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By Tom Cushing

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About this blog: The Raucous Caucus shares the southpaw perspectives of this Boomer on the state of the nation, the world, and, sometimes, other stuff. I enjoy crafting it to keep current, and occasionally to rant on some issue I care about deeply...  (More)

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The State of the State of the State

Uploaded: Jan 24, 2014
It was a pleasure to read brother blogger Tim Hunt's reluctant review of Governor Brown's State of the State speech earlier this week. To summarize, a Democrat super-majority in Sacramento has not unleashed the predicted deluge of red ink upon us all ? the apoCALypse has been postponed. Indeed, the budget is better-than-balanced, as state revenues from our uneven recovery have grown faster than had been previously projected. And the Governor's vigilant corgi growls at those who would raid the community till.

Still, Tim's article had the grudging tone of someone who suspects we got lucky THIS time -- I thought I could hear his teeth grinding, faintly in the background, as I read it. It is certainly true, to borrow the President's recent metaphor, that we are swept along in a tide of history, and Incumbents deserve neither as much credit nor blame for outcomes as they typically receive. That said, the citizenry had agreed to be taxed to meet our obligations, important social programs were curtailed and the Dems have been reasonable stewards of spending. Surpluses(!) are projected for several years to come. I do share Tim's concern about wasteful future spending on the train-to-nowhere-fast, which appears to take up about half of total transportation improvement budgets over the next five years.

As Tim notes, however, there is a $100B pension obligation out there ? an amount that nearly equals the full year's state spending. So, how are we supposed to think about that large number? (As you might guess) I have a few thoughts on the subject.

First, by nature it is not a bill due tomorrow, but an actuarial estimate of the difference between the assets and likely earnings of the CalPERS pension fund, and the payments due to be made from that fund, off into the indefinite future. The $100B number represents that gap, known ominously as the CalPERS' unfunded liability. It is sort of like the difference between your own retirement nest egg, and what it eventually needs to be, to sustain your daily golfing habit in your dotage.

Second, as 'money is the mother's milk of politics,' the sheer size of that mammoth state pension fund draws politicians from all over the map. You can find articles and data from all across the visible political spectrum ? and beyond. Wall Streeters who'd like to convert public pensions to 401k's (and profit handsomely on handling them) will warn you darkly of the coming systemic collapse, whereas soothing, public unioneers include CA's version of Officer Barbrady ("Nothing to see here, folks ? move along.") Finding objective analysis and reliable data ? well, that's another story. It is never more important to consider the source of your information.

Third, the size of the funding gap depends almost entirely on the guess you make about what CalPERS' investments will earn in the future. Its performance over the past decade has bounced between large losses and handsome gains. The number above assumes a 7.5% average return that is the national standard in these state reports ? substantially higher than the tempestuous decade average. If, however, you want to scare the children and pets, you can more-than-halve that return percentage down to 3.2% ? then the underfunding balloons to more than $600B.

Fourth, we can look both backwards at history, and sideways at other states to try to gain perspective on our current situation. The official liability is about 72% covered. That number has varied recently between the 50% range after Wall Street tanked in 2001, and 130% in the early 1990s. CalPERS was then so well funded that Governor Pete Wilson tried to raid its kitty to offset his budget deficit. The current funding trend is upward, such that sustained investment success could even eliminate the gap, much as it did for several previously-looted Teamster pension plans in the late 1980s. Pension reform legislation passed in late 2012 has also not yet had the financial impact projected for it, over time, as its effects kick-in to the total numbers.

Regarding other states' pension funds, we find ourselves somewhere in the middle of the pack on most performance measures: percentage funded, per capita underfunding and the gap as a % of the state's economy. Illinois may be in some trouble; booming, empty North Dakota is not.

My own conclusion, other than that my head hurts from shoveling my way through the pile of organics that have been written about this topic, is that I will not lose sleep over this one. If the financial sky falls, the fund will be in deep trouble ? but if that happens, I will have my own more serious problems to occupy my idle pre-dawn hours. Otherwise, more fine-tuning may be called-for. Of greater concern is the unemployment insurance loan owed to the feds on behalf of the 8.3% of California workers still seeking employment. That's a hard and growing number, and a governance problem that can't solve itself at current rates of collection. Stay tuned on that one.


 +  Like this comment
Posted by Wow, a resident of another community,
on Jan 26, 2014 at 8:12 pm

Nothing... A vast emptiness.

 +  Like this comment
Posted by spcwt, a resident of Danville,
on Jan 27, 2014 at 4:10 pm

California?s government is a mess.

