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Posts Tagged ‘pension obligations’

Weekend Serving of Sense on Cents

Posted by Larry Doyle on June 22nd, 2013 8:24 AM |

For those who care to dig a little deeper in order to gain a greater degree of ‘sense on cents’, I welcome sharing a few commentaries and reports that I found to be of very real interest.

Interested in getting a decidedly wider-eyed and detailed view of the world than what might commonly be delivered elsewhere? Grab a second cup of coffee and span the globe as these noted economists discuss an array of critically important international issues:

1. Ian Bremmer and Nouriel Roubini Unveil the New AbnormalInstitutional Investor

What was really going on within the credit agencies? Talk about aiding and abetting . . . (more…)

California Pen$ion Nightmare Wor$en$

Posted by Larry Doyle on May 9th, 2012 7:04 AM |

What is the best part of a nightmare?

When you wake up and it is over.

The folks in California do not have that luxury as they get to live the nightmare that defines their public pension system everyday. In fact, the nightmare is getting scarier. How so?

The “not so exclusive” California $100,000 Club continues to experience explosive growth. Let’s check in on this club which since last we checked a year ago has seen close to a 25% increase in size.  (more…)

Auction-Rate Securities and Municipal Market Dislocation

Posted by Larry Doyle on January 13th, 2011 9:39 PM |

[ROLLOVER]

The demise of the $330 billion auction-rate securities market may have culminated in February 2008 but the impact of that reality continues to be felt today. How so?

Large segments of the ARS market provided financing for a wide array of municipal entities. How did those municipal entities receive financing when the ARS market froze? Reports indicate that bank letters of credit (LOCs) provided ongoing financing for many municipal borrowers. Now what?

As those LOCs are rolling off, banks are extremely reluctant to roll them forward and impending default is staring many of these municipal borrowers right in the face. The capital markets are not anxious to provide liquidity and banks are equally reluctant. Thus while the Federal Reserve throws support behind many market segments, the municipal market has retraced back to levels last seen in early 2009. (more…)

“States of Denial” or “Do Pensioners Have Even Greater Rights Than Bondholders?”

Posted by Larry Doyle on October 18th, 2010 6:54 AM |

Do we just need to get through the next year or two in order to regain our feet?  Really? Do not think that Fed chair Ben Bernanke is not fully aware of what lies ahead on our economic landscape as he hopes and prays for an economic revival. However, as he contemplates the perils of more quantitative easing the stranglehold of future pension obligations continues to put deflationary pressures on our economy. No surprise why Ben and most of his Fed colleagues are bound and determined to create inflation in an attempt to monetize our national debts. For greater focus on the state pension obligations, let’s review a fabulous commentary recently published by The Economist entitled, A Gold-Plated Burden,

CHUCK REED is the Democratic mayor of San Jose, California. You might expect him to be an ally of public-sector workers, a powerful lobby in the Golden State. But last month, at a hearing on pension reform held by the Little Hoover Commission, which monitors the state’s government, Mr Reed lamented his crippling public-pensions bill. “City payments for retirement benefits have tripled over the last ten years even though our workforce has declined dramatically, and we have billions of dollars in unfunded liabilities that the taxpayers must pay,” he said. (more…)

Larry Fink Warns CalPERS; Sense on Cents Warns America

Posted by Larry Doyle on March 1st, 2010 9:19 AM |

When the king of Wall street speaks, America would be wise to listen.

Despite what one may think or feel about Wall Street, prudence dictates we are fully aware of developments on the major thoroughfare of our economic landscape. The king, that is Larry Fink the CEO of the asset manager Blackrock, last year sent a note of investment caution to CalPERS (California Public Employees Retirement System) which all of America should heed. (more…)

Public Pension “Smoothies” Will Cost $2 Trillion

Posted by Larry Doyle on January 5th, 2010 11:11 AM |

Life will get increasingly expensive in America 2010.

Just because the calendar changed does not mean the smoke and mirrors disguising massive losses in banks, insurance companies, and federal and municipal operations have undergone some massive purging. If anything, the policies and programs developed in 2009 have likely only exacerbated the losses across a wide cross section of our economic landscape.

