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California pension system playing politics with your money

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The California Public Employees’ Retirement System (CalPERS) is in the news once again. I wish I could report that with a record high bull market that CalPERS was well on its way to becoming solvent. Unfortunately, CalPERS, the largest public pension fund of approximately $345 billion has roughly $138 billion in unfunded state actuarial liabilities. Due to unrealistic actuarial assumptions and poor investments in Environmental, Social, and Governance (ESG) funds; CalPERS is moving closer to collapse than solvency.

In simpler terms, what is going on is that CalPERS is playing politics with retiree and taxpayers’ money. Meaning future, and current retirees will inevitably see a dramatic cut in their pension benefits; which they have been paying into their entire careers. Cuts in local and state government services to redirect funds into CalPERS as well as the inevitable tax increase.

Laundering Money

One of the ways they played politics with our money was the passage of SB 400 in 1999, which gave government employees a retirement security reserved for the wealthy. This meant that many retirees could retire at 55 and in most cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay. So basically, they dramatically increased pension benefits without any way of paying for it.

Why do this? Taking taxpayer dollars and using it for your political campaign is illegal. But union contributions are perfectly legal. Government employees are not to blame; it’s their unions. Government employees have no choice, they must be part of the union and pay union dues. Most unions are like most crony capitalistic corporations. They want to limit competition through government actions and want to make money for their shareholders.

So unions work hard at eliminating any outsourcing of services and jobs to private companies. If it must be done, it must be a government union member. Meaning more employees will be needed and hired and thus more union dues paid. Unions also work hard to increase pension and salaries because yet again more money means more money for the union. The union bosses or in the corporate world known as CEOs, take those taxpayer-funded union dues and then turn around and give millions to political campaigns. Thus you have essentially laundered millions of dollars of taxpayer money and made it legal to donate to politicians that promise you billions in taxpayer-funded benefits. This is no different then crony capitalism. Different shareholders, same corruption.

Crony Capitalism & Ideological Investments

Secondly, they play politics by investing in companies that have no promise of a reasonable rate of return. They invested in failing renewable energy companies because it’s more important to invest utilizing ideological metrics than sound fiscal policy. They divested in successful businesses who engage in legal commerce because their products or projects don’t align with their ideological views. They pressured companies to diversify their board of directors to meet their ideological views of diversity, or they will not invest in their companies. This, in essence, is blackmailing businesses to do what CalPERS wants, or they will pull millions if not billions of dollars from these companies.

The consequences of these actions are that many of the most successful and profitable companies with safer and higher rates of return don’t need CalPERS money. They do fine without them. CalPERS, on the other hand, needs to invest their money and thus are limited to less financially stable and untested companies. Companies in desperate need of liquidity will do as CalPERS wants. But in the end, picking companies based on ideology instead of sound fiscal decisions isn’t a sound investment strategy. Thus, lower rates of return and higher risk for loses will continue to create greater insolvency due to these ideological and politically motivated investments. Overall, they could care less because even though they don’t invest their own money in ESGs. Their ideological investing will drive their base to the polls and keep their political coffers full.

But before you think its all about ideology it is not. Crony capitalism plays a part as well. These companies in desperate need of capital don’t do what CalPERS wants, and that’s all. These same companies turn around and donate back to these same political coalitions which gave them all that money. Why just force the hands of these companies when you can force their hand and expect campaign contributions at the same time? Its a win-win for politicians.

My Solution

For those unaware. I’m a candidate for California State Controller in 2018. When I’m elected, I will be an ex officio member of CalPERS. As Controller, I can independently audit government agencies that spend state funds. With this authority, I will work to eliminate CalPERS. Due to the corrupt nature of politics in Sacramento, this will most likely happen through a voter-approved ballot measure. As Controller, my examination and audits will be used to expose the mismanagement and most likely propose the following changes.