It?s in much worse shape than Tom?s article indicates. The combined debt of California?s state and local governments is at least $848 billion and could escalate past $1.1 trillion.Web Link

Sacramento uses accounting gimmicks to mask the severity of California?s financial woes. For example, California will spend $15.7 billion on executive salaries this year, but less than half of that will come from the state?s general fund. To mask the size of the deficit, the budget uses $8 billion in ?special funds? to pay those salaries.

California prison guards are paid twice as much as the national average. Mandatory minimum sentencing enacted by Gov. Brown in the 1970?s ensures an ample amount of prison guard jobs.

Liberals like Tom always complain about ?the rich? not paying their ?fair share? of taxes. But that argument doesn?t hold water in this instance, as the top 1% of Californians pay 50% of California?s tax revenue. Web Link No doubt, that?s not enough for Liberals like Tom, who think earning money is a crime.

 +  Like this comment
Posted by Arnold, a resident of Another Pleasanton neighborhood,
on Jan 27, 2014 at 10:04 pm

This comment copied from the Blurred Lines column, since it refers to this content (TFC):

Regarding your last blog that unfunded pension debt is nothing to concern ourselves about, I\'ll just say you\'re either protecting your political affiliation (Democrats that prefer debt deferral) or you are clueless. There is nothing comfy or cozy about ignoring our responsibilities to the tune of 100 Billion dollars as you claim - it is much worse, while expecting future generations to cover the cost of service we received.

I\'ve read several of your blogs but this one, actually your previous one regarding pensions - because it disappeared before I had a chance to respond, is poorly researched and very disturbing. I don\'t think you have a clue regarding the magnitudude of destruction the many layers of unfunded pension liability will have at several levels of government, or the increased demands for taxpayer dollars in the form of: parcel taxes, special taxes, school bonds, transportation taxes, Fees, etc..

Apparently you do not understand the severity of the problem. You need to spend more time doing your homework. Otherwise, you\'re just part of the problem.

 +  Like this comment
Posted by Tom Cushing, a resident of Alamo,
on Jan 28, 2014 at 7:25 am

Hi Arnold: first, let me say that this blog can be a community discussion of these issues. My contributions are only sometimes/often/never the gospel last-or-only-word on a subject, and THIS topic is particularly both technical and fraught with partisan controversy.

I have intended to start the conversation, as someone who has had some exposure to 'unfunded liability' bogeymen in the context of the old Teamster pension funds that were in much worse shape than CalPERS in the 1980s, after the bosses had looted them. THAT bogeyman disappeared -- it completely evaporated -- by the early 1990s, because the investment performance of those funds far exceeded the need to make up the estimate gap. As I indicated above, at different times the CalPERS fund has been up to 30% overfunded and badly underfunded -- it is now less underfunded, trending toward full funding. Progress will depend on investment success. As such, I continue to believe that the sky is intact.

I also attempted to explain that the $100B is an Estimate of what Might Happen in the semi-distant future, not a current debt that's owed. That is a crucial distinction -- from your note, it is not clear to me that you understand that, when you write about "future generations" -- that is language usually associated with debt.

I cannot really tell what your homework revealed, because your post is long on disagreement, but without a lot of specific evidence of what your homework taught you. I hope you will share it, so I and anyone else will have more info on which to chew.

I do think we may agree that that the funding issue has been made worse by poor collective bargaining practices by governments in their negotiations with public unions. I have written about that many blogs ago -- basically, the government side would cave-in on pension issues that would not hit their budgets until after they were termed-out, and taxpayers were asleep and unrepresented at the table. That has changed, plus the pension reform law passed two years ago will have a greater impact on the figures as time goes on.

As is often true with big numbers, especially ones that are as easily manipulated as this one, they seem impressive and deserve examination. They can be used to illuminate or scare folks -- just look at almost anything S-P writes for evidence of the latter, without the former. I continue to believe that a bigger current problem is the unemployment insurance reimbursements owed to the feds, which actually IS a debt.

Finally, not that I care a whole lot about political party labels, but if memory serves, as it often does, I think I am a registered Independent.

 +  Like this comment
Posted by Arnold, a resident of Another Pleasanton neighborhood,
on Jan 28, 2014 at 7:44 pm

"As I indicated above, at different times the CalPERS fund has been up to 30% overfunded and badly underfunded -- it is now less underfunded, trending toward full funding. Progress will depend on investment success. As such, I continue to believe that the sky is intact.

