California Treasurer Bill Lockyer, through an aide, responded vigorously Wednesday to my depiction of him as joining Team Maviglio and its advocacy of the pension status quo. Lockyer quit the advisory board of a Stanford research team led by former lawmaker Joe Nation after it issued a report this week that said the state’s three biggest pension agencies were in much worse shape then they claimed, if one used different, less optimistic formulas to predict their future finances. Lockyer says what the Stanford team actually did was tout “bogus research” based on “phony numbers” that amounted to “propaganda.” Yo, Bill: If you can’t abide bogus research, phony numbers and propaganda, then how come you have stayed mum over CalPERS’ 12-year orgy of misinformation, starting with its staggeringly dishonest 1999 campaign for a massive pension hike for state employees?
Yes, Lockyer, has been good on some CalPERS issues, starting with those involving its already-exposed corruption on investment decisions. But contrary to his claims, Lockyer has often been either an indirect or a loud defender of the pension status quo — a Team Maviglio type, not an ornery contrarian.
In two columns from February of this year,:Daniel Borenstein of the Contra Costa Times detailed how Lockyer is using the Maviglio talking points to minimize the size of public employee pensions:
In the statewide debate over public employee pensions, there are few numbers more misleading and misused than the average benefit for retirees of the California Public Employees’ Retirement Association.
CalPERS loves to circulate the statistic. So do politicians and unions representing workers. “Twenty-five hundred dollars a month is the average state employee pension,” state Treasurer Bill Lockyer, a member of the CalPERS board, told a UC Berkeley conference of academics and journalists last month.
As the public pension debate heats up in coming weeks, you will certainly hear that more often. Indeed, there’s a corollary number that pulls even harder on the heartstrings. When the pensions of local government employees covered by CalPERS are added in, the average pension is $2,220 a month.
It leaves the impression that the average public employee now retires after a full career into a life of poverty, living off less than $27,000 a year. That’s simply not so.
In fact, CalPERS data shows the average career public employee, who put in at least 30 years of service and retired in the 2008-09 fiscal year, collected a starting pension of $67,000 a year, or 2.5 times the advertised figure. The higher number is buried deep in the retirement system’s financial statement and never makes it to the promotional material CalPERS hands out.
The pension numbers are even higher for the separate local retirement systems that cover employees of the two East Bay county governments. The average was $85,500 for career workers who retired in 2009 from the Contra Costa system, and $83,000 from Alameda County.
A majority of these workers also receive Social Security, which could add, very roughly, about another $19,000 to the annual pension of career worker, pushing the average starting retirement for the two local systems into triple digits, and for CalPERS to about $86,000 a year, or more than three times the touted number.
More from Borenstein:
Imagine going out for a nice dinner and charging the tab to your home mortgage.
You wouldn’t do that, would you? After all, you already ate the steak. It doesn’t have a long-term benefit like your house does. So you certainly wouldn’t want to be paying for the meal 30 years from now.
Yet that’s what we’re doing with a large chunk of public employee pension costs. We’ve already “consumed” the benefits of the workers’ labors, but we’re making future generations pay billions of dollars of their compensation.
State Treasurer Bill Lockyer, a member of the board of the California Public Employees’ Retirement System, defended the practice at a University of California conference last month.
“I like building schools that the grandchildren will pay for. I think that’s a prudent expenditure,” he said in response to a question I asked. … There are things that we pay for intergenerationally that are smart and wise. … Businesses amortize their expenditures, their capital outlay. (Pensions are) analogous in the human investment sector to doing the same thing and distributing your investment costs over a number of years.”
Lockyer’s right that it makes sense for government agencies to borrow to pay for capital projects. When we build a bridge or a school, it should last for half a century or more. Future generations will benefit so it’s reasonable to place some of the financial burden on them.
But he’s wrong that pensions are analogous. We shouldn’t borrow long-term to pay ongoing labor costs. It’s irresponsible. Yet, that’s what we’re doing with pension liabilities.
Borenstein is absolutely right. Lockyer’s taxpayer abuse on the pension front began long before that Berkeley speech, though. He’s been treasurer and thus a member of the CalPERS board since January 2007. Here are a few more of the CalPERS travesties that I’ve written about that Nexis shows Lockyer has countenanced since he joined the board:
The California Public Employees’ Retirement System faces legitimate criticism on many fronts – for a corruption scandal allegedly involving its former CEO and other top officials; for its role in promoting huge retroactive pension increases at all levels of government that are now proving to be unaffordable; for downplaying and obscuring its funding problems; and more.
