A Primer on Pension Politics

What follows is an attempt to provide a general overview of the public pension controversy that seems to be in our media and various blogs continuously. If you are sick and tired of that topic, skip this post. If, however, you are interested in a readable summary of my take on what is going on, keep reading.

Anti-public pension advocates have for several years pushed municipal bankruptcy as a way to force the overhaul or abandonment of what they view as over-generous public sector pensions. They rejoiced a few years ago when Vallejo, California filed for bankruptcy, and then whined when the city did not include its projected pension liability as part of the debt from which it sought relief in Federal Bankruptcy Court.

Next came Stockton, a bankruptcy in process, and now they are whining because Stockton too has not included its projected pension liability as a debt to be reduced or wiped clean.  (Though Stockton did cut retiree health care benefits in this process.)  Hopes rose when Mammoth Lakes filed for bankruptcy, but alas  – the Bankruptcy Court forced the town and its major creditor – a lawsuit-winning developer – to negotiate a settlement that resulted in the town not being declared bankrupt after all. The latest California bankrupcty hope is the City of San Bernardino, which has listed its forecast pension liability as part of the debt it seeks to escape in Federal Bankruptcy Court. The nation’s largest pension system, CalPERS, which handles San Bernardino’s pension plan promises to its employees, has announced it is going to appeal an initial Bankruptcy Court ruling that found San Bernardino is indeed insolvent. That one will apparently drag on for a while.

If one drills down on the cause(s) of fiscal distress in these cities one finds that the root cause was a lengthy period of bad decisions by the cities’ elected officials. These bad decisions include employee pay and benefits, but also many other things including going into debt to finance marinas, sports stadiums, city halls, other nice to have civic improvements and subsidizing private sector developments.  In some cases the string of bad decisions continued while the electeds ignored warnings from city staff that they were making commitment the city may not be able to fulfill.

Mix in the economic collapse that appeared in 2008 and hit some cities harder than others, such as Stockton and San Bernardino who had bet big time on a continued housing and economic boom to keep filling city coffers, and you find the elected officials in these cities turning to the Federal Bankruptcy Court for a solution. In the case of San Bernardino, forecast pension costs are but one expense the city says it cannot afford.

Not to be overlooked is the City of Detroit, Michigan where demographic shifts, municipal corruption, auto industry retrenchment, white flight and other factors have combined in a “perfect storm” 50years in the making that prompted that city to also seek relief in Federal Bankruptcy Court. It is seeking relief from forecast pension obligations as well as other obligations in its bankruptcy plan.  As testimony to the legacy of elected officials it was reported in the press just last week that the former Mayor of Detroit, Kwane Kilpatrick, was sentenced to 28 years in prison for corruption.

There still remains a belief by some pension reform advocates that Federal Bankruptcy Court is the answer, even though the results so far have been less than stellar. In fact, the push for bankruptcy seems to be getting stronger. Here in Orange County the Board of Supervisors has used its 4 appointments to the 9 voting-member Board of Directors of the Orange County Retirement System (OCERS) to appoint 4 people (including the President of the Orange County Lincoln Club, a conservative Republican group active in handing out political endorsements and campaign contributions) who seem to be on a path of changing the system’s actuarial assumptions in ways that some believe exaggerate the system’s unfunded liability in order to make the system’s finances sound worse and to then demand more funds from employers and employees in hopes that it will lead to a bankruptcy filing by the County and/or one or more of the cities or special districts in the system.  A showdown on some of these assumption changes is scheduled for an OCERS Board meeting in November and will most likely be a headline-grabber.

Concurrently wealthy far-right backers, such as the Laura and John Arnold Foundation (John Arnold became a billionaire by being an energy trader, first at Enron and later his own firm) and the notorious Koch Brothers (2 of 3 billionaire brothers who are self-made industrialists), are reportedly funding an effort to place yet another pension reform initiative on the California ballot, in hopes that this time around the voters are so up to here with the pension issue that keeps appearing in the media as though every day is Groundhog Day. A small group of city Mayors, including two from Orange County – Miguel Pulido of Santa Ana and Tom Tait of Anaheim – has endorsed the proposed initiative.  Never one to miss a chance for publicity, Supervisor Todd Spitzer and his colleague Janet Nguyen are, according to press reports, going to propose an Orange County ballot initiative to require that county elected officials pay half of their retirement cost. (One must wonder if this is really a stealth plan to guaranty those officials a 50% county funded retirement).

There are other pension issues out there. Municipalities in other states have sought bankruptcy protection resulting from everything from bad decisions on sewer system expenditures to – you guessed it – more corruption. Harrisburg, the state capital of Pennsylvania and the small city of Central Falls, Rhode Island have pursued bankruptcy, and in the case of Central Falls pension benefits were cut in a creditor negotiation process. And, there are those who are making money off this pension chaos and work to keep it alive, such as the authors of books and newspaper columns that seem to go on ad infinitum. In a follow-the-money vein, one recent published thrust argues that there is a conspiracy against pensions being undertaken by a combination of far right interests and brokers and other Wall Street interests anxious to get their hands on the billions in public sector pension funds in order to rake in billions in fees and commissions.

On top of all this there is at least one court decision in California that found that the forecast unfunded liability of public pensions is not a debt at all. If that logic is presented in the San Bernardino bankruptcy case or elsewhere in a bankruptcy filing in California the waters may become even murkier.

Missing from this post is any discussion about public sector unions and their power, as well as collective bargaining rights granted to public sector employees and the real or perceived power these unions seem to have over some elected representatives.   The argument about whether these unions are the root cause of the problem or are just a symptom can go on forever.   Another day…

About Over But Not Out

A retired Orange County employee, and moderate Republican. The editor seriously does not know OBNO's identity as did not the former editor, but his point of view is obviously interesting and valued.