I also attempted to explain that the $100B is an Estimate of what Might Happen in the semi-distant future, not a current debt that\'s owed. That is a crucial distinction -- from your note, it is not clear to me that you understand that, when you write about "future generations" -- that is language usually associated with debt."

Thanks Tom, but the more I read your comments the more certian I am that is not me, but you, that do not understand the "pension problem" and how it\'s already costing us significantly. I don\'t have time to dig in to the links I\'d like to use to state my case but I\'ll try to get to it before the week ends. If that doesn\'t happen look for my starting a new thread on both the City of Pleasantons pension issues and, the big one in my opinion, the Pleasanton Unified School Districts pension NIGHTMARE.

A former Democrat and current independent, like you? BTW, I like chipotle. My daughter tells me freebirds is the same only better. Apparently a Freebirds is opening in the City of Dublin.

 +  Like this comment
Posted by Tom Cushing, a resident of Alamo,
on Jan 29, 2014 at 7:18 am

Okay, whenever you're ready, the blog'll be here. This edition may not be on the Top Blogs section by then -- that process is mystical and determined elsewhere, but you know where to find it.

 +  Like this comment
Posted by OnWatch, a resident of another community,
on Jan 29, 2014 at 11:06 am

Tom makes some good points but we all forget that most residents costs are fees (non tax taxes)such as rates on power, water etc., these fees are set by local boards at cities, counties and special districts such as Dublin San Ramon Services District, Zone 7 Water Agency and many others.

Get involved in and with their boards to make a difference locally - where are they spending our money??? What are they doing to protect our families?

 +   1 person likes this
Posted by Huh?, a resident of Danville,
on Jan 29, 2014 at 12:11 pm

Just a note about the danger of relying on ideological propaganda outfits masquerading as "think tanks." spcwt cites a story which relies on a "study" by the "California Public Policy Center" - which is not the "California Public Policy Institute" a legitimate outfit, but which is actually a grotesquely anti-union propaganda mill which is funded for the sole purpose of convincing folks like spcwt that the sky is falling and it's all due to middle class working people having too much money that would be better off in the pockets of the wealthy. Relying on their "study" is a sure-fire way to find your head in a place where the sun don't shine.

And spcwt's other point - about who pays how much in the way of taxes in California - confuses "California's tax revenue" with "personal income taxes" - non-congruent concepts - with much the same result. (Although I agree that the over-reliance on income taxes, caused by Prop. 13's freezing of property taxes on corporate-owned property, is not a good thing.)

 +  Like this comment
Posted by spcwt, a resident of Danville,
on Jan 29, 2014 at 2:46 pm

We?re not that far apart. I agree Prop. 13's freezing of property taxes on corporate-owned property is not a good thing. Businesses should succeed based upon their merits, not on unfair tax breaks.

I also agree middle class working people should have more money. But unlike you, I think everyone should have more money, so long as they earn it themselves fairly.

You say I?m confused about ?who pays taxes.? I?m just quoting The Milken Institute. Web Link Look at page 2. It says, ?With the passage of Prop. 30, the Top 1% will be responsible for closer to 50% of tax revenue.? Maybe they meant ?50% of income tax revenue.? Anyway, rich people pay too much taxes and eventually it will hurt the state.

Look at the report?s other findings:

California?s ?Government and Fiscal Policy? ranks 47 out of 50 states.

California taxes are among the highest of all the states.

California is ranked the 46th-friendliest state for small business. 82% of businesses find it difficult to operate in California and believe the state government has not done all it can to keep businesses from leaving.

People abuse the California Environmental Quality Act to delay construction, roads, bridges, etc. which greatly increases costs. It costs triple the national average to maintain California roads. California?s infrastructure is ranked 46th despite higher than average spending.

California Democrats & unions protect bad teachers. California has 275,000 public school teachers, yet fires only 2 teachers per year, on average. It takes years and between $250,000 - $500,000 to fire a bad teacher. It is illegal link pay and performance. Layoffs are based upon length of service, not competence. Fewer than 30% of California public school graduates are college-ready for English, math, reading and science. Web Link

In 10 years, 41% of California jobs will require a college degree, yet only 35% of working-aged adults will be college graduates. California will suffer if we don?t fix this.

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Posted by Huh?, a resident of Danville,
on Jan 30, 2014 at 3:12 pm

One thing I think we can agree on is that the Milken document is unclear. Running the numbers from 2010 shows personal income tax on the top 1% amounting to 27.5% of California governmental revenue (41% x 67%) How that is supposed to double to 50% is unclear and improbable.