Yet calpensions.org reports that a recent CalPERS board retreat turned into a self-pity fest, with bitter complaints about the unfairness of media coverage of pension issues. This is beyond exasperating. CalPERS badly needs a reality check – and an attitude change.
Economists agree that the present system of defined-benefit pensions for government workers must be replaced with something less burdensome to taxpayers. In August 2009, Ron Seeling, the chief actuary for the California Public Employees’ Retirement System, made the same point, calling the practices of his employer “unsustainable.”
But 14 months later, CalPERS no longer has Seeling on the payroll. Instead of candor about unsustainable practices, the pension giant appears determined to be the biggest obstacle to fixing a broken system. This obstinance remains even though Democratic lawmakers closely affiliated with public employee unions – previously the biggest obstacle – now accept that changes are needed. Attorney General Jerry Brown, the front-runner in the governor’s race, backs cheaper pension benefits. In the recent state budget deal, Democratic legislative leaders agreed to Gov. Arnold Schwarzenegger’s insistence that less generous benefits be provided to state employees hired beginning Jan. 15.
But even as public outrage over generous pensions continues to build, CalPERS fights for the status quo and drags its heels on reforms. This week, Ed Mendel of calpensions.com reported that CalPERS officials are grousing about the extra work their staff must do because of a new law requiring the agency to provide its local government clients with more information about the financial problems they would face if CalPERS’ estimates of future investment earnings prove too optimistic. The hypocrisy of this is immense, given that it comes from the same agency that lectures corporations about transparency and full financial reporting.
Meanwhile, CalPERS continues to use its well-funded public relations machine to present a deceptive picture of pension policies. The pension giant has been forced to use “smoothing” formulas to limit the otherwise-huge increases in pension contributions it would require of government clients because of its weak financial condition. The formulas push out increased pension costs to future years. But on one of its websites – calpersresponds.com – CalPERS says it is a “myth” that “public pension benefits are excessive and a drain on the public.” Then why does CalPERS have to use accounting gimmicks like “smoothing” to disguise the true cost of pensions?
Even with “smoothing,” CalPERS’ bills to local governments are so big that dozens of its clients across the state are moving to or considering two-tier systems with less expensive pensions for new hires. This ugly reality is on plain view every day on the pensiontsunami.com website, which shows the financial chaos caused by excessive pension costs throughout California and around the nation. But CalPERS officials pretend the tsunami is a ripple.
“They will never change,” Schwarzenegger adviser David Crane said in an e-mail. He described CalPERS as “desperate to keep truths hidden.”
The California Public Employees’ Retirement System’s own financial reporting doesn’t live up to the high standards it demands of the corporations it invests in. CalPERS dismisses this and just about all criticism. But what’s happening in another state with a nighmarishly underfunded pension system suggests CalPERS may yet have the day of reckoning that it deserves.
In a case with similarities to the action it brought against San Diego over the city’s pension deceit in 2002 and 2003, the Securities and Exchange Commission formally charged New Jersey with deceiving buyers of state bonds, saying “its misrepresentations and omissions created the fiscal illusion that [the state's two pension funds] were being adequately funded.” New Jersey settled the charges without admitting guilt. But the SEC’s action was a welcome reminder that state governments and their agencies have an obligation to be honest in their financial affairs.
As assemblyman-turned-Stanford professor Joe Nation pointed out this week, CalPERS’ misrepresentations to the Legislature in 1999 appear as egregious as what was done in New Jersey. In lobbying for SB 400 – a bill that ended up being the vehicle for enormous retroactive pension increases for hundreds of thousands of public employees – CalPERS put out a 17-page brochure that made the hallucinatory assertion that such a vast gift of public funds would have little or no long-term cost for taxpayers.
But as former U-T reporter Ed Mendel revealed in July on his calpensions.com blog, at the same time CalPERS put out the brochure, its actuaries were warning that if CalPERS’ investment returns flagged, SB 400 could end up costing the state nearly $4 billion in 2010-11. That’s pretty much what happened.
SEC, come on down. CalPERS must be held accountable for this public policy atrocity.
If Lockyer were the warrior for truth, justice and the American way that he presents himself as, he would have been outspoken on all these CalPERS issues and many more. Instead, he saves his outrage for those who criticize CalPERS and question its numbers.
Steve Maviglio is proud of you, Bill. Not the rest of us former members of the Bill Lockyer Occasional Fan Club. If you really were worried about “bogus numbers” and “propaganda,” Bill, you’d have a meltdown every last time you went to a CalPERS board meeting.