First, the State will no longer invest on behalf of current or retired government employees. Responsibility will be handed over to their unions. Unions told us the pension benefit found in SB 400 were not excessive and could be paid for and managed. If that is the case, they should handle the investment portfolio on behalf of their members. I understand that union members are taxpayers, but the entire population of California taxpayers shouldn’t be on the hook for their union’s decision to push for pension benefits like those found in SB 400. The state and local municipalities that participate in CalPERS will contribute a fixed percentage of current employees salaries and the union, not the taxpayer, will be responsible for the consequences of making ideological investments.

Secondly, all future state employees can either decide to have their unions invest in a pension on their behalf or they can decide to invest on their own through an IRA or 401k. Current government employees can also decide to pull out a portion of their funds and invest on their own. With CalPERS heading for a fiscal cliff, we should allow government employees to determine what is best for them.

By doing this, we can fix the problems we are currently experiencing with this pension crisis. Taxpayers are protected, and government agencies will have a set percentage based on wages on what they must contribute to their employees’ retirement. If we take sound fiscally responsible actions, we can not only increase the rate of return on CalPERS investments, but we can protect taxpayers, reduce corruption, and give great stability and certainty to government workers.


Sources – CalPERS Pension Reports & Pension Crisis

CalPERS’ green investments underperform, business group says | The Sacramento Bee

http://www.sacbee.com/news/politics-government/the-state-worker/article188047259.html#emlnl=Breaking_NewsletterThe nation’s largest public pension fund is leaving money on the table by favoring environmental and social causes in its portfolio, a business-backed nonprofit argues in a study it’s releasing Tuesday on the California Public Employees Retirement System.

The report by the American Council for Capital Formation criticizes CalPERS’ sustainable investing strategies, which include engaging with companies to encourage them to address climate change, pressuring companies to diversify their boards of directors and investing in certain funds that nurture companies with those priorities.

How a pension deal went wrong and cost California taxpayers billions – Los Angeles Times

http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.

CalPERS had projected in 1999 that the improved benefits would cause no increase in the state’s annual pension contributions over the next 11 years. In fact, the state had to raise its payments by a total of $18 billion over that period to fill the gap, according to an analysis of CalPERS data.

The pension fund has not been able to catch up, even though financial markets eventually rebounded. That’s because during the lean years, older employees kept retiring and younger ones continued to build up credit toward their own pensions. Pay raises and extended lifespans have magnified the impact of the sweetened benefits.

By far the largest group of state workers — office workers at the Department of Motor Vehicles, the Department of Social Services and dozens of other agencies — contributed between 5% and 11% of their salary in 2015, and the state kicked in an additional 24%. To fund their more costly benefits, Highway Patrol officers contributed 11.5% of pay and the state added 42%.

CalPERS Report – ACCF Corp Gov

The nation’s largest public pension fund, the California Public Employees’ Retirement System (CalPERS), is severely underfunded.  With more than $300 billion in assets, CalPERS future liability exceeds those assets by more than $100 billion. How did things get so bad? A number of factors have contributed to CalPERS’s relatively recent and precipitous decline.

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4 Comments

4 Comments

  1. T B

    December 8, 2017 at 11:51 am

    I will definitely vote for you!

    Here’s my solution to the public pension crisis:

    https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk

    Thoughts?

    • Konstantinos Roditis

      December 8, 2017 at 12:42 pm

      Thank you for your support and sending me this article. My initial concern with this proposal is that this would take pensions run by the states and local municipalities and merge it with social security and thus move more power to the federal government. I’m a federalist, and I believe that social security is unconstitutional and the power for the federal government to have social security is not found in the constitution, specifically Article I, Section 8 of its enumerated powers. On the federal side, I would prefer to see a plan that would begin to shrink and eventually eliminate social security and devolve and transition those powers to the states as our constitution prescribes.