As to overall "tax burden" California is on a par with other states with large urban populations. Web Link It would be unrealistic to compare California to states which derive income from extractive industries and have less dense populations. It costs money to operate a state like this. Industries are close to population centers, requiring more attention to pollution. Ignore that? Ask the folks in West Virginia about that. They have low taxes, but can't drink the water coming out of their taps. Remember when the Cuyahoga River caught fire? Are you old enough to remember what the air in Southern California looked like in the summer in the 60's? That's what happens when you participate in the race to the bottom of regulatory oversight.

Dense cities require more transportation per mile and cause more daily interactions between people who are stressed, requiring more spending on police, public transportation and the like. We have lots of immigrants, legal and otherwise, from other countries (can you blame them?) which cost money in terms of education challenges and interpreters for governmental actions.

The top 1% in California pay a lot of taxes because they have a lot of money. Again - can you blame them? If you were a billionaire, would you choose to live in Napa, San Francisco or Malibu or Biloxi, Fargo or Houston? And even among the less extreme affluent, consider: the vast majority of families in Danville are in the top 10% of wealth nationwide - not so true in Enid, Oklahoma. So yeah - we pay more taxes. Our income is relatively high and our cost of living is correspondingly relatively high.

I agree that the deterioration of our higher education system is a problem. Tax cuts have been directly responsible for the erosion of funding for UC and CSU, and the skyrocketing cost to students can't help but have an adverse impact. I don't have enough knowledge of local school issues to comment.

In sum, California's overall taxes and regulations are appropriate for a state like this. Comparing California to Texas or North Dakota or Alaska is simplistic and unhelpful. I don't want to live in a polluted state with unpaved roads Web Link Oversight and vigilance are always called for in any expenditure, but I'll pay my taxes, breathe the air and not complain about being a Californian.

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Posted by spcwt, a resident of Danville,
on Jan 30, 2014 at 4:25 pm

California will always be a great place for rich people. Moderately rich people can greatly reduce California taxes on their investment income through tax planning. And the ultra-wealthy (Larry Ellison-types) who pay a lot of California taxes are so rich they likely don?t care.

The people who get hosed are the middle class working folks.

For example, should someone making $49,774 really be expected to pay 9.3% California income tax. Really? Even living in the Bay Area? Aren?t people that poor on food stamps & such? I often complain the middle class are a bunch of freeloaders, but even I kind of feel sorry for people like that. Ok, not sorry for them. But I?m not above using them to further my anti-tax sentiment.

Plus, they pay ~9% sales tax. And high property taxes if you don?t get a Prop. 13 break.

But it?s not just the taxes. Liberal policies make everything expensive.

Look at electricity. It?s $.34 / kWh. That?s triple the national average. That?s higher than Norway! Liberals environmentalists are trying to save the world on the pocketbooks of middle class Californians.

Liberal policies mean Californians pay $.40 cents more per gallon of gas, on average, than the rest of the country.

Personally, I don?t care. Fine by me if gas were $10 per gallon. Less traffic. But I?d hate to be one of those middle class suckers who are concerned about the price of gas.

Housing is so gol darn expensive because NIMBY?s like me abuse the California Environmental Quality Act to delay housing construction. You liberals do it too. We all do. We don?t care because we have our nice homes, we don?t want all the problems associated with additional people living here. They can go live in Tracy & Antioch. Plus, as a homeowner, high housing costs increase my net worth.

 +  Like this comment
Posted by Huh?, a resident of Danville,
on Feb 1, 2014 at 1:06 pm

You see, spcwt, it's the fudging of facts by people who rail at "liberal" policies that, to me, bests evidences the actual lack of thought present in those who flog right wing ideology. Let's go through your examples:

California income tax: The state income tax due from a single person with an income of $47,994, no dependents, no itemization, is $1,876. That's 3.8%, not 9.3%.

Property taxes: Everyone gets a Prop. 13 break. Longtime property owners get the best break, but even new buyers getting a rate of 1% of the value of their home (plus a variety of assessments) are paying less in property taxes than in a lot of states.

Electricity is over $.30 per kWH only on the higher tier of usage. Basic electric costs start at $.13 per kWH. Average costs are about $.19. If you are affluent enough to own a McMansion you can buy yourself some solar panels to offset the extra juice you'll need and you'll never pay the top tier rates - I don't.

We don't pay more for gas due to "liberal policies" but because we have a history of more severe air pollution than less densely populated states, and our gas has to be formatted differently to keep our air breathable. (I know - being able to breathe air is a "liberal" policy.)

