I read this interesting Op-ED in the LA Times today, an it makes a lot of sense.
Marcia Fritz remembers it distinctly: She had a chilled glass of Handley chardonnay in her hand and was chatting with friends on the shores of Lake Tahoe in August of 2002. She was totally relaxed until one of her pals brought up an official in her mid-size city who was retiring. His pension was to be based on a 3-50 formula.
Fritz, a certified public accountant, nearly choked.
The 3-50 formula meant that the official could retire at age 50 with a pension based on 3% of his final salary, multiplied by his years of public service. If he made, say, $200,000 a year and had 25 years on the books, he’d get $150,000 a year until the day he died, plus benefits and cost-of-living increases.
Like I’ve been saying here for years, these benefits are unprecedented and really unsustainable given the number of working years required. I don’t know what the system in France is exactly, but seeing as how even they’ve had to reform their system to reality, so too should the State of California.
It was like winning the lottery.
“I was stunned,” says the Citrus Heights resident, who would go on to lead a statewide pension reform movement.
Fritz, who calls herself a fiscally conservative Democrat, could not believe that such a generous pension was available to a public employee only 50 years old and potentially in line to collect a retirement check for more years than he had worked. How could taxpayers afford that?
“I just instinctively knew when I heard 3-50 that we were in trouble.”
And so we are, with the fiasco in the city of Bell hammering home that point after a Times expose on a city administrator making nearly $800,000. Robert “Ratso” Rizzo’s pension could hit $700,000 a year, while residents of low-income Bell pay the second highest property tax rate in L.A. County to foot the excesses of city leaders.
But we’ve got public pension trouble across the deficit-ridden state, even where retirement payouts aren’t nearly as obscene. The crashed economy, along with corruption scandals and boneheaded investments by the state’s public pension system, CalPERS, means taxpayers have had to fork over an extra $600 million for pensions this year. According to Fritz, thousands of retired public employees in California collect $100,000 a year or more, often with medical benefits too.
I don’t have a problem with safety nets in retirement. But do they have to be spun from gold?
My sentiments exactly, and the minute I heard about the Rizzo scandal, my immediate thought was “and how much of a pension do we owe him?” Apparently, three quarters of a million dollars every year until he dies, quite possibly with cost of living increases. I don’t think people around the state quite caught on to the brevity of the situation until that happened. I’m completely okay with a reasonable and fair system, one that doesn’t leave anyone hanging but this is out of control.
Pensions? They went “poof” in the private sector years ago. And the argument that public servants deserve better retirement benefits because they work at lower pay than the rest of us doesn’t hold up in this economy.
So how did we get into this mess, with Fritz and others predicting calamity if we don’t get more of the kinds of reforms Gov. Schwarzenegger has worked out with half a dozen state employee labor unions? When Fritz got home from that trip to Tahoe and did some research, she discovered that the seeds of the current disaster were sewn in 1999.
That year, with the economy fat and public officials happy, the state banked on an endless run of milk and honey. Gov. Gray Davis and the Legislature — with nearly unanimous bipartisan support — raised pensions for state workers to nation-leading levels under SB 400. Many cities, counties and other public entities joined the party, and smiling union leaders could tell their members they had gotten a spectacular return on years of faithful campaign donations.
Fritz, of the California Foundation for Fiscal Responsibility, tried unsuccessfully to get a pension reform plan on the ballot last year. A former consultant to CalPERS and a task force member for the national Government Accounting Standards Board, she said her continued mission is to educate the public on the potential pension tsunami and lobby for reform.
Both candidates for governor, Meg Whitman and Jerry Brown, have made pension reform proposals for state employees. Fritz likes some of their ideas, but she thinks we need even bigger changes, and they need to extend to all public employees.
If she were in charge, new employees wouldn’t be able to boost their pensions with what she calls a Sears catalog of extras, such as adding the value of vacation time to their final pay. Pensions would be based on an average of the final three years of an employee’s salary instead of the final year, so late-career spikes like Rizzo’s don’t break the bank.
Fritz said cops and firefighters now retire, on average, at 54, while other government employees retire at 59. If each group worked five years longer, she said, the public cost would be cut in half. She’d also require all employees to contribute to their own pensions and drastically lower the formulas for figuring retirement pay.
In Bell, where the staggering salaries of top executives are under investigation and they were forced to resign, the pension formula is one of the more generous in the state. In the case of Rizzo, it’s 2.7% of his $787,637 salary multiplied by three decades in three public jobs, with the gravy train starting at his current age of 55. That puts him between $600,000 and $700,000 a year in pension pay.
Maybe we should thank the dirty rat. His greed and arrogance were so monumental, he’s shocked the entire state, and that just might send the whole gravy train right off the tracks.
I agree, but I will say it again. Rizzo’s damage might be done, and the special election he held to make Bell a “charter city” might be all that she wrote for him and the salaries of his cronies. What can still be accomplished is reform, and major reform. Now that the eyes are finally on this upside down system, maybe people would be willing to change it.
Another thing that caught my eye in follow up stories was just how Rizzo and team raised revenue so that he and friends could usurp 10 percent of Bell’s annual budget to pay themselves. In addition to Bell paying the second highest taxes in Los Angeles County, still having to suffer losses to service, there was also a lot of ticketing it appears.