      The federal government has never shown signs of fiscal responsibility, and thus I doubt any safeguards put in place will actually work because the federal government will rather spend recklessly and just print more money and raise the national debt. I believe we must eliminate power for the federal government and the state government and move to greater local control. That is one reason why I created Trickle-up-Taxation ( http://noqreport.com/2017/11/07/trickle-taxation-plan-bring-local-control-california/ ). I believe moving forward a plan similar but maybe not identical to Prop B that was passed in San Diego is needed for all future government employees ( https://www.sandiego.gov/sites/default/files/legacy/city-clerk/elections/city/pdf/retirementcharteramendment.pdf ).

      Cuts in defined benefits will happen as the courts have ruled that defined benefits can be adjusted, but it must be a reasonable benefit. The issue with this is it is not defined what is reasonable. All pensions are different and have different contribution rates and defined benefits, as well as, various jurisdictions with different laws governing them. So with your plan, some pensions might be defined as reasonable to take maximum social security payout and other it might not be. It is entirely subjective, and it will depend on the judge ultimately, as almost every pension will fight this in court. They want to keep their defined pension benefits.

      Ultimately, I believe that all new employees should move to a 401k system. I think this is the best solution. Move pension investment from the politicians’ hands to the unions, and they can invest it themselves or better yet hire the right people to do this. Most of the people on CalPERS have not investment or financial experience. Make changes to defined pension benefits with a maximum payout per year. As State Controller I will study this and look for the best solution, not the best political solution and move to fix the problem and thus best protect the taxpayers and the government employees which have done nothing wrong.

      If you would like to help support my campaign, please consider contributing today. https://secure.anedot.com/roditis/donate

      • T B

        December 8, 2017 at 12:53 pm

        Thank you for your quick and thoughtful response, a lot of what you say makes sense. I understand my approach would only be considered after an apocalyptic correction in the stock market, thereby rendering all public pensions around the world insolvent. Not sure how accurate it is, but I have read many expert’s opinion that once a fund dips below 50%, it will never recover to full funding status.

        • Konstantinos Roditis

          December 8, 2017 at 1:02 pm

          Many factors including payouts, number of retirees to current employees, number of future employees (increasing or decreasing), the age of retirement, the rate of return, etc. play into when the point of no return happens if changes are not made. But I wouldn’t be surprised if 50% isn’t a reasonable rough average of future collapse of a pension system.

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Democrats

In threat to Pelosi, 16 Dems say they’ll back new leadership

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In threat to Pelosi 16 Dems say theyll back new leadership

WASHINGTON (AP) — Sixteen Democrats who’ve opposed Nancy Pelosi’s quest to become speaker released a letter Monday saying they will vote for “new leadership” when the House picks its leaders in January, underscoring a significant threat to her effort to lead her party’s House majority in the next Congress.

The letter’s release suggests that rather than spending the next six weeks focusing on a fresh agenda to present to Americans, House Democrats could be consumed with a bitter and attention-grabbing internal leadership fight.

The battle pits the party’s largely liberal and diverse membership backing Pelosi, D-Calif., against a small group of mostly moderate male lawmakers. Of the 16 Democrats who signed the letter — which stops short of explicitly saying they will vote for an opposing candidate for speaker — all but two are men: Reps. Kathleen Rice of New York and California’s Linda Sanchez.

“We promised to change the status quo, and we intend to deliver on that promise,” the authors wrote, referring to campaign pledges by a number of Democratic candidates. “Therefore, we are committed to voting for new leadership in both our Caucus meeting and on the House Floor.”

Pelosi has activated an aggressive campaign for the job involving House colleagues, prominent outside Democrats and party-aligned interest groups. Her office distributed endorsements Monday from nine House Democrats who are military veterans and UnidosUS, a Hispanic civil rights organization.

Known as a precise vote counter with a keen sense of her caucus’ leanings, Pelosi is aided by the lack of a declared opponent and many weeks during which she can dangle choice committee assignments, rules changes and other goodies to help attract support.

