California's New Governor Doesn't Touch Pensions in Big Budget Cuts

[911paramedic]

This. Pensions are promises made many times in lieu of competative pay in the private workforce.

Tax cutters always try to fuck pensioners.

And pension padding is there to fuck the tax payers.

 

[Infohawk]

This. Pensions are promises made many times in lieu of competative pay in the private workforce.

Tax cutters always try to fuck pensioners.

Hilarious. Public workers don't work as much as private workers. They also have greater job security. You work for the government and you knowingly give up competitive pay.

 

[Darwin333]

So now we get to choose whether we pay what we owe?

No. How much you have to pay with makes the choice for you.

 

[Darwin333]

Several times in this thread people have claimed CA can file bankruptcy. THAT IS NOT TRUE. Bankruptcy is a statutory procedure, not a right. You must fit within the statutory scheme for it to be applicable. Who may be a debtor under the various chapters of the Bankruptcy Code is set forth in 11 USC 109, and the closest relevant section is for Chapter 9, municipalities in 11 USC 109(c):
* * *
(c) An entity may be a debtor under chapter 9 of this title if and only if such entity—

(1) is a municipality;

(2) is specifically authorized, in its capacity as a municipality or by name, to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter;
* * *

"Municipality" is specifically defined at 11 USC 101(40):
* * *
40) The term "municipality" means political subdivision or public agency or instrumentality of a State.
* * *

"State" is seperately defined at 11 USC 101(52):
* * *
52) The term "State" includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title.

* * *

It is crystal clear that the bankruptcy mechanism is not available to States. If anyone disagrees I challenge them to post a citation to any court opinion to the contrary, or even some legit legal scholar.

People grossly oversimplify and mischaracterize the law and assume the state can set aside existing pension obligations. In most cases that is not true and would be a violation of existing specific federal laws. Future pension obligations for current and future workers can be modified under the right circumstances, but that is not my understanding of what the OP is complaining about.

<--- doesn't live in CA and has no horse in this race

I don't think it is very relevant if a state can "legally" declare bankruptcy. If they are out of money and can not raise enough to cover expenses they are technically bankrupt and people the state owes are going to get shafted. They can sue and they can and will win but exactly what would you like the state that has no money to pay with?

 

[Darwin333]

They are still obligations that were part of the compensation paid to those people. Its one thing to say we should get rid of pensions from now on. Its completely another to say we shouldn't pay the pensions that are already an obligation. California already subsidizes university tuition way more than most states that's a good place to start cutting.

It doesn't matter what else you cut.

When you calculate future payments using impossibly rosy growth figures (like 8% growth every year, forever, in investments that can't possibly lose value) it eventually bites you in the ass. The math always wins and people who are counting on pensions need to start facing reality. The money simply isn't there.

 

[olds]

I don't think it is very relevant if a state can "legally" declare bankruptcy. If they are out of money and can not raise enough to cover expenses they are technically bankrupt and people the state owes are going to get shafted. They can sue and they can and will win but exactly what would you like the state that has no money to pay with?

It would never get to that. They can cut all kinds of services that aren't required by law to pay the ones that are.

 

[olds]

Hilarious. Public workers don't work as much as private workers. They also have greater job security. You work for the government and you knowingly give up competitive pay.

Post a link to your employers worker memorial site. I'd like to see how many of you have lost your life on the job.
Here's mine:
http://www.dot.ca.gov/hq/paffairs/about/memoriam.htm

 

[Throckmorton]

No. How much you have to pay with makes the choice for you.

A contract is a contract. Do you regularly hire people to perform services for you, then refuse to follow through on your end of the contract and pay them because you'd rather use the money for something else?

I don't know about you, but if my employer refused to pay me for work I did 2 weeks before, I'd be pissed. You don't think I should be able to sue for my rightfully earned paycheck?

Figures you'd be in favor of theft from working people. As long as you rich people get yours of course.

 

[Darwin333]

It would never get to that. They can cut all kinds of services that aren't required by law to pay the ones that are.

You can't cut enough.

They assumed insane growth rates to make those payments. Not only are they not getting those growth rates they probably lost some money during the last few years. The problem will get larger not smaller.

Sure they might be able to kick the can for a few more years but like I said, the math always wins.

 

[Darwin333]

A contract is a contract.

Yes it is.

