few people apply for the position, the salary is too low. If too many apply, the salary is too high. This may seem heartless to the defenders of the middle class, but please explain how the end result of our currently existing system is better.
The FMQ is a calculation created by Alasdair Macleod.
Chris will be speaking with Alasdair tonight for this week's Off the Cuff about the FMQ, among other topics. The discussion will be available on the site tomorrow.
A key battle ground for me and the Mrs' city pensions I've been watching is the Detroit bankruptcy. Specifically, I'm watching to see what the final ruling will be re: the battle over whether or not Federal bankruptcy law trumps state constitutional protections for public employee pensions. If the Detroit judge ultimately rules that Federal bankruptcy law overrules Michigan's state constitution which protects pension benefits, it's going to be "Katy bar the door" for all the other public pensions thought to be inviolable because they are protected by the State constitution. That's our situation in Philadelphia where public employee unions long ago changed the Pennsylvania constitution to say that public employee pensions cannot be reduced under any circumstances.
Personally, we're planning to have our benefits cut 50-90% at some point in the future to reflect the actual current net present value. I'm "sure" of that. What I'm not sure of is when this will occur. Of most importance to me is not what year it occurs but where we will be in the pricing of gold and silver at that time. In the long run, my macro expectation is that the same forces that will cause our promised pension benefits to be slashed will also cause gold and silver prices to shoot the moon. As long as they happen at roughly the same time, we'll be fine. Losses in our pensions will be WAY MORE than compensated for by appreciation in our precious metals. However, the nightmare scenario for us will be if our pensions are cut and we need to live off of our PM investments but they haven't peaked yet. For instance, if I was a retired Detroit police officer in December 2014 and my pension was cut by 50% but the price of gold was "only" $2,100/oz and silver $70/oz I would be in a jam. By 2018 I might have burned through all my PM's and still have another 15 years to live (with PM's still not at their peak). On the other hand, if the dollar and world economic system collapse in 2015 and gold hits $10,000/oz and silver $300/oz then I would happily retire in 2015 (5 years early) and not give much thought to what happens to our pensions either way!!
"Welcome to the Hunger Games. May the odds be ever in your favor!"
does anyone who comes to this site on a regular basis actually believe pension promises are going to be kept?
Ferralhen, I would guess no. Local, state, and the federal governments forecast the rosiest of pictures when setting budgets so that they maximize tax revenues. I learned this first hand as an assessor. Budgets are always set at the levy limit at the local level (and I would guess this was learned from the top down) to maximum tax revenues. Or towns request over-rides from its residents to raise the levy limit. Under-rides are practically unheard of, unless a large amount of oil is miraculously discovered in town (another way the Es connect), but how often does that happen? Contrary to the left/right ideologies that are preached, all politicians want more money in the coffers (that's the dirty little secret…debt ceiling?…anyone who's worked in politics will tell you there is no such thing on either side of the aisle). But, not all reasons are selfish. Over the centuries, politicians have learned all too well that the future is unknowable and unpredictable, so it is better to have a cushion some where for those rainy days, hence the "rainy day" fund. So the budget projected outlays are inflated, including outlays for pensions. Econometrics are not an exact science (but hell, what is), so they can easily be massaged. Deep down they know the business cycles will take their toll. But they also buy into the temptation to inflate the numbers as much as possible to keep their coffers full so that they can fund the inevitable expanding growth in addition to the rainy day fund I already mentioned. On one level they think they are being responsible, and on the same level they are, but trying to get them to wrap their minds around exponential growth and how it permeates our models and narrative is not an immediate concern when trying to fund the immediate public projects, intiatives, pensions, etc.
The human urge to please is a virtue and a curse. Many of these government employees are trying to please everyone (voters, businesses/contractors, land owners, etc), and in turn, wind up pleasing no one.
Ferralhen: My wife is a public school teacher nearing the end of her career. Not only has she worked for pay that is less then her education would allow her to earn in the private sector, but even part of that was taken from each check to put into the "pension fund". Now the politicians are telling us that not only did they not match the employee contributions, as they were required to do by law, but that even the employee contributed funds seem to have shrunk, or largely disappeared. I don't expect either social security or the public pensions will outlive us, but after paying for so many years that will be a bitter pill to swallow. My biggest fear at the moment is that the school systems will implode before she can retire. Our mortgage is paid in four years. Her retirement can begin in five. Here's hoping the politicians can kick the can down the road for another forty-eight months.
i was a school teacher years ago too…i know the system. it is the blood bath we look at square in the eye.–pensions promised made and not keep..our work cheapened or discarded so easily.our labor is being thrown away in flash. our value tossed aside..
thank you for responding…i too would like to see life as we know it continue just a little longer…on one hand…or both for that matter..i do have to be pragmatic tho..and that is how alot of us wish it so.
i wish we on this site would talk more on this sort of reality than have experts predict what none of us are able to predict.where does that take us? i;d like to talk about our fears or lack of…but talk about change and how we plan to do that. realistically . middle classidly.humanly
i'm seeing doctos of all sort leaving the profession this coming january..retiring because the rules are changing so much…i live in ann arbor…a couple big hospitals here….lots of retirement and lots of hoped for pension…maybe physicians first to try to bail before the fall
the only thing i see to manage is my own life— in lieu of a collapse..which i amazingly so—- think i have…i will see shortly i'm sure..
all the talk of hitting a wall now, soon or already..well frankly, that only fuels fear…do i see rosey in the future—- not if i use my life right now as a standard to judge by. it is already hard, alot of work and i expect it continue to be so, especially as i age further. tired legs walking in sand…
i have created a life here on 14 acres that should sustain me…with little or no cash, gold. money.
instead of stock piling money, gold, food….i've tried to set up a place that uses very little of that and instead uses alot of my ingenuity and hard work.and grace of g-d.
i'd like to see the philosophical onslaught of musings taper off into practical pragmatic embracings of life ..
but i'd like to see much
if the dollar and world economic system collapse in 2015 and gold hits $10,000/oz and silver $300/oz then I would happily retire in 2015
I can't seem to noodle out how it may be possible to be happy if the dollar and the world economic system collapses, no matter how much PM you have…lest you have plenty friends and a close community….. and something to eat. Aloha, Steve.