I just can’t get over that. San Francisco’s spending on city pensions has increased by 66,733% in just ten years:
In fiscal year 1999-2000, the city spent about $300,000 on its retirement system. In fiscal year 2009-10, it was $200.5 million. Benefits alone — not salaries, just benefits — for current and retired employees this year are budgeted at $993 million. Spending on retirees’ health care and pensions is conservatively projected to triple within five years.
I don’t care what their politics is. What can they possibly have been thinking?
I cannot find, after about 10 minutes of searching, what San Francisco did for retirement before 1999. $300,000 per year is hard to believe. Were they part of the state plan?
It also looks like some of this is due to their proposition problem. The people keep voting for more benefits while also voting for limiting revenue.
http://media.baycitizen.org/uploaded/documents/2010/7/prop-h-2002-voter-information/PROP%20H%202002.pdf
Steve
Spoiled children, basically. It’s not politics, but maturity and education, or more precisely, the lack thereof.
1999: crest of the dot-com boom. It’s not hard to believe that the city might have gotten caught in a bit of irrational exuberance back then.
I put it down as “looting,” and think it has happened in all levels of our society, in and out of the public sector.
Too many people saw other people getting really rich, perhaps thought they did it skirting the rules, and say “I deserve that too!”
As a moderate I can say it is not as disconnected from Wall Street pay as some would like to think, but I can almost hear the wailing as I type that.
I was typing at the same time as Maxwell. I agree with him, but I think it was part that fiscal projection, and part that “I want mine.”
Do you guys remember the Aeron chair? It was a crazy-adjustable and crazy-expensive chair, popular with Tech executives. In the dot-com age it got handed to more and more people. It became a gauge of the internal mania at a company how many chairs they had. The aftermath of the dot-com was told as Aeron chair auctions.
There might have been a book …
I was telling this to someone and he told me that at that point UCLA started buying Aerons for department secretaries. He told me “why not, private industry has them.”
I also wondered whether 1999-2000 was an atypically slow year.
Equally worrying is the projected tripling over the next five years. Chicago, a considerably larger city than San Francisco, has a total city budget of a little over $8 billion. A billion dollars (San Francisco’s budget for current and retired city employee benefits) is an eighth of Chicago’s total budget. It must be a considerably higher percentage of San Francisco’s. Three billion would be absolutely ruinous. What conceivable revenue stream could make up that deficit?
You left out the best part Dave,
</blockquote?Spending on retirees' health care and pensions is conservatively projected to triple within five years.
And after that? Infinite.
I bet you thought it was sarcasm or probably a joke, I wouldn’t be surprised if the the rate of growth is such that even with discounting the infinite horizon present value does not converge. Whooops.
More on the infinite costs,
http://www.sfexaminer.com/local/Measures-aim-to-defuse-ticking-public-pay-time-bomb-98467144.html
In reading the whole article it is quite clear that things are totally out of control. That old internet saying, inaccurately attributed to Alexander Fraser Tytler,
Who knows who said it, but it sure does seem to be true in San Francisco and California with the rest of the country following along right behind.
Wonder where Michael is, didn’t he basically say we can just raise taxes and this will not be a problem. Like taxes are an infinite source of money and that the higher taxes go the harder people will work? I know lets institute a wealth tax on the holders of intellectual property…say, 95%.
Didn’t Reynolds have a book our scheduled fdor the fall?
The numbers from 1999 to the present aren’t really surprising. Perhaps the most surprising thing is that San Francisco spent $300,000 in 1999 – I would have expected $0.
From what I can tell reading the article (which isn’t that precise) the growth in spending highlights how much the city contributed to the pension fund, not the amount the fund actually spent on pensions.
Back in the late 1990s many pension funds were getting by solely on investment growth – no annual funding required. Especially during the tech boom years in the latter part of the 1990s. In fact a great many companies during the 1990s that weren’t very profitable were able to claim profits based on pension fund investment gains that they couldn’t really touch*. Warren Buffet used to complain about that. After the tech bubble burst many plans went from being over-funded to under-funded and had to start paying contributions to their pensions again.
Investment gains and losses are amortized over several years to help prevent fluctuations, but by 2002 and 2003 the tech boom years were coming off the books and the losses of the early 2000s were hitting. Combined with low interest rates this put a lot of plans under the funding trhreshold, so companies had to start contributing again.
All of that resulted in somewhat more conservative investment strategies (lots of CRE, IIRC!) and acocunting practices.
So the headline isn’t really a shock. I imagine many private firms can show numbers much worse. I know personally that one major entertainment company could post percentages that would be in the millions of percent for some plans, and infinite for others. From zero to $100,000,000 in some cases.
So the growth in FUNDING requirements isn’t shocking nor is it limited to the government sector. Discussion of the LIABILITIES and growth thereof would be more helpful, but that only seems to be touched in passing.
NOTE: For the record, the situation in San Francisco is obviously dire. That makes it little different from a great many state and local governments. I know this first hand from my years in the acuarial business. Government accounting practices would land one in jail if used in the private sector.
Nor do I think growth in liabilities isn’t happening at a profligate rate in the governmental sector. But we should make sure we’re talking about the thing we think we’re talking about.
* They could only get at the money (legally) if they closed the pension plan and paid out all liabilities first.
Thanks Icepick. That makes more sense. It sounds like that $300,000 was probably abnormally low due to the stock market. The author is deceiving us by choosing an artificially low starting point. He also neglects to tell us that a big part of that increase comes from a proposition passed in 2002.