Do you regularly hire people to perform services for you, then refuse to follow through on your end of the contract and pay them

No I don't.

because you'd rather use the money for something else?

If I am damn near flat broke with enough money to barely feed my kids yet I have contractual obligations that I can't meet regardless of what I do with the very little money I have, my kids are gonna eat. Sorry.

I don't know about you, but if my employer refused to pay me for work I did 2 weeks before, I'd be pissed. You don't think I should be able to sue for my rightfully earned paycheck?

Been there. I did some work for a GC a while back that went broke but tried to kick the can by kiting checks. I still haven't been paid even though I have performed the work and have a executed contract. I could sue but I know they don't have the money so why waste even more of my own in legal fees? Its a simple concept, if it doesn't exist they can't give it to you nor can you take it.

Figures you'd be in favor of theft from working people. As long as you rich people get yours of course.

I am really curious as to why you would call me rich as it is not something that I am accused of very often. Furthermore, I am not advocating theft, I am simply pointing out the reality of the math. Promises were made that couldn't be kept and it wasn't a secret that they couldn't be kept when they were made.

 

[olds]

You can't cut enough.

They assumed insane growth rates to make those payments. Not only are they not getting those growth rates they probably lost some money during the last few years. The problem will get larger not smaller.

Sure they might be able to kick the can for a few more years but like I said, the math always wins.

I like how one local pundit put it:

California already has become an international laughingstock for failing to close a budget deficit that's scarcely 1 percent of its economic output, driving its credit rating into the basement and alienating voters.

 

[chucky2]

Is comparing its deficit and future obligations with its economic output - whatever they meant by that - a correct comparison?

Somehow when I read that, I get the feeling that words are being twisted.....

Chuck

 

[Craig234]

I like how one local pundit put it:

California already has become an international laughingstock for failing to close a budget deficit that's scarcely 1 percent of its economic output, driving its credit rating into the basement and alienating voters.

You can't close the deficit when the radical Republicans have a veto on the budget they abuse and a 'zero new taxes' fanaticism, and prop 13 in place.

But now the rules have changed and the Democrats can pass a budget. Beginning with this budget from Brown that cuts every department but K-12, I think we'll see change.

 

[Muse]

Nice, you guys gave him a week to fix California? Let's hope he does a better job than the last Republican failure.

A failure who promised to do what his predecessor (Gray Davis) failed to do (i.e. balance the budget) after ousting him in a recall election. Can anyone imagine Meg Whitman attempting this?

 

[Muse]

You can't close the deficit when the radical Republicans have a veto on the budget they abuse and a 'zero new taxes' fanaticism, and prop 13 in place.

But now the rules have changed and the Democrats can pass a budget. Beginning with this budget from Brown that cuts every department but K-12, I think we'll see change.

I don't think we'll see Jerry gallivanting around the globe shaking hands ala Arnold.

 

[hal2kilo]

A failure who promised to do what his predecessor (Gray Davis) failed to do (i.e. balance the budget) after ousting him in a recall election. Can anyone imagine Meg Whitman attempting this?

Don't get me started. I was living in SoCal when that shit went down. Ah, the cry babies did'nt like the results of the election so they play to the base that will turn out to basically have a "Do over" only this time with the motivated base. That experience left a bad taste in my mouth of the whole California political system.

 

[Muse]

Don't get me started. I was living in SoCal when that shit went down. Ah, the cry babies did'nt like the results of the election so they play to the base that will turn out to basically have a "Do over" only this time with the motivated base. That experience left a bad taste in my mouth of the whole California political system.

Oh, go right ahead.

It was a shame what they did, and Gray Davis? He was a saint compared to Arnold. California is a madhouse.

 

[Craig234]

Don't get me started. I was living in SoCal when that shit went down. Ah, the cry babies did'nt like the results of the election so they play to the base that will turn out to basically have a "Do over" only this time with the motivated base. That experience left a bad taste in my mouth of the whole California political system.

That was a taste of the radical right in Orange County. The broader state deserves more credit for a Democratic legislature, choosing Brown and Boxer, etc.

It's not all good news, though - same state that gave the nation Nixon and Reagan, passed Prop 13, etc.

 

[hal2kilo]

That was a taste of the radical right in Orange County. The broader state deserves more credit for a Democratic legislature, choosing Brown and Boxer, etc.

