John and Ken Show talks about California’s $1.3 trillion debt

This past Wednesday, talk show hosts John and Ken interviewed our friend and contributor Marc Joffe of the California Policy Center on their KFI Radio show in regard to CPC’s recent report on California’s total state and local debt. Listen here:

To read the California Policy Center’s report, click here.

 

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Fullerton City Hall is closed today for another three-day weekend

City Hall Closure Dates

2017
January – 1*, 2*, 13, 27
February – 10, 20*, 24
March – 10, 24
April – 7, 21
May –5, 19, 29*
June – 2, 16, 30
July – 4*, 14, 28
August – 11, 25
September – 4*, 8, 22
October – 6, 20
November – 3, 10*, 17, 23*, 24*
December – 1, 15, 25*, 26*, 31*

*Holiday observed

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Watch last Tuesday night’s planning commission meeting

This Fullerton Planning Commission meeting was held Tuesday, January 11, in the council chamber.

 

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California’s total government debt rises to $1.3 trillion

By Ed Ring | A just released study calculates the total state and local government debt in California as of June 30, 2015, at over $1.3 trillion. Authored by Marc Joffe and Bill Fletcher at the California Policy Center, this updates a similar exercise from three years ago that put the June 30, 2012 total at $1.1 trillion. As a percent of GDP, California’s state and local government debt has held steady at around 54 percent.

For a more detailed analysis of how these debt estimates were calculated, read the studies, but here’s a summary of what California’s governments owe as of 6/30/2015:

(1) Bonds and loans – state, cities, counties, school districts, community colleges, special districts, agencies and other authorities – $426 billion.

(2) Unfunded pension obligations (official estimate) – $258 billion.

(3) Other unfunded post-employment benefits, primarily for retiree health insurance – $148 billion.

Broke BearThis total, $832 billion, ignores the fact that these pension obligations are officially calculated based on a return on investment projection that currently hovers between 7.0% and 7.5%, depending on which pension system you consider. But CalPERS, the largest of California’s roughly 90 major state and local government worker pension funds, has already determined they will have to lower their rate of return projection to 6.5%, an action that when emulated by other pension systems will immediately raise the unfunded calculation from $258 billion to $390 billion.

Our estimate, which uses the assumptions municipal credit analysts for Moody’s now use when evaluating the credit-worthiness of cities and counties, uses a rate of return projection of 4.4%. That rate is based on the Citigroup Pension Liability Index (CPLI), which is based on high grade corporate bond yields. This rate is far more “risk free” than 6.5%, much less 7.5%, and when you apply this rate to calculate the present value of the future pension obligations facing California’s state and local governments, the unfunded liability soars to $713 billion, bringing the total of bonds, OPEB and unfunded pensions to $1.29 trillion.

This $1.29 trillion does not include deferred maintenance and upgrades to California’s infrastructure, nor does it include California’s share of federal debt. More on that later.

For the moment, let’s just assume the pension funds manage to earn around 5.5% per year. That’s less than the reduction to 6.5% they’re already acknowledging, but it’s more than the 4.5% that professional credit analysts are already using when reporting credit ratings for government agencies. That 5.5% assumption would put California’s total state and local debt right around a $1.0 trillion. How much would it cost to pay off a cool trillion in 30 years at a rate of interest of 5.5 percent?

Seventy billion dollars. That’s over $5,000 per year for every household in California. Just to make payments on debt. That’s before any payments for ongoing services.

It gets worse.

As noted in the study, if one allocates federal debt according to state GDP, the share affecting Californians adds another $1.8 trillion to their debt burden. Again, using rough numbers, we’re now talking about $15,000 per year, per household, just to make payments on local, state, and federal government debt.

Nobody knows how this will unwind. If interest rates rise, debt service will rise proportionately. To spark inflation to whittle away the impact of debt payments may be the most benign scenario, but only if inflation affects wages and not just assets. Most scenarios aren’t pretty.

