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Letter: Local pension reform: misguided, mean-spirited
Original post made
on May 5, 2010
The so-called Menlo Park "pension reform" advanced by former City Council members Lee Duboc and Mickie Winkler is completely misguided and not real reform.
Read the full story here Web Link
posted Wednesday, May 5, 2010, 12:00 AM
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on May 9, 2010 at 9:25 pm
For those who think that CalPers will be able to produce its projected 7-8% yield, just look at one more huge CalPers loss:
CalPERS hit hard by Mountain House investment
By Dale Kasler
Posted: 05/08/2010 12:00:00 AM PDT
MOUNTAIN HOUSE Advertised as "The Town of Tomorrow," this new bedroom community near the Altamont Pass windmills once seemed like an ideal investment for the California Public Employees' Retirement System.
Then the real estate bubble burst. Mountain House became the most "underwater" community in America and much of CalPERS' money sank along with it.
The pension fund's $1.12 billion investment in Mountain House shrank to just under $200 million in five years, CalPERS records show. That's a loss of more than $920 million, making it one of the biggest headaches in CalPERS' troubled real estate portfolio.
For now the loss is just on paper, like a share of stock that has dropped, and CalPERS has said it is not bailing out.
"We have made a decision to retain the asset in the long-term for the recovery of California's housing market," fund spokesman Brad Pacheco said in an e-mail.
The question is how long CalPERS will have to wait. Jim Lamb, a Mountain House homeowner who manages rental houses here and elsewhere, said market values are near bottom but not quite there yet. It could be years before prices return to 2006 levels.
In the meantime, Mountain House and other depressed real estate developments remain a dead weight on CalPERS' $209 billion portfolio, administered on behalf of California's state and local employees. Although its stocks and other investments have partially recovered from the crash, its real
estate holdings lost half their value, a drop of $13 billion, in the 12 months that ended Sept. 30.
With an estimated population of 10,000 and its own ZIP code, Mountain House is the Central Valley housing phenomenon in miniature a newer town near Tracy for Bay Area commuters, fueled in large part by subprime mortgages and other dubious lending instruments. Home prices topped $800,000 at the market peak.
In late 2008, researcher First American CoreLogic released data showing that nearly 89 percent of Mountain House's home mortgages were underwater, a higher percentage than any other community in America. "Underwater" means homeowners owe more than their properties are worth.
The study briefly put Mountain House in the national spotlight unfairly, some residents say. First American based its study on ZIP codes, and a ZIP code containing all new homes naturally would look bad in a market crash.
"No community is exempt from what we're going through," said resident Celeste Farron, who estimates that her $825,000 home has lost half its value. "We're just getting hit harder because we're so new."
She and others say the community is holding up. Neighborhoods are tidy. There's a sense of community. On a recent weekday, the playgrounds were busy and signs advertised the Mountain House youth flag football league.
Still, the crash has left Mountain House unfinished, like many developments conceived during the boom. Landscaped lawns face fields of weeds. Sheep graze on the future golf course. While two schools have been built and a third is under way, there's just one retail business, a convenience store. The closest supermarket is five miles away.
A multimillion-dollar bridge designed to link the southern and northern halves of town has been fenced off.
"It's our bridge to nowhere," Lamb said.
CalPERS got into Mountain House in 2005. It partnered with residential builder Shea Homes to purchase 2,500 acres enough land for about 9,000 lots from Mountain House's original developer, Trimark Communities. Trimark retained some land for commercial development.
Three years later, with the market in ruins, CalPERS restructured its investment. The pension fund became 100 percent owner. Shea gave up its 15 percent share but stayed on to manage the project.
Pacheco declined to offer details of the restructuring. Officials with Shea did not return phone calls for this story.
Now the market appears to be stabilizing. Mountain House median sale prices have actually risen almost 3 percent in the past year, to $325,000, according to MDA DataQuick.
"At one point, I had six homes on my street that were vacant; now there are two," Lamb said.
Mountain House faces a long road back. Prices are about half of what they were in 2006. DataQuick says foreclosures are occurring at a rate four times the state average.
The latest study on underwater mortgages from First American, using different methodology, shows 86 percent of Mountain House homes remain in negative territory well above the California average of 35 percent and the U.S. average of 24 percent.
Still, Mountain House leaders remain confident that CalPERS will stay the course. With so much money on the table already, the fund has little choice, Lamb said.
"I think they're solid," said Dale Hansen, superintendent of the local school district. "They've stuck with the community."
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on May 16, 2010 at 9:29 pm
Why local action is essential:
Home / News / Opinion / Columnists / Steven Greenhut
GREENHUT: No hope for legislative pension fix
By STEVEN GREENHUT -- CalWatchdog.com | Posted: May 16, 2010 12:01 am | 1 Comment | Print
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"One cannot be both a progressive and be opposed to pension reform," argued Gov. Arnold Schwarzenegger's top pension advisor, David Crane, during a hearing Monday.
"The math is irrefutable that the losers from excessive and unfunded pensions are precisely the programs progressive Democrats tend to applaud. Those programs are being driven out of existence by rising pension costs."