Our federal deficit obviously dwarfs all public and private deficits combined. That said, the obfuscation in other financial corners of our economic landscape are egregious. This obfuscation is often accomplished via an accounting practice known as smoothing. While this practice is not necessarily an indication of improper – if not illegal – financial chicanery, very often the two go hand in hand. Which financial institutions most seriously violated generally accepted accounting practices via smoothing? Hello Freddie. Hello Fannie. And we will pay.

Where else will American taxpayers pay? Public pensions. How much will the smoothie cost at the public pension Dairy Queen? How does $2 trillion sound, or a full four to five times the currently projected cost? (more…)

“There Are No More Paper Clips to Cut”

Posted by Larry Doyle on July 13th, 2009 2:04 PM |

Can we afford public pension obligations?

If ever there were a political hot button, it is the issue of restructuring public pensions. I can hear the rumble rolling through cities and towns by my merely broaching this issue, but the fact of the matter is this topic must be addressed!

As with any debt, public pension obligations can either be paid in full or defaulted, devalued, or restructured. The public pension system in our cities, states, and towns is nothing more than the holy grail for a large swath of the electorate. Does the political power base in these districts have the courage to go down the restructuring road? In so doing, they potentially risk their own political lives given the strength of the electorate who are pension beneficiaries.

Why do I think restructuring pension obligations is a likely scenario? Very simply, there is only so far a mayor or governor can go with increased taxes and cuts in services. While I do not think restructuring pension obligations is an imminent development, I do think it will be part of the eventual reality of our new economy.

I see mounting evidence of this likelihood at a site I reference regularly, PensionWatch, which highlights:

That approaching wave of pension debt is bigger than it looks. The purpose of this site is to provide an overview of the multiple pension crises that are about to drown America’s taxpayers.

In my opinion, this story gets limited coverage because it touches the equivalent of the ‘third rail’ for politicians and their associates. Well, it is high time the population at large addresses these obligations. As USA Today writes, Our View on Retirement Benefits: Public-Employee Pensions Put Cities, States in Tight Squeeze:

Recent stock market declines have left public and private pension plans alike underfunded, but the problem is deeper for public plans because they offer bigger pensions and make them available earlier, particularly to public safety employees. Three-fifths of state-government pension funds owe at least 20% more money than they have. According to the National Association of State Retirement Administrators, the shortfall is $430 billion, or about $3,800 for every U.S. household. Other estimates put the number above $1 trillion. (LD’s emphasis)

The blame for this lies with vote-hungry politicians who promise rich retirement benefits from the wallets of future taxpayers.

Union inflexibility doesn’t help, either: In financially desperate Oakland, for example, where police starting salaries are $71,832 to $90,540 a year and pensions begin at age 50, the union rejects concessions.

Public-sector pensions already cost twice as much, per retiree, as the average private-sector pension, according to the U.S. Labor Department. This leaves cities and states no easy way out. They should not renege on their commitments, but the other options — raising taxes or cutting services — could prove so severe that bankruptcy would look like a sensible alternative.

I do not envision politicians willingly taking this issue on simply because the pension beneficiaries are typically their meal ticket to re-election. However, every once in a while we come across a politician who is willing to say he is not capable of “pulling the rabbit out of the hat.”

Scott Lang, mayor of the heavily Democratic city of New Bedford, MA, recently said as much. The Boston Globe reports Running on Empty:

Lang may be better remembered for his clarion call demanding structural changes in municipal government than for his performance in any specific area of city oversight. He is known for his candor, and he doesn’t disappoint.

“It’s absolute insanity. They’re unsustainable,’’ he says about pensions. “There isn’t the money to pay for an unfunded liability like that. All the revenues will be eaten up by past-due promises. Pensions have a 20-year schedule modeled after the industrial plan. It doesn’t fit today.’’

He says current pension and health insurance systems for city employees have to go, period. If not, they will destroy the city and its ability to maintain the services people expect like public safety. He calls for “pension relief’’ and “healthcare reform,’’ which in plain English means cuts.

“There are no more paper clips to cut.’’

To follow developing stories in the world of pensions, you can subscribe to PensionWatch from its home page, or even better you can access it here at Sense on Cents.