The study concludes:

“Combining California’s debt with publicly held federal debt, we estimate a total debt-to-GDP ratio of 125% (or 153% using the broader definition of federal debt). This level places California distressingly close to peripheral Eurozone countries that faced financial crises in 2011 and 2012. Portugal’s 2015 debt-to-GDP ratio was 129% and Italy’s was 133%.”

While recommendations were beyond the scope of this study, here are three:

(1) Reform pensions and compensation for government workers so they experience the same financial challenges and opportunities as the citizens they serve. Cap pension benefits at twice the maximum Social Security benefit (around $62,000 per year). At a minimum, enact these reforms for all future work performed, both by new and existing public sector employees.

(2) Invest a significant percentage of California’s pension fund assets in infrastructure projects here in California. By using a lower rate-of-return projection, pension funds can compete with bond financing. They will earn a risk-free rate of return, California will rebuild its infrastructure, and millions of citizens will be put to work.

(3) Reverse the extreme environmentalist agenda that controls California’s state legislature. Enact reasonable reforms to enable development of land, water, and energy to lower the cost-of-living and encourage business growth. Private sector unions should be aggressively leading the charge on this.

There are a lot of good reasons why California is probably not destined to endure the financial paroxysms that already grip nations such as Italy and Portugal. Our innovative spirit and creative culture still attracts the finest talent from around the world. But California’s political leadership will have to admit there’s a problem, and make some hard choices. Hopefully when they finally do this, they will be thinking about the citizens they serve.

Ed Ring is vice president of policy research at the California Policy Center.

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A Happy New Year for state workers

By Jon Coupal | In a recent column, I commented on how joyous the holiday season would be for members of the state legislature and our constitutional officers who are seeing a four percent increase in their pay. California lawmakers were already the highest paid in the nation.

Jon CoupalBut as the song says, you ain’t seen nothing yet. In a state the U.S. Department of Labor rates as first in pay for state and local government workers, one of the largest public sector unions has negotiated a pay raise of up to 19 percent for many of its members. Union leaders claim that many of the jobs their members perform are in high demand and, without the increases, employees will be lured away to the private sector. Therefore, a 19 percent increase for “financial experts” currently making between $7,300 and $10,000 per month, is warranted. However, everyone has been invited to the party. Even janitors will be getting an extra 3 percent on top of the standard 4 percent that has been negotiated for all the represented workers.

Other unionized employees, now negotiating pay increases with the state, will likely see similar raises. And it is important to mention that most of these “public servants” are receiving healthcare and pension benefits that most in the private sector can only dream of.

In November, voters said yes to new taxes and to the continuation of the highest income tax rates in the nation. The expensive campaigns that put these measures over the top were funded primarily by public sector unions, so it is not hard to guess where the bulk of the tax revenue will be going. Instead of state government providing more and better services, most of the funds will go to paying for raises for government workers. And let’s not forget the need to fund nearly a trillion dollars in unfunded pension liabilities for which taxpayers will be picking up the tab.

This is not to lose sight of the fact that many public employees work hard and provide valuable service. Most citizens want to see these employees fairly compensated for good work.

However, because government holds a monopoly on most of the services it provides — there is no competition or alternative — much of the work actually provided is subpar. Anyone who must use government services cannot imagine that these across the board raises state employees are receiving are based on merit.

Read the rest of the column . . .

 

Posted in Howard Jarvis Taxpayers Association, Jon Coupal, Public Employee Unions | Leave a comment

City hall is closed this week; will re-open January 3

By Jack Dean | Again this year, city hall is closed for the entire week between the Christmas and New Year’s holidays.

Last year, after noticing that these closure dates are not listed on the city’s website, I asked then-city manager Joe Felz where the authority for  this closure period came from. This was his response: “City Hall closure dates were enacted by City Council Resolution 9197 (October 17, 2000).  The Resolution provides that specifically designated City offices close annually for the period of December 24 through January 1st.  The closure does not apply to Police and Fire Departments or to certain community facilities (Community Center, parks, Museum, Indy Park, etc.) and for building inspections. Employees must use accrued leave time (typically vacation time) to be paid for these days or they may take unpaid leave.”