Yet, it's clear that the progressive Democrats who run California's Legislature have no intention of doing anything to anger the state's public employee unions. Union leaders and activists filled the committee room to speak out against Senate Bill 919, which would increase retirement ages and decrease defined pension benefits for newly hired state employees. The new levels would still be far more generous than pension plans in the private sector, but the state's private-sector workers don't register on the Democratic radar screen ---- except when the party is looking for new targets from which to extract additional taxes.
Reality time: There is no chance California's Legislature will embrace even modest reforms to its public employee pension system, which has a liability estimated by Stanford University researchers to be as high as $500 billion. The committee didn't get a quorum to take a vote.
Republican Sen. Dave Cox, R-Fair Oaks, stated the obvious: This bill will never get out of committee and the only hope for reform is in the initiative process. Because unions have the ability to raise political funds from member dues and have armies of foot soldiers to engage in campaign warfare, statewide initiative reform is a tough road as well, but there are few other options.
Union officials insist that unfunded liabilities don't mean much because of natural market fluctuations. All will be well, they say, when the economy rebounds.
But Crane reminded listeners that the "state pension obligations are no different than state debt obligations, which also are promises to pay amounts in the future." These are fixed debt obligations ---- no different than any other debts incurred by the government, except that they are not capped and not subject to public approval. And, Crane warned, "Pension payments are senior obligations of the state to its employees and accordingly have priority over every other expenditure except Proposition 98 (i.e., K-14) expenditures and arguably even before debt service."
It's understandable that unions take the "don't worry, be happy" approach toward pension obligations. They get theirs no matter what. But any legislator who believes that such obligations don't harm programs or endanger the state's budget is not dealing with fiscal reality.
Anyone who trusts the scandal-plagued California Public Employees' Retirement System as an honest broker on pension matters is delusional. CalPERS testified against SB 919 and made new projections to soothe legislative worries.
In referring to CalPERS' 1999 plan to retroactively increase pensions, Crane argued, "It's nothing short of astonishing that the CalPERS proposal, which promoted the largest non-voter approved debt issuance in California history, was not accompanied by disclosures of risks or conflicts of interest. Frankly, I've never seen anything like the CalPERS sales document, which makes even Goldman Sachs' alleged non-disclosure look like child's play."
When CalPERS pitched that fiscally disastrous idea in '99, Crane added, it never revealed that the state would be responsible for any shortfall in investment returns, that its assumed investment returns required "the Dow Jones to reach roughly 25,000 by 2009 and 28 million by 2099," that the state had no cap on potential taxpayer liabilities, that its own employees would directly benefit from the pension increases, and that CalPERS' board members "had received campaign contributions from beneficiaries of the legislation."
But, if Monday's hearing is an indication, legislators are still listening to CalPERS' empty promises and ignoring the more reasonable warnings made by Crane and other pension town criers. Committee Democrats also seemed to accept the argument by union representatives, who insisted at the hearing that any pension matters should be handled at the negotiating table, even though such negotiations have resulted in the current fiscal train wreck. Unions are at their strongest at the bargaining table, especially when one considers that the government staff supposedly representing the taxpayers usually also benefit from any gains the unions achieve.
Even SB 919's attack on dubious pension-spiking schemes and its effort to remove certain categories of workers (i.e., milk inspectors and billboard inspectors) from receiving enhanced "public safety" formulas got no traction. Senate Democrats were looking for excuses to stop the bill. They weren't engaging serious debate.
For instance, Sen. Denise Ducheny, D-Chula Vista, mocked the bill because it won't do anything to fix current budget problems (it will take years before the new savings from the new hires are realized) and because it deals only with state workers ---- not the many local agencies that pay equally generous packages to public employees. That seems to argue for a tougher bill that took on current employee benefit packages, but Ducheny wasn't advocating for that approach, but for the do-nothing preferences of her union allies.
The bill's progressive foes never responded to Crane's point that "All the consequences of rising pension costs fall on the budgets for programs such as higher education, health and human services, parks and recreation and environmental protection that are junior in priority and therefore have their funding reduced whenever more money is needed to pay for pension costs." It's no wonder. There is no serious response to that dead-on argument.
That's why the loud and surly union crowd did what unions always do ---- engage in a show of force rather than forceful argumentation. In the union worldview, the system works fine ---- any problems are the result of "Wall Street." And, of course, if taxpayers would only pay more to the state, all would be well with the world.
As the Retired Public Employees Association argued in a letter to committee Chairman Lou Correa, D-Santa Ana, in opposition to SB 919:
"RPEA disagrees with the assertion that California's public employee pension system is broken.
"California's system of providing retirement security and healthcare for our hard working public employees has worked for years ---- and is working now. It is a well managed system that allows us to recruit and retain good public employees, while keeping the promise made to them for secure, fair and well earned retirement."
Well, there's no question the system does work well for its government retiree beneficiaries. It would be nice, however, if California's majority legislators occasionally thought about taxpayers or some other constituency.
Unless the economy comes roaring back, pension obligations will continue to sap the budget and create pressure for cuts and business-busting tax hikes.
This sets the stage for an eventual statewide initiative battle, which could rival the importance of 1978's property-tax-limiting Proposition 13. This could be the beginning of a wild ride.
STEVEN GREENHUT is director of the Pacific Research Institute's www.calwatchdog.com journalism center. Comment online at nctimes.com/opinion or firstname.lastname@example.org.