Friday, August 19, 2011

Teachers’ Pensions Threatened in California

The California teachers’ pension fund, CalSTRS, has been placed on the state’s high-risk list by State Auditor Elaine Howle, according to a recent article, “State Auditor calls CalSTRS a high risk,” by John Fensterwald - Educated Guess.

The move was largely a capitulation to slash and burn bosses and millionaires who want to preserve their historically low tax rates, business subsidies and lavish lifestyles by imposing austerity on the rest of us. CalSTRS is actually reasonably healthy and able to make payouts to retirees for many years. It is NOT facing an impending catastrophe. In fact, it is not projected to become insolvent until 2042, leaving plenty of time to deal with its unfunded liabilities. Even CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS and called many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong.

However, this fabricated crisis (or exaggerated problem) is being used to justify benefits cuts for retirees and increased contributions by current employees (equivalent to pay cuts, since they would decrease take-home pay), slashing living standards for both groups. At the same time, these “reforms” would increase income to the state and decrease pressure to increase taxes, something that benefits the wealthy far more than the rest of us.

It is true that there are large unfunded liabilities. However, it is important to understand why and address these fundamental causes, not only to close the gap but to prevent it from growing or returning again later. None of the causes, by the way, has anything to do with teacher greed or luxury. In fact, most teachers receive only $3,000 per month, which is barely enough to live on in most parts of California without other supplemental income.

One major cause was the financial collapse, which resulted in a 30% drop in the value of the CalSTRS portfolio, Fensterwald wrote in his piece. This was an unnatural disaster caused by the greed and, in many cases, criminal behavior of bankers, insurance giants and finance capitalists who, instead of being punished and forced to pay restitution, have received generous taxpayer funded bailouts that have enabled them to grow even wealthier. One obvious solution to any pension woes is to have the rich or, more specifically, bankers and financial giants, pay greater taxes and use the increase revenue to help bail states out of all their financial problems, including their unfunded public employee pensions.

Another major cause of the unfunded liabilities has been states’ refusals to make the required payments on time. Unfortunately, none of the states are in any position right now to pay for their past mistakes (they can’t afford to pay for their current ones). Their biggest mistake was to buy into the anti-tax orgy and allow their own budgets to be decimated through declining corporate and marginal rate personal income taxes.

When we hear pundits demand that the state learn to live within its means, they are implying cuts, and nothing but cuts. However, the metaphor is meant to appeal to working families who must budget according to their incomes. Obviously, when one has a low wage job, one must make many sacrifices at home in order to make ends meet. However, with higher wages or investment income (as is common among the wealthy), one can spend more lavishly and carelessly. The state does not have to slash social programs and job creating spending in order to live within it means. It could (indeed, it must) increase its income, not just to live within its means, but to solve its myriad problems, like funding its pensions, paying decent wages to its employees, improving its schools, caring for its children, elders and infirm.

Pension Reform: A Union-Busting Trojan Horse
Attacking teachers’ pensions is a Trojan horse in the war against teachers unions. Any attack on pensions takes time and energy away from other important battles, of course. However, the attacks also serve to divide and conquer teachers as they generally offer existing and/or veteran teachers a more generous benefit than younger teachers and future hires.

An example of this is SB 27 , which would eliminate spiking – the practice of bolstering employees’ pay in their final year in order to increase their annual pensions. This is generally done by getting a promotion and pay increase or taking on additional work for extra pay. It would also stop double dipping—the practice of coming back to work as a contractor (e.g., substitute teaching) while still collecting a pension.

The bill has passed the Senate, but is being opposed by roughly a dozen public employee groups, including the CalSTRS board and the CTA. They argue that the bill would take away benefits already promised to and earned by existing employees. Proponents say that applying the “reforms” to all employees, current and future, is the only way to get the house back in order. The alternative, which they would probably accept, and CTA would likely concede, would be to apply the new rules only to future employees, effectively creating a two-tiered benefits package in which younger teachers get a much worse stake than their veteran colleagues. This would exacerbate generational tensions that already exist within the union and significantly reduce the chances for effective organizing and mobilization around other important issues.


  1. So, CalPERS won't become insolvent until 2042, and there's "plenty of time deal with its unfunded liabilities."

    Do you mean "plenty of time" like the way California has dealt with its levee problems? Or "plenty of time" like Congress has dealt with Social Security insolvency? Or like "there's plenty of time to deal with the immigration issue."

    I must beg to differ. Left to their own devices, our politicians and bureaucrats will do NOTHING to fix ANY of our long-standing major problems.

    But go ahead and support the status quo, and we'll see each other on the bread line before too long...

  2. You may beg, grovel and even lick my boots to differ if you wish, but I’d be happier if you’d just read what I write more carefully and not allow your bête noirs to prevent rational and clear thought. It might also help to read some of my other posts, too. If you had, you’d see that I not only have no faith in politicians of any party, but outright disdain. You’d also see that I have no love for the status quo, either.

    Furthermore, I have great disdain for people who buy into the hysteria that that social security, public pensions and immigration are all destroying this country. These are lies created by the wealthy and their politician buddies and promoted by their friends in the media.

    Yes, each of these issues should be of concern to Americans, but not for the reasons we are told. Obama has overseen the mass arrest and deportation of far more immigrants than Bush, tearing families apart and even giving the boot to people who have spent their entire lives in this country. Some have been deported to countries where they don’t even speak the language. This terror against immigrants has also led to the persecution of citizens and legal immigrants who happen to have the wrong skin color. The fear of deportation or arrest makes it less likely they will stand up for their rights, contributing to the downward spiral of wages for everyone. At the same time, free trade agreements like NAFTA have brought down wages and the profitability of small scale farming abroad so much that people cannot support themselves in their home countries, thus increasing the amount of immigration.

    The problem with social security and public employee pensions is that they pay out too little for retirees to live a decent life without supplemental income from other sources. For many, this translates to a retirement lived in poverty, with the public footing the bill for emergency health, nutrition and other services. Any shortfalls in either system is due not to the greed, selfishness or errors of the recipients, but to the greed and stupidity of their managers, who made bad investments and trusted untrustworthy sources; the state governments which have refused to make the contributions required under existing agreements and laws; and the greed and criminality of the finance capitalists who caused a 30-40% decline in portfolio values when the housing bubble popped.

    When I say “plenty of time,” I mean the sky is not falling and the system might in fact right itself in 31 years, especially if the stock market bounces back, as economists and investors insist it will. 31 years is certainly plenty of time for workers and the public to wake up, organize and fight to make the rich contribute substantially more in taxes, something that is necessary not only to erase budget deficits, but to fund schools sufficiently, care for the elderly and infirm, increase employment, reduce poverty and make social security and pensions more secure. It is also plenty of time for working people to organize and fight to end wage slavery entirely and create a classless society where everyone has material security, healthcare and nutrition from cradle to grave.

    I have much more faith in my fellow workers and neighbors to demand what’s right than I do in any politicians doing what’s right.