The City Council was apparently enthralled with Rizzo, its city manager. He started in the early 1990s at $72,000 per year, reaching $300,000 in 2004, one of the highest-paid public employees in California. His contract called for raises of 12 percent per year. This, to run a city with, according to Governing magazine, just 80 employees.
Perhaps to ensure their loyalty, Rizzo pushed the council members to change Bell from a “general-law” city — governed by state laws that restrict City Council pay — to a “charter” city, which has wide latitude to, among other things, pay the council members far more, in this case nearly $100,000 per year.
(As a charter city, the Los Angeles City Council used these same wide-ranging salary rules to push through a complex, voter-approved pay-raise formula that has steadily hiked the council’s salary to $178,789, making it the highest in the U.S. They now earn more than members of Congress or federal judges.)
In Bell, the changeover to a charter city passed easily, though fewer than 500 Bell residents voted.
Jose Gomez, who co-owns Taqueria Jalisco near City Hall, says he is embarrassed that he voted for it.
But Gomez’s yea vote was hardly unreasonable, says Bob Stern, president of the think tank Center for Governmental Studies. “We want to control our destiny. We all like local control. They didn’t say, ‘By the way, we’re going to pay our City Council $100,000 per year.’ ”
To help pay the exorbitant salaries, in addition to cutting services and laying off workers, the city devised a cunning scheme to raise revenue. In its working-class neighborhoods, the parking rules in front of apartments and homes make Santa Monica’s seem inviting. Bell City Hall reaps big ticket revenues by restricting its residents from enjoying overnight visitors, and ticketing and towing when they do.
After all, we’re paying for it either way here in California. I also caught this article that explains away some of the arguments that are tossed around regarding this sweetpot deal.
- “We need such benefits to attract employees.” Wrong. People flock to public employment like fox terriers to pork chops. In the same week that O.C. supervisors adopted 2.7-percent-at-55, the ports of Long Beach and Los Angeles advertised for new workers. About 400,000 applicants showed up. Professor Steven Frates, then of the Rose Institute of State and Local Government, cited an advertisement to fill a handful of firefighter positions. It drew 600 applicants. Frates said, “The market is telling us that we don’t have to offer 3 percent at 50 to get qualified applicants for firefighting positions.”
- “We need enriched benefits to retain existing employees.” Wrong. Public employees rarely quit, and are almost never fired. Early and rich retirement benefits encourage people to leave early. Some 894 people retired from the county immediately after the 2.7-percent-at-55 pension was adopted. Why stay when you can make nearly the same amount without working?
- “2.7 percent at 55 will save money, because the person hired to do the job will start at a lower level of pay.” Wrong. It’s more expensive, because the county must pay two people for one job: the retiree and the new hire.
- “We need higher benefits because public employees make less money than private sector employees.” Wrong. The Bureau of Labor Statistics says public employees “make an average of $23.30 per hour, compared to $19 per hour in the private sector.” The Employee Benefits Research Institute says, “Benefits in the public sector are 72.8 percent higher than those in the private sector.” The U.S. Census Bureau estimated that the average wage in the public sector was $53,958, compared with $40,991 in the private sector.
The head of the California Public Employees’ Retirement System offers “important facts you should know” in support of the pension benefits, followed, again, by OCTax’s rebuttals.
- “The average CalPERS pension is $25,000 per year. Half of CalPERS retirees receive $16,000 per year or less.” Misleading. Those figures includes pensions of people who retired years ago, (when pensions were cheaper) and pensions of noncareer employees who worked only five years to vest in a minimal pension. The problem is the lavish pensions promised to today’s workers.
- “Every dollar paid to CalPERS pensioners comes from three sources – investments, employer contributions and members [employees].” Sounds like taxpayers are off the hook. Wrong. One-hundred percent of the money comes from taxpayers. The “employer contribution” is money you and I send to the tax collector to defray costs of government, including pensions. The “member” contribution comes from the employees’ wages and salaries, paid by taxpayers. The “investment” money comes from taxpayers, to be managed by CalPERS (or, in Orange County, OCERS) for retiree pensions.
Taxpayers give public employees the most lopsided benefits of all: fire-proof employment and the absolute guarantee that employees will have generous cost-of-living-adjusted pensions as long as they live. No private-sector worker ever will enjoy such peace of mind.
Even the Public Employees’ Retirement Journal admits that “benefits are too rich by far because of greed, wishful thinking, and faulty numbers.” But the Journal goes on to boast that legislators become “jellyfish in a suit” when confronted by unions. Only voters can force those jellyfish to act.
Some of these arguments have been tossed around these parts, but the one that catches my eye the most is the part about where the investments come from. I’ve heard time and time again that the investments are made elsewhere, but I linked to an article the other day by Glendale’s City Manager who said that the taxpayers of Glendale were on the hook for 40,000 dollars a year of Police Chief Adam’s retirement, and he did say that money came out of the general fund. So, unless that was a misleading statement, I will assume that that article was truthful and that’s very disturbing if true.
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California's Gold
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