It's not all good news, though - same state that gave the nation Nixon and Reagan, passed Prop 13, etc.

I do understand that, and as you mentioned I was living in the heart of OC at the time. I have a problem with the whole proposition process which IIRC started in California. It would not be needed if people participation in their local politics and held their legislators feet to the fire.

 

[Darwin333]

Is comparing its deficit and future obligations with its economic output - whatever they meant by that - a correct comparison?

Somehow when I read that, I get the feeling that words are being twisted.....

Chuck

I assume that economic output is similar to GDP. If so that is a pretty good indicator on how much revenue they can potentially raise now and in the future.

 

[The-Noid]

Going to try to run through a few of the points on this.

1.) GDP is comparable on the national level not on the state level. California theoretically has the ability to raise taxes as high as they want, capital would flow to states with lower tax rates. National governments have a much easier chance to raise taxes as it is harder for capital to flee. An 11&#37; marginal rate in California already has capital and taxable income flowing from California. Assuming GDP has full participation to tax rates, a 1% budget deficit to GDP is 1/11 or 9.1% of tax revenues. Add any borrowings to the 92B or so according to my term outstanding and that is the California problem.

2.) Pensions at the current time need to be separated from the budget as CALPERS is fairly well funded until at least 2045. Although there are long-term entitlement problems at the current time they are not budgetary. CALPERS is not like a Federal government plan that comes directly from revenue (tax receipts) CALPERS has ~225B under management and will payout approximately $14B in benefits in 2011. CALPERS however will bring in $11B through employee and employer contributions. If you are looking to go after something you could go after the $6B in employer contributions, however then you have the probable strikes and related problems.

3.) Pensions are a promise to pay assuming the financial strength and soundness of the entity. Although states are currently not allowed to file for bankruptcy, that day will come, government from both sides have already talked about the possibility. See any airline or numerous other companies on the PBGC that have failed to meet their pension obligations. It happens and payout gets cut substantially.

4.) California like all governments currently need cuts everywhere. Social programs, pension, education, public health, ... Many of these cuts are both not socially responsible and the odds of getting them done are slim to none.

At some point there will be a spark in the tinderbox that is municipal and government finances, the status quo can't take the issuance anymore.

There are pages and pages of sell at any cost orders on bonddesk and tradeweb right now in the municipal debt market and it is worse on the ECN and privates. There is no demand for municipals right now so if CA does attempt to hit the market again with a RAN, TAN or GO it just is not going to go well.

Good luck Californians you have my sympathy for what your government has done to you but again the pension obligations have to be separated (at least currently) from the horrible fiscal position CA is in.

 

[PingSpike]

This.
It's not like there were any good choices. We had to vote for the lessor of the evils.

I don't know much about Jerry Brown, but I if I lived in California I would have had a hard time voting for a woman who's greatest claim to fame is ruining ebay and looking like a gigantic infant that wears pantsuits.

 

[werepossum]

So the Fed Gov is on the hook for all the states obligations if the state declares itself insolvent? Why then doesn't CA and IL just declare themselves insolvent (from my understanding, certainly that's where IL is at) and dump in on the Fed's lap?

To me insolvency and bankruptcy sounds in the end like the same thing: You don't have money to pay your bills in the short or long term.

Chuck

I do not believe that the federal government is legally on the hook. I do believe that would be the result if any state cannot pay its bills. I don't think that at the moment, either state is near that point, primarily because the legislature and governor declaring insolvency would certainly be finished in politics were they to do so. It's not the easy solution it might appear. If the economy continues to suck, we might see that in a few years, after raising taxes and driving out the high income earners and the businesses still making a profit.

Illinois though isn't as bad as it might seem; the Pubbies swept into power, and the legislature that enacted those tax increases was a lame duck Democrat one. The Republicans have pledged to restore the tax rates and cut spending, so Illinois's tax base will surely wait around for a year or two to see what happens before they begin to flee. California too probably isn't quite as bad as it looks; with a concentration of highly educated skilled workers there are reasons for many businesses to remain in the granola bowl even if taxes go up a bit. So our speculations on insolvency will probably remain just that.

 

[PokerGuy]

Stop thinking, please!

In his case, that's not an issue -- he never started.

 

[IBMer]

In his case, that's not an issue -- he never started.

You are so clever! It was obviously tongue in cheek because getting rid of the pensions is asking these people to do the same thing.