May 27, 2012

California is Bankrupt and One of the Reasons is Its Taxpayer-funded Education System (Another is Its State Pension System)

California's $500-billion Pension Time Bomb

California is bankrupt and one of the reasons is its taxpayer-funded education system (at least 40 percent of the state's budget), where employee compensation is out of control.

California faced a $27 billion budget deficit in 2011. To balance the budget, the governor made spending cuts across the board, including secondary education (K through 12 schools). The California Department of Education notes that between 2010 and 2011, the statewide total cost of education equaled $46,278,595,991, which averaged $8,323 per student. Ten years before, in the 2000 to 2001 school year, the total annual expenditure was $36,825,458,699, which came to $6,360 per student. Gov. Jerry Brown has drafted a controversial $9 billion tax hike proposal, which voters will likely see on the November ballot. The Sacramento Bee highlights that schools worry about actually getting the measure to pass, which has led school districts to favor austerity measures and layoffs over budgeting with money that is not yet in their coffers. Although Gov. Brown encourages school districts to factor in the tax hike money, administrators instead ask for permission to "shorten the school year without penalty below the current 175-day minimum." [Source]

Higher education in California also faces budget cuts. The Associated Press notes that the University of California is planning to implement a 6 percent tuition increase in the fall, unless the state supplies $125 million for the 2012 to 2013 school year. In addition, there is talk of a "double digits" mid-year tuition hike, if the governor's ballot measure fails. [Source]

Tuition alone for the California State University systems is projected to be almost $22,000 per year in 2014, which will outstrip any resources the middle class has to put their kids through college. [Source]

As the University of California Board of Regents considered where to cut budgets and whether or not they should increase fees on students, they gave a hefty raise to the new San Diego campus chancellor, Pradeep Khosla. The Regents awarded Khosla a $411,084 base salary, a 4.8 percent increase compared to his predecessor and more than double Governor Jerry Brown's annual salary of $173,987. Increasing administrators' pay amid budget cuts has been a trend over the past decade. Tuition and fees at state schools soared 72 percent from 2001-2011. Yet, Andrew Hacker, co-author of Higher Education? How Colleges Are Wasting Our Money and Failing Our Kids – and What We can Do About It, says salaries of university presidents at public and private universities have roughly doubled since 1991. Gov. Jerry Brown released a "May Revision" of the state budget Monday, announcing the budget deficit had gone from $9 billion to $16 billion, meaning state universities will face steep cuts if an initiative on the November ballot to raise taxes in California isn't approved by voters. The UC Regents will vote in July on whether or not to increase tuition by 6 percent. The AP notes that would mean in-state undergraduates would pay $12,923, nearly double what students paid five years ago. [Source]

Another reason California is bankrupt is its state pension system.

Pension costs are spiraling out of control at the University of California, which, unlike most college systems, runs its own pension plan. In 2010 it was reported that the 10-campus system expected to contribute $700-million per year just to keep its plan afloat—nearly as much as the cuts in state support in 2009 that generated protests and threw the system into crisis. Employees are likely to have to pay at least 5 percent into their retirement plans after years of not paying anything.

Private colleges have suffered investment losses of their own, of course. But their retirement plans are less at risk, because they have largely abandoned defined-benefit plans, which guarantee employees a fixed level of benefits after they retire, in favor of defined-contribution plans, which put the investment risk on employees.

In recent years, many employees of public colleges have elected not to enroll in defined-benefit plans, which are typically more difficult to carry over to new jobs. But a majority of all workers at public colleges, and more than a third of full-time faculty members, are still enrolled in defined-benefit pension plans, surveys indicate. As lawmakers seek to escape pension shortfalls, new employees in those plans may receive lower retirement benefits, be forced to make higher contributions, or need to work longer until they can afford to retire.

Some experts say that in the rush to avoid financial ruin, states are ignoring larger questions of how to design sustainable retirement plans for college workers.

Unless it makes changes, the system is on track to spend more on retiree pensions and health care than it does on instruction by 2014, says Peter J. Taylor, the system's chief financial officer. "There's no way on God's green earth we can look our public in the eye, whether it be parents writing a tuition check or a legislator in Sacramento, in four years and say give us more money," he says.

