Tuesday, February 7, 2012

Jerry Brown: Friend to Teachers Dumb Enough to Believe It

Despite ample evidence to the contrary, Jerry Brown continues to be called a friend of labor. This is probably because big unions like the California Teachers Association invested so much money into his campaign for governor that they can’t afford to criticize him out of fear that he won’t pay them back in kind (as if this were ever a possibility).

Some will say that Brown’s attempt to raise taxes and funnel the bulk of the new revenue into K-12 education is a form of payback. However, his plan, even if it is approved by voters, will not restore the more than $21 billion that has been slashed from K-12 education in California over the past three years, let alone bring annual revenues up to the level necessary to hire more teachers, reduce class sizes, offer raises, or rehire counselors, librarians and nurses.

At the same time, Brown has quietly been pushing a pension reform plan that will raise costs and slash benefits for thousands of public sector workers. He has joined the growing chorus of right wing ideologues, fiscal conservatives and millenarian Chicken Littles who are all screaming that the pension sky is falling and workers themselves must pay for it.

According to John Fensterwald - Educated Guess writing in TopEd, the California Public Employees Retirement System (CalPERS), the nation’s largest public pension plan, reported anemic returns of 1.1% last year, while the California State Teachers Retirement System (CalSTRS), number two behind CalPERS, reported a slightly less anemic 2.3%. Both of these are far below the 7.75% rate of return needed to meet payouts to retirees. Furthermore, CalSTRS’ 10-year return was only 5.4% and many financial analysts believe the next decade will be just as bad.

While the economic crisis can certainly be blamed for much of the problem (30% decline in the value of the CalSTRS portfolio), the state itself has failed to make its required payments to the pensions or to responsibly manage them, thus exacerbating the problem. In either case, it is not the fault of public sector workers that the pensions have so much unfunded liabilities (most teachers receive only $3,000 per month), yet they are the ones who will be forced to pay for it by being required to work longer before retiring (the retirement age will increase to 67 for new employees), paying more into the system and accepting smaller payouts.

Thus, in addition to accepting stagnant wages over the past three to four years (most teachers, for example haven’t seen a raise in that time) along with furloughs, layoffs and increased out-of-pocket costs for healthcare, public sector workers will see their paychecks shrink even more, with increased deductions for their pensions.

Virtually absent from the fear mongering and blaming is the fact that CalSTRS is 71% funded, which is actually pretty good compared with other pension plans. Furthermore, only if large numbers of teachers were able to simultaneously retire would the underfunded liability even matter. Only those near retirement age are in any position to take advantage of their pensions and they make up a small minority of those still paying into the system. CalSTRS is not in any danger of going belly up. 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.


  1. Sounds similar to the game being played in NYC. The way they're dealing with the entire pension thing here in NYC is by trying to fire wholesale veteran teachers who are aleady vested in the pension. That way, they won't even be able to touch what they have already accumulated.

  2. It's also a desperate attempt by the state to deal with the debt crisis. Governments at all levels throughout much of the world are in hock up to their ears. In order to start reducing their debts, they will continue to squeeze working people and the poor.