The Los Angeles Daily News recently ran an article by California Public Employees’ Retirement System (CalPERS) Board of Administration President Rob Feckner responding to critical analysis of California’s public pension system by a couple of studies, including my own recent study for Reason. The column was filled with half-truths and irrelevant facts that skirted the whole issue of how generous public employee pension benefits have become and how unsustainable the state’s public pension system really is. The following is a letter to the editor that I drafted in reply.
CalPERS Board of Administration President Rob Feckner’s recent column criticizing studies illustrating the true costs and unsustainable nature of California’s public pension system—including mine for the Reason Foundation, “How California’s Public Pension System Broke (and How to Fix It”), available at www.reason.org—was regrettably heavy on irrelevant and misleading statistics, and failed to acknowledge the significant—and growing—unfunded pension liabilities that will place a substantial financial burden on our state for many years to come.
He noted, for example, that the average CalPERS pension is about $25,000 a year. What CalPERS does not tell you is that this $25,000 a year figure includes those who only worked for the state for a short time, not an entire career, and retirees who retired before pension benefits were increased as much as 50% in 1999. This is why costs are rising and public pensions will be eating up more and more of state and local budgets in the future.
It is this failure to focus on future costs that has gotten California (and many other state and local governments across the nation) into trouble. In Mr. Feckner’s column he again focuses only on the present, noting that pension costs currently are less than 5% of the state’s general fund. He neglects to mention that state pension and retiree health care costs have gone from about $1 billion in fiscal year 1998-99, just before the SB 400 pension increase bill went into effect, to $5 billion this year, and retirement spending is expected to triple again—to $15 billion—within the next decade. Based on CalPERS estimates at the time SB 400 was being considered, we were told that the annual cost of the extra benefits to the state would be “only” about $650 million by 2010 (the rest being covered by “superior return on system assets” of the pension fund). The actual cost: over $3 billion, which is expected to rise to $3.5 billion for the current fiscal year.
There is a reason that people from all sides of the political spectrum—from Republican Governor Arnold Schwarzenegger to Democratic state Treasurer Bill Lockyer, and even CalPERS’s own chief actuary Ron Seeling, who retired earlier this year—have concluded and publicly stated that the state’s public pension system is unsustainable. Given CalPERS’s distortion of statistics, inability to accurately estimate future pension costs (which are always underestimated, of course), and convenient failure to mention the rising public pension costs which will place increasing strain on our already unsound state budget and crowd out funding for education, health and welfare programs, and other state spending priorities, forgive me if Mr. Feckner’s claim that “CalPERS has, and will remain, an honest broker of information” offers little comfort.
For a more in-depth analysis of the problem and some real solutions, see my pension study, How California’s Public Pension System Broke (and How to Fix It) [Full Study | Policy Summary].
See also the column I wrote with Howard Jarvis Taxpayers Association President Jon Coupal on the issue.