To cut costs, the system is expected to propose a revamp this year, including raising the retirement age from 60 to 65, sharply increasing employer and employee contributions, and reducing the total amount of benefits. Like most pension changes, the majority will apply only to new workers, a restriction driven in many states by laws that prevent officials from touching the benefits of existing employees. [Source]



Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn't a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts.

Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.

Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year's pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state's pensions funds have been fully funded (which they haven't been).

A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar. [Source]

State Eployee Pensions to Cost California $3.7 Billion

May 16, 2012

Reuters - California will pay about $3.7 billion for state employees' pension in its next fiscal year, more than it now pays but less than the state set aside for retirement-related expenses in the prior fiscal year, the state's pension fund said on Wednesday.

The California Public Employees' Retirement System, best known as Calpers, is receiving $3.5 billion from the state government, down from $3.9 billion in the prior fiscal year.

The anticipated $213 million increase in the state's contribution for the next fiscal year reflects a change in the pension fund's economic assumptions and a decision by its board in March to lower the fund's assumed rate of return to 7.5 percent from 7.75 percent.

As the assumed rate of return drops, state agencies and local government employers using Calpers must pay more to the fund to manage retirement benefits for their employees.

Calpers also said contributions by government employers for non-teaching school employees would drop by $29 million to $1.2 billion for the year beginning on July 1.

Calpers will phase in higher contribution rates over two years, an approach criticized by Governor Jerry Brown in a letter on Wednesday.

Brown said interest costs under that plan would add $145.9 million to the state's expenses over the next 20 years.

"In essence, phasing in the change would be the equivalent of the state taking on a 20-year loan at 7.5 percent interest - not a prudent decision," Brown said.

Calpers Board President Rob Feckner shot back that phasing in higher contributions rates would ease retirement expenses for employers paying into the fund.

"If the Governor feels the State can make the payment in full, then I'll be happy to have someone come pick up his check today," Feckner said in a statement.

Calpers and Brown are at odds in other ways.

Brown has proposed overhauling the state's pensions system with so-called hybrid retirement plans for new public employees that would blend traditional pensions with defined-contribution retirement accounts to reduce pension expenses.

Calpers, a defender of traditional pensions, in February said Brown's pension reform plan may not significantly reduce pension costs for the state and hybrid pensions would increase investment risks for individuals covered by them.

Public pension expenses have become a hot political issue in the most populous U.S. state and Calpers' estimates on contributions for the next fiscal year follow Brown's revised estimate for the state's budget gap and a plan to tackle it.

Brown said on Monday the deficit for the next fiscal year would grow to $15.7 billion from a previously estimated $9.2 billion due to a slow economic recovery and weaker-than-expected revenue.

Brown called for deep spending cuts to health, social and welfare spending and included new revenue in his budget plan based on the assumption voters in November will approve a ballot measure that would increase the state's sales tax and raise personal income taxes on wealthy taxpayers.

If voters reject the measure, more than $5 billion in education spending would need to be cut to balance the state's books, Brown said.

The $3.7 billion that Calpers expects from the state government is equal to 4 percent of general fund spending proposed by Brown on Monday. Lawmakers face a June 15 deadline for approving a budget for the next fiscal year.

Related:

UC Berkeley Head Coach Jeff Tedford's salary was $2,349,038 in 2010
UCLA Head Coach Intercol. Athletics Benjamin Clark Howland's salary was $2,076,535 in 2010
UCLA Professor-HCOMP Ronald W. Busuttil's salary was $1,984,858 in 2010
UC Berkeley Head Coach Michael J. Montgomery's salary was $1,859,133 in 2010
UCLA Clinical Professor-HCOMP Khalil M. Tabsh's salary was $1,783,005 in 2010
UC President Mark G. Yudof's salary was $560,594 in 2010
UC Berkeley Chancellor Robert J. Birgeneau's salary was $416,596 in 2010
UC Davis Chancellor Linda Katehi's salary was $382,249 in 2010
UC Davis Vice Chancellor for Admin. and Resource Mgmt John Meyer's salary was $213,121 in 2010
UC Davis Police Chief Annette Spicuzza'ssalary was $140,417 in 2010
UC Davis Police Lieutenant John Pike's salary was $110,243 in 2010
Legislative Assembly Speaker John Perez's salary was $107,329 in 2010

Search for State Salaries in California
Posted by at
Labels: , , ,

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)