“Leader Pelosi remains confident in her support among Members and Members-elect,” spokesman Drew Hammill said in a written statement. He said 94 percent of House Democrats declined to sign the letter, though Pelosi opponents said they expect others who didn’t sign to vote against her.

Though the mavericks’ numbers represent a handful of the 232 House Democrats elected, plus five races still undecided, they could still garner enough opposition to thwart her.

Pelosi seems certain to have enough support to become her party’s nominee for speaker when House Democrats vote by secret ballot on Nov. 28. She will need only a majority of Democrats in that contest.

But when the full House elects its new leaders Jan. 3, the speaker will need a majority 218 votes, assuming that no one votes “present” or misses the vote and Republicans oppose her en masse, as seems likely. At 232 seats, Pelosi could afford to lose just 14 Democrats and still become speaker.

The rebels’ letter to their Democratic colleagues praises Pelosi, 78, as “a historic figure” who helped win major victories. Pelosi was speaker from 2007 through 2010 when Democrats held the majority and has been the party’s leader since 2003.

“We also recognize that in this recent election, Democrats ran and won on a message of change,” they wrote. “Our majority came on the backs of candidates who said that they would support new leadership because voters in hard-won districts, and across the country, want to see real change in Washington.”

Pelosi’s critics say the party’s long-serving top leaders must make room for younger members. They say years of Republican ads portraying her as an out-of-touch liberal have made it hard for moderate Democrats to win in swing districts.

Pelosi allies counter that the party just won House control with their biggest gain of seats since the 1974 post-Watergate election. Many bristle at dumping her at a time when President Donald Trump and the #MeToo movement have helped attract female candidates and voters to the party.

Rep. Steny Hoyer of Maryland has been No. 2 House Democrat since 2003 and South Carolina’s Jim Clyburn has been No. 3 since 2007. Both are in their late 70s and are running, unopposed so far, for those posts again.

Of the letter’s signees, five are incoming House freshmen or hope to be. Two of them — Anthony Brindisi of New York and Ben McAdams of Utah — are in races in which The Associated Press has yet to call a winner.

Pelosi critics assert there are more Democrats who’ve not signed the letter who are prepared to vote against Pelosi. That includes Rep. Marcia Fudge of Ohio, who’s said she’s considering running for speaker.

Trump has tweeted his respect for Pelosi and offered to round up GOP votes to help elect her speaker. Pelosi’s office has said she will win with Democratic votes, and it seems a stretch to expect Republicans to help elect her speaker — a vote that could open them up to primary challenges in 2020.

Others signing were incumbents Jim Cooper of Tennessee; Bill Foster of Illinois; Brian Higgins of New York; Stephen Lynch and Seth Moulton of Massachusetts; Ed Perlmutter of Colorado; Tim Ryan of Ohio; Kurt Schrader of Oregon and Filemon Vela of Texas. Incoming freshmen were Joe Cunningham of South Carolina, Max Rose from New York and Jeff Van Drew of New Jersey.

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Guns and Crime

Suspect dead, 4 critical after hospital shooting

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Suspect dead 4 critical after hospital shootinga

CHICAGO (AP) — The Latest on a shooting at a Chicago hospital (all times local):

5 p.m.

Police say the suspected gunman is dead and four people are in critical condition following a shooting at a Chicago hospital.

Chicago police spokesman Anthony Guglielmi says a police officer and at least one hospital employee are among those hospitalized in critical condition following the Monday afternoon shooting at Mercy Hospital.

Guglielmi says the gunman was killed, but it’s unclear if he took his own life or was killed by police.

The department issued a statement earlier on Twitter saying there were “reports of multiple victims” after shots were fired near the hospital on the city’s South Side. Police are asking people to avoid the area.

A spokesman for Mayor Rahm Emanuel says the mayor and Police Superintendent Eddie Johnson are monitoring the situation.

___

4:15 p.m.