To a certain extent you're right about NIMBYism but CEQA isn't really the cause of high housing costs here. Buildable land is geographically limited in the Bay Area, and some places - ridgetops, bay fill, etc. - have been placed off-limits by voters. CEQA applies in Tracy, too, but the houses are still cheaper there. NIMBY abuse of CEQA tends to be limited to the last areas of infill in a community. Most of Danville's housing sailed through the process back in the 80's; it wasn't until the last few undeveloped parcels came up for buildout in recent years that the rabid opposition (who, ironically, for the most part live in those 80's-era houses) showed up. That's the bathwater; don't confuse it with the baby.

Bottom line? It's easy to believe that somebody, somewhere, is getting some advantage that you're not. That you're nobly paying more than what's "fair" and someone else is playing you for a sucker. That you're a victim.

But if you're an affluent tri-valley resident that's probably not actually true, any more than the specifics you cited are true. You're not a victim; you're blessed. You don't pay more than what's "fair" - you pay less than people of your parent's generation with similar wealth and income paid - and getting more for it.

But by buying into the victim story you help to create actual victims - folks in the lowest economic strata of society who are behind where their parents were, who have a steeper hill to climb to achieve the status of middle class - let alone affluence - than their parent's generation did. Because the policies which were implemented over the past 40 years have caused income inequality to increase dramatically during that time period. And those policies were implemented, and are defended by, the folks who depend on your sense of victimhood to support politicians who are dedicated to an ideology which supports making the rich richer, the poor poorer, and the middle class having to work harder just to stay afloat. Of course, they don't say that's what they're doing; instead they generate a huge fog of smoke and accusations and "anecdotes" to distract you from the substance and consequences of the policies they espouse.

Like telling you that people pay more taxes than they do, pay more for electricity than they do, and that the cost of keeping air breathable is really just a "liberal" policy.

Like they say: reality has a liberal bias. But that's where I live - in the real world.

 +  Like this comment
Posted by Solo, a resident of Dublin,
on Feb 1, 2014 at 3:56 pm

Time to ring the class bell -- SOMEBODY just got SCHOOLED.

 +  Like this comment
Posted by spcwt, a resident of Danville,
on Feb 5, 2014 at 10:56 am

Nobody schooled nobody. I?d have responded if it hadn?t been Super Bowl weekend.

No point in responding now, as no one?s going to read this anyway. I bet not even Huh? or that Marco Cholo lady will even read this.

Tom needs to do a better job of attracting new people for me to troll.

 +  Like this comment
Posted by Tom Cushing, a resident of Alamo,
on Feb 5, 2014 at 11:34 am

I think I'll have to go with both you And Solo on this one -- 'nobody schooled nobody' and Huh? schooled You. I think you've got your hands full there, counselor.

As to comments, I prefer to conclude, with Sir Thomas More, "qui tacet consentire videtur:" silence implies assent, especially after a thousand-or-so clicks. Somebody did finally respond to the Dilemma blog that\'s now also in the archives, but you'll probably agree with him.

I\'ll see what I can serve up for you later in the week.

 +  Like this comment
Posted by spcwt, a resident of Danville,
on Feb 5, 2014 at 1:26 pm

Do yourself a flavor and have Gina install a ?unique visitor? click-o-meter to your blog. Then you can start bragging about your thousand-or-so clicks.

As it is, I?ll bet Huh? & Cholo are responsible for about half those 1,000 clicks.

 +  Like this comment
Posted by Tom Cushing, a resident of Alamo,
on Feb 6, 2014 at 8:54 am

That's the best you can muster against 'Huh?' after the drubbing he gave you? That he Maybe clicks too much? You sound like Congressman Mike Rogers baselessly claiming that Snowden might be a Russian spy -- you have questions that need answers!

What is actually interesting about the click count is how much it grows after these epistles disappear into their archives. I have a few that have eventually reached over 7,000 clicks -- and I have no idea how that happens, except they seem to get passed-on to others. Or else maybe it's Huh? and cholo ...

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Posted by Jenny Gunn, a resident of Monte Vista High School,
on Mar 1, 2016 at 10:56 pm

I think that Jerry Brown is an excellent politician as well as lawyer and he is doing good governess since he got this position. I am an academic writer at Web Link and I want to upto date with current affairs because I am a student of politics.

 +  Like this comment
Posted by Curtis, a resident of Village High School,
on Apr 22, 2016 at 1:36 am

This is a very nice and well researched post by Tom Cushing. It is true that the $100B number represents that gap, known ominously as the CalPERS' unfunded liability. CalPERS' investments future will greatly determine the gap in the size of the funding. (spam link removed)

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