City Hall Closure Dates

2016
November – 4, 11*, 18, 24*, 25*
December2, 16, 24*, 25*, [26, 27, 28, 29] 30, 31*

2017
January1*, 2*, 13, 27
February – 10, 20*, 24
March – 10, 24
April – 7, 21
May –5, 19, 29*
June – 2, 16, 30
July – 4*, 14, 28
August – 11, 25
September – 4*, 8, 22
October – 6, 20
November – 3, 10*, 17, 23*, 24*
December – 1, 15, 25*, 26*, 31*

*Holiday observed

 

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California drivers will pay more for auto registrations to shore up underfunded CHP pensions

By Romy Varghese, Bloomberg | Californians in April will start paying more to register their cars — not to help maintain roads, but to keep the pension checks rolling for the motorcycle cops who policed them.

CHPThe retirement fund for the California Highway Patrol is worse off than any other managed by California Public Employees’ Retirement System (CalPERS), the largest U.S. pension, as payments by the state and employees fail to keep up with benefits locked in during the dot-com bubble. As a result, the state’s contributions jumped 14 percent this year to $415 million and are projected to continue rising. A $10 increase to registration fees will help cover the expense.

“It’s a pension tax — call it what it is,” said state Senator John Moorlach, a Republican who introduced a bill that would implement measures to cut pension costs. “It’s like a tumor that’s growing inside the budget.”

Read the rest of this news story . . .

 

 

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A king’s ransom for ‘public servants’?

By Jon Coupal | Once upon a time we called them “public servants.” Today, most taxpayers struggle to keep a straight face when this term is used to describe the well-paid, elite who govern us.

Jon CoupalIn a state where the median per capita income is just over $30,000, Gov. Brown, legislators and other state elected officials will celebrate the holidays with a four percent pay raise. The California Citizens Compensation Commission, whose members are appointed by the governor, decided the improved economy and healthy state budget justified the raise. California lawmakers, who were already the most generously paid in all 50 states, will now receive $104,115, earning them $14,774 more per year than the next highest. Of course, this does not count the additional $176 per day in “walking around money,” living expenses lawmakers receive for every day the Legislature is in session, amounting to an average of $34,000.

The governor, too, is now the highest paid at $190,100 — Pennsylvania’s governor is actually slated to make $723 more, but Gov. Tom Wolf does not accept the salary.

Do Californians pay their governor, the top executive of a state government responsible to nearly 40 million constituents, enough? The fact that there is never a shortage of candidates for this job is an indication that the pay is sufficient. So, the question arises, why do many government employees receive more than the governor?

At the local level, most cities have as their chief executive, a city manager. Of 479 cities – out a total of 482 – reporting to the state controller, 279 are paid more than the governor. Of these, 24 receive over $300,000 annually.

Read the rest of this column . . .

 

 

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Fullerton City Hall is closed today for another three-day weekend

City Hall Closure Dates

2016
January – 1*, 15, 29
February – 12, 15*, 26
March – 11, 25
April – 8, 22
May – 6, 20, 30*
June – 3, 17
July – 1, 4*, 15, 29
August – 12, 26
September – 5*, 9, 23
October – 7, 21
November – 4, 11*, 18, 24*, 25*
December2, 16, 24*, 25*, 30, 31*

2017
January –1*, 2*, 13, 27
February – 10, 20*, 24
March – 10, 24
April – 7, 21
May –5, 19, 29*
June – 2, 16, 30
July – 4*, 14, 28
August – 11, 25
September – 4*, 8, 22
October – 6, 20
November – 3, 10*, 17, 23*, 24*
December – 1, 15, 25*, 26*, 31*

*Holiday observed

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Feds to investigate Orange County district attorney and sheriff

The U.S. Department of Justice launched a civil rights investigation of the Orange County District Attorney’s Office and the Sheriff’s Department yesterday over allegations that prosecutors and deputies withhold evidence and use jailhouse informants to illegally obtain confessions. Here’s the story in the Orange County Register.

Here’s the news report that ran on KCBS 2:

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