Steve
A few things that stood out to me about the article:
“Pension increases were approved by voters in 1996, 1998, 2000, 2002, 2004, and 2008.”
I can’t imagine voters approving pension increases where I live. Efforts to pass a voter referendum to contain pension liabilities are difficult:
“Should voters approve Prop. B, the mayor told the editorial board of The Bay Citizen, the city would be forced to offer raises to its employees to make up for their increased benefits costs, deepening the city’s pension chasm.”
Forced? Must fear losing labor to the private sector?
“According to the Bureau of Labor Statistics, the average private sector employee working in San Francisco earns $73,133. The average city employee now draws $91,500 — with fringe benefits valued at $38,000.”
Nope. It’s fear of losing union backing to remain in political office.
Icepick is correct in pointing out the actuarial realities that result in the absurd 67,000% statistic. (BTW – go take a read about the Harvard and Yale endowments. )
But this misses the real point, which PD alludes to. Public employee comp packages have been wildly out of control for years, mostly due to voter apathy and crony governmentalism. We have the same probem here in Chicago.
But the proverbial shit is about to hit the fan. The private sector simply cannot continue to support a bloated public sector gone wild.
BTW looks like Newsom is well on his way to being the State’s Lt. Governor. He did such a great job, lets promote him.
Well since you are talking about people who get to make the rules….
Pension plans aren’t in trouble because some guys on Wall Street got nice comp packages…at least not by itself. What with the revolving door between DC and Wall Street as well as the corrupted state political systems. I know it is tempting to push things onto Wall Street, but they were aided and abetted by various elected and/or appointed individuals who are now doing rather well for themselves.
That’s not what i’m saying. I’m talking about how people in various “service” roles view their compensation. Agency issues I guess. At what point do people lose sympathy for their constituency?
Or do you believe the only allegiance a ratings agency should have is to its own bottom line? A case in point.
BTW, I say:
“I put it down as “looting,†and think it has happened in all levels of our society, in and out of the public sector.”
“As a moderate I can say it is not as disconnected from Wall Street pay as some would like to think, but I can almost hear the wailing as I type that.”
You say:
“I know it is tempting to push things onto Wall Street, but they were aided and abetted by various elected and/or appointed individuals who are now doing rather well for themselves.”
I said right up front that it was not just one or the other.
Just as an aside………
There have been debates here and at OTB about inheritance taxes. A friend of mine, and blogger, has been consulting to the state of CA for 20 years, when I forwarded this and asked “can this be true?” noted that the average age of retirement in CA for government workers is between 52 and 55, and he identified two individuals on that list posted in Daves reference as guys he knew.
He further pointed out that many of those retirees make $85K – $90K plus benefits until they die.
Got your calculators out? Retire at 54, die at 80, that’s 26 years. Salary plus, what, 30% bennies, that’s $110,000 per year.
So as a public employee, you rake in $2.9MM post retirement, working on your golf handicap, or traveling the world. But a guy who makes an honest living in those 52-62 year old peak earnings years is supposed to fork over his saving to the Feds…………in part to to pay for the public employees.
Right. That makes sense.
“So as a public employee, you rake in $2.9MM post retirement, working on your golf handicap, or traveling the world. But a guy who makes an honest living in those 52-62 year old peak earnings years is supposed to fork over his saving to the Feds…………in part to to pay for the public employees.”
Yes, that is absurd, but as pointed out above, this appears to be largely the result of direct voting. If you are going to have direct voter decisions like this, what do you do to restore sanity? You can blame government for not providing effective leadership to stop this, but these pensions appear to have been presented to the people who then approved them. If the government leaders opposed this, wouldnt it be a case of elites engineering something contrary to the wishes of the people?
Steve
Retiring with full benefits at 52 is possible in Illinois, and it’s not the result of direct voting.
Related: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis
Again, for redundancy, it wasn’t that just wall street or just city councilmen were doing it, its that they all were.
The way to tackle widespread looting is to recognize it for what it is, and not to play the game “I only see problems in the ____ sector.”
Voting is part of the government. But here you are making it sound like voting is something else than part of our government system. Also, these items that get voted on are often confusing and are not discussed in ways that fully explain the overall incentives and impacts. For example and also this one….two ballot initiatives that deal with the same issue. Which one is better? Or what about this one? Looks like the nurses, firefighters and teachers are for it so a good default position is to vote against it. However, note that based on the information presented in the pro and con you can’t really tell which way to vote. To really figure things out you need to read the analysis.
Like I said, once the public realizes it can vote itself largess’s from the public treasury then sustainable government becomes extremely problematic if not impossible. Expanding the size and scope of government–i.e. making it easier for special interest groups to vote themselves a largesse–is not the solution, IMO. California’s budget, when you include pensions, is so messed up its simply astonishing.
Its one reason why I’m not going to vote. It wont matter if we get Wittless or Brownnose in Sacramento. Neither will be able to do anything to address the severe budget and liabilities facing the state.
Well John, what do you expect when you can always count on a bailout?
“Voting is part of the government”
Whoa. Voting is what the voters do. Are you now advocating that we not vote?
You avoided the question. Should the public be allowed to vote on these kinds of propositions? What should elected officials do?
Steve
I think voting should be done very rarely since it is such a rotten mechanism for aggregating preferences and allocating resources.
As an aside, there is an interesting argument that voting is really nothing other than a form of violence.
No. Ideally, nothing.