In August 2009, at a seminar in Sacramento sponsored by the Public Retirement Journal, the chief actuary of the California Public Employees’ Retirement system — who thought he was at a closed event with no media present — made a grim, startling pronouncement that was unlike anything ever said publicly by his bosses at CalPERS. Ed Mendel, founder of the Calpensions blog, was at the event, and broke the story that’s reverberated ever since.
“I don’t want to sugarcoat anything,” [Ron] Seeling said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
Seeling used the same word to describe CalPERS’ pension costs — “unsustainable” — that then-Gov. Arnold Schwarzenegger had used to push for dramatic cuts in pension benefits. No one had more credibility than Seeling on CalPERS’ financial health, and 10 years ago, it was clear that he had joined the doomsayers who warned the “pension tsunami” would eventually strike with devastating effect.
Unsurprisingly, with its board dominated by union allies who defended the pension status quo, CalPERS quickly disavowed Seeling’s warning. The next month, it launched a website — calpersresponds.com — that rejected any concerns about CalPERS’ long-term viability. And ever since, public employee unions have mounted campaigns dismissing the idea that a pension crisis is coming — even as local governments eliminate or reduce services because of pension costs.
But union leaders are anything but dumb. The most telling example: Four years before the June 2018 U.S. Supreme Court ruling saying public employees could opt out of paying union dues, the California Teachers Association had actually concluded the ruling was inevitable and started preparing for a future in which government worker unions would have diminished resources.
So here’s a provocative thought: What if the union leaders who publicly scoffed at Seeling’s warning actually completely agreed with him? With that as a starting point — as well as union leaders’ expectation of the union-dues ruling — the past 10 years in the Golden State look considerably different. Call if the Grand Unified Theory of California Politics: Much of what public employee unions have done since 2009 has had as its overarching goal not just sustaining generous defined-benefit pensions in the short term but enshrining them and protecting them for a generation of new workers to come.
Consider the bailout of the California State Teachers’ Retirement System, which seemingly went from a vague idea in early 2014 to a far-reaching, hugely consequential state law by June of that year. It phases in higher pension contributions from districts, the state and teachers, starting in 2014-15 and concluding in 2020-21, increasing total annual payments to CalSTRS from nearly $6 billion to $11 billion.
But the structure of the bailout is uniquely punitive to school districts, which are responsible for 70 percent of new CalSTRS funding, with the state responsible for 20 percent and teachers 10 percent. Districts will end up paying a phased-in increase of more than 130 percent in contributions based on teacher pay.
Even before the bailout took effect, Moody’s Investors Service sounded the alarm:
Managing rising pension costs will prove challenging over time because CalSTRS rate increases are back-loaded. School districts face future budgetary stress not only from rising pension costs but from salary and benefit expenditures and programmatic priorities. Further, school districts have minimal revenue flexibility. … Rising pension costs will pressure financial operations … .
Moody’s warning was pure common sense. In the 2013-14 school year, even with the much lower pension contribution rates, many school districts saw 85 percent or more of their budgets going to compensation. Few if any could readily handle a giant increase in a key compensation category.
Come 2019, as was inevitable, school districts’ complaints about high pension costs are a constant across California — starting with the largest, Los Angeles Unified, where a teachers’ strike began Monday. What’s driving the strike? A key factor is that LAUSD leaders say they simply can’t afford the raises demanded by United Teachers Los Angeles (UTLA) because of rapidly growing pension costs. Union leaders say that’s just not true — that the district has a $1.8 billion reserve that can easily cover substantial raises.
This argument is so feeble that it’s hard to believe anyone can make it with a straight face. The UTLA knows that LAUSD’s pension squeeze is real. It knows the reserve won’t even cover the $2 billion in red ink that L.A. Unified expects over three years.
But the argument doesn’t seem so feeble if you see it as part of a long-term strategy. When teachers unions embraced the CalSTRS bailout in 2014, were they as prescient and commonsensical as Moody’s? Did they also foresee the brutal fallout it would cause — and see it as an opportunity?
A recent Los Angeles Times op-ed by LAUSD Superintendent Austin Beutner makes that seem entirely plausible. He noted that the UTLA was fully aware of the district’s precarious finances and asked …
So what is this really about? UTLA leaders have said since early 2017 — before contract negotiations even began and more than a year before I became superintendent — that they wanted “a strike to create a state crisis.” L.A. Unified has made proposal after proposal, all of which have been rejected. UTLA leaders, meanwhile, have not made a single counteroffer on salary or class size. Not one.
Talk about things that make you go hmmmm. What might come of such a “state crisis”? How about an intense push to raise taxes dramatically? A push that would nominally be about “helping the children” by increasing education funding but that would free ride on the popularity of the idea of helping schools to also provide vast new funding to help all government agencies pay for and continue to offer generous defined-benefit pensions?
Which brings us to Proposition 13, the landmark 1978 state law that limits increases in property taxes to 2 percent a year, with property being reassessed when it changes hands. In 2014, Assemblyman Tom Ammiano, D-San Francisco, introduced a bill that would end a ridiculous loophole in the law that allows a commercial or business parcel to escape being reassessed after it is sold if no single individual or entity owned more than half the property. It passed the Assembly on a bipartisan 57-13 vote only to die without explanation in the Senate.
The only explanation that made sense? Keeping the loophole would make it easier to push a “split-roll” ballot measure ending Proposition 13’s protections for commercial and business properties, forcing their owners to face annual new assessments in an era of sky-high property costs.
Lo and behold, just such a measure has already qualified for the 2020 ballot. If passed, the California Schools and Local Communities Funding Act would divvy up an expected $11 billion a year among public schools, local governments and community colleges.
And it will be much easier to pass after 18 months of headlines about fiscal chaos in California’s public schools. The agony caused by the CalSTRS bailout will peak next year, when districts have to adopt and then implement 2020-21 budgets that cover the cost of the final sharp boost in pension contributions.
If you think this is all a grand coincidence, you’re on the naive side. Union leaders aren’t dumb — and the sophistication of their long con is something to behold. California taxpayers: You’re being played.
Reed, who obviously watched “The X-Files” too much, is deputy editor of the editorial and opinion section. Twitter: @chrisreed99. Email: chris.reed@sduniontribune.com. Column archive: sdut.us/chrisreed.
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