LD

California’s $100,000 Club

Posted by Larry Doyle on May 2nd, 2009 9:10 AM |

Hat tip to MC for sharing with us an initiative of the California Foundation for Fiscal Responsibility. The CFFR was founded two years ago to develop transparency in the California pension system. Make no mistake, current and future pension obligations at the state and local level will impact almost every aspect of our lives. The current deficits in these pensions funds and the increasing obligations as our population ages will serve as a chokehold on future generations. This same dynamic is playing out at the federal level as well. However, let’s focus on California.

I am all for longstanding civil servants receiving pension benefits. However, the largesse that has been contracted in certain circumstances is anything but fiscally responsible. I commend the CFFR for working to provide transparency on this topic. Let’s dig deeper. As the Sacramento Bee highlights, Pension Watchdog Puts Database of 5,000 Calpers (California Public Employees Retirement System) Online.

Information is critically important for fiscal discipline. Transparency in the pursuit, collection, and dissemination of that information is a cornerstone of good government. Regrettably, too often our public servants conflict themselves in currying personal favors while obligated to perform their public service. To that end, I commend CFFR for shedding light on this critically important topic:

“We feel it’s time for transparency on this issue,” said CFFR vice-president Marcia Fritz. “In the current economic climate, it’s important that taxpayers know what kind of pensions our public employees are receiving and what the budget implications will be.”

CFFR was founded in 2007 by Keith Richman, a former LA County Republican assemblyman. 

Richman says the foundation’s sole purpose is to highlight  the skyrocketing costs of public employee retirements.

I am not looking to promote personal witch hunts. I am looking to promote fiscal responsibility.  I would hope that every state and local municipality develops an initiative like the CFFR. To that end, please question your local representatives as to how many individuals are collecting six figure pensions. Share with them the fact that in California over 4,800 individuals have six figure pensions. In fact, Bruce Malkenhorst, a municipal government retiree from Vernon, CA is “collecting” a cool half million bucks a year in retirement. An article from Forbes Magazine back in 2007 sheds further light on the municipality of Vernon, California:

Welcome to Paradise
by Evan Hessel 02.26.07

The city fathers of Vernon, Calif. run their tiny town like a family business, with unchecked power, pay and perks.

Four miles south of downtown Los Angeles sits the city of Vernon, a five-square-mile industrial enclave of meatpacking plants, warehouses and paint-mixing factories. There’s not much to see, but smells are plentiful, courtesy of a rendering factory that boils the dead pets of southern California into grease and high-protein animal feed.

Only 92 people live in Vernon. There are no parks, schools, libraries, health clinics or grocery stores. The only four restaurants close by 4 p.m. By sundown the 44,000 workers who commute here have all fled the stench.

Vernon’s leaders like it that way. California’s tiniest city, if you want to call it a city, is one of the nation’s most lasting and efficient political machines, run almost entirely for the benefit of a handful of rarely opposed, extremely well-paid politicians. Vernon should have been subsumed long ago into the surrounding city of L.A, but its independence is a strange and stark example of how a democracy can become a dynasty.

Vernon is run by two families: the Malburgs and the Malkenhorsts, neither of which agreed to be interviewed. The bespectacled Leonis C. Malburg, 77, whose grandfather founded Vernon in 1905, has been mayor for 33 years. Bruce Malkenhorst, 71, was for 32 years the city administrator as well as clerk, finance director, treasurer, redevelopment agency secretary and chief executive of the utility Vernon Light & Power. The city was reportedly paying him $600,000 a year, more than twice what L.A.’s mayor earns, until he resigned all posts unexpectedly and without public announcement in 2005. By most accounts Malkenhorst still pulls the strings. His appointed successor is his 42-year-old son, Bruce Jr.

Theirs is a benign dictatorship. Who would run against them? Outsiders hoping to move into town are denied housing permits and Vernon’s 32 houses and apartments are owned by the city and leased to its employees for as little as $150 per month. In 1980 Malkenhorst Sr. evicted a former cop from his Vernonowned house after he ran against Malkenhorst’s favored candidates. Last year the state Superior Court forced Malkenhorst Jr. to move ahead with an election he had derailed on the grounds that the three challengers had moved in illegally. Once the votes were counted, the incumbents won anyway—in a landslide.

While many state unions do not appreciate the release of information by the CFFR, I believe every state should publicly release it. Watchdog groups should not be forced to request it. To that end, I encourage everybody who reads this post to share the link to CFFR with your local reps and specifically highlight California’s $100,000 Club.

LD






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