Chicago police say an officer has been shot during an active-shooting incident at a hospital on the city’s South Side.

Police spokesman Anthony Guglielmi says the officer is in critical condition. He says one “possible offender” has also been shot, and that officers are now searching the hospital.

The department issued a statement on Twitter saying there were “reports of multiple victims” after shots were fired Monday afternoon near Mercy Hospital. Police are asking people to avoid the area. No other details were immediately released.

A message left for hospital officials wasn’t immediately returned.

Television footage shows several people, including some wearing white coats, walking through a parking lot with their arms up.

___

4 p.m.

Chicago police say officers are searching a hospital after a reported shooting and that one “possible offender” has been shot.

The department issued a statement on Twitter saying there are “reports of multiple victims” after shots were fired Monday afternoon near Mercy Hospital on the city’s South Side.

Police spokesman Anthony Guglielmi says officers are searching the hospital. He says at least one “possible offender is shot,” but no details were immediately released. Police are asking people to avoid the area.

A message left for hospital officials wasn’t immediately returned.

Television footage shows several people, including some wearing white coats, walking through a parking lot with their arms up.

___

3:50 p.m.

Chicago police say they are responding to a shooting near a Chicago hospital with “reports of multiple victims.”

A department spokesman issued a statement on Twitter saying officers are responding after shots were fired near Mercy Hospital on the city’s South Side. The department says there are “reports of multiple victims.”

The police department says it didn’t immediately have more details. A message left for hospital officials wasn’t immediately returned.

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Guns and Crime

Legislators tell Allen West: Next version of First Step Act will cut loopholes

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Legislators tell Allen West Next version of First Step Act will cut loopholes

Last week, a handful of conservatives, including Lt. Col. Allen West and Conservative Review’s Daniel Horowitz, went after the bipartisan First Step Act, a criminal justice reform bill that has the backing of the President and many conservative lawmakers on Capitol Hill. Our complaint: why would the GOP support a bill that releases violent criminals and illegal immigrants?

According to legislative proponents of the bill, protections and benefits for both of these groups of felons have been eliminated in the next version of the bill that will reach the Senate floor. They reached out to West over the weekend to let them know they heard the concerns and are addressing them.

First Step Act: Response and Reassurances

https://i0.wp.com/theoldschoolpatriot.com/wp-content/uploads/2018/11/prison-553836_640.jpg?w=200&ssl=1The First Step Act is supported by many conservatives and law enforcement groups, including the Fraternal Order of Police, the International Association of Chiefs of Police, and the National District Attorneys Association. There are other proposals offered by those on the far left under the same banner of “criminal justice reform” that would release people from prison without regard to the danger they pose, including illegal immigrants and serious violent offenders. We must remember that there are some folks who are, well, as the ol’ folks would say, “just bad.” Additionally, some left-wing professors even propose abolishing all prisons partly based on their notion that the system is racist in nature. Hmm, I tend to believe that skin color or race has nothing to do with a person deciding to break the law. I just do not want us to go down the path of having criminals believe that there are no consequences, ramifications, for their actions and behaviors.

The legislators echoed our concerns and said the version that is currently available doesn’t reflect the changes that cut the loopholes. They say it will be impossible for these two groups – serious violent offenders and criminal illegal immigrants – to get the benefits of the bill. Many felons will be released early. Future felons will be given lighter sentences. That makes sense for many, but by no means should anyone in either of the two most dangerous groups receive sentence reductions, according to the letter to West.

My Take

Call me cynical, but lately I’ve changed my general rules regarding promises of politicians. It used to echo President Reagan’s stance on nuclear disarmament: “Trust but verify.” I now have to go with a more adversarial stance on political promises: “Show me proof, then we’ll talk.”

When the legislation is made available to the public, many will take a close look at it. I’ll personally be checking to see if there are any loopholes that would put violent offenders or criminal illegal immigrants back on the street sooner. If so, it’s a no-go for me.

 

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