California’s New Taxes Are Paying for Pensions | Hacker News Reader

California’s New Taxes Are Paying for Pensions

bloomberg.com

44 pointsericfrenkiel50 comments

>Teachers, who don’t receive outlandish wages or pensions, didn’t cause this problem, and the good news for them is that they will get their pensions because the state is legally required to back up school districts if they can’t meet their commitments.

How can teachers be completely absolved of responsibility for the current situation, considering that teacher's unions were at least partly responsible for negotiating the pension contents? Obviously the individual teachers or administrators never wanted a bankrupt system, but when you hand off representation to your union without taking responsibility for long term sustainability, stuff like this happens. Look at the Automobile Unions; basically the same sort of setup.

In California, the union didn't just negotiate the contracts from one side of the table. The California Teacher's Association (CTA) is, by amount spent, the most powerful entity in state politics (to say nothing of volunteer 'ground troops'). Thus they control both sides of the negotiating table, and also usually get what they want via the initiative process, as with 1988's Prop 98 (guaranteeing school funding by formula) or 2012's Prop 30 (as noted by this article, bailing out teachers' underfunded pensions).

Here's a nice exegesis of their role over the last 40 years:

http://www.city-journal.org/2012/22_2_california-teachers-as...

If it's part of school finance or operations in California, and it's broken, it's because the CTA made it that way.

I don't get how there is so much spending, but such crappy schools. There's a reasonable argument over how much should be spent on education (assuming returns are relatively proportional to spending), but CA seems to spend money for no return.

No real quality control from outside (How many administrators aren't former teachers?) and really, really high switching costs. If you want to switch schools you can move house or pay for the government schools through taxes and private school in fees.

Not that I think the evidence suggests there's much easy improvement in teaching quality but parochial/charter schools suggest you can do it for a lot cheaper.

Parochial schools are cheap in California?

California decoupled the return on investment factor from its spending, with predictable results.

It doesn't help that half the political spectrum has been arguing for decades non-stop to just spend more and more and more on education, without any concern for improving the low return on investment we currently have on education dollars.

> It doesn't help that half the political spectrum has been arguing for decades non-stop to just spend more and more and more on education, without any concern for improving the low return on investment we currently have on education dollars.

Can you name even one person who has been arguing that?

I think he means anyone arguing for more money without also wanting metrics. I think there are a lot of people against metrics, for two main reasons: they distrust the metrics for accuracy (or think they measure the wrongs things), or personal fear of change. A bottom-30-percent teacher probably knows he or she is in the bottom half, at least, and is rightly afraid of metrics.

You don't get it because your premise that all schools are crappy is incorrect. There are good schools, and there are crappy ones, at least by their scores. The big spending happens on the poorest student populations, and the results aren't that good. Why?

Well, I'm going to say something unpopular, but it is often because the parents lack education, or are crappy parents, or don't prioritize education. Maybe they think work or family are more important than education. Or there are no parents.

It's not that all public schools are crappy in California (Palo Alto, Hillsborough are great counterexamples), but a lot of them are.

Of course there are good public schools. The problem is, they're mainly where the kids would get a good education even if public schools didn't exist. Those parents would find a way.

And by forcing those active-and-mobile parents to cluster together geographically, to get their money's worth from the public system, the abandoned isolation of the other students gets worse.

Returns aren't proportional to spending. Most of the studies have shown that increasing spending has little to no impact on student outcomes, nor does decreasing class size. Of course, there's a minimum level of spending required, but that's been reached a long time ago.

What are you talking about? The schools actually are doing a fantastic job at their twin goals, which are: 1) being a place to send your children during the day so you can work, and 2) creating excellent standardized test takers. I have great faith that we are producing a generation of the very best and most talented standardized American test takers. No other nation in the world is producing kids who are as good at taking and succeeding at our standardized tests, and they're no help at all with babysitting.

In both cases, the union sits across the table from management/government. The union asks for money, the specifics of how the money is going to be raised are just not their problem.

Final salary pensions are outlandish˜. Utterly so. Using a realistic (inflation + 5%) investment return and 40 years of service, such a pension funded through DC would be ~30% of your salary contributed every year.

The fact that they might be based on a relatively modest salary doesn't change the value of them as a benefit.

˜I am assuming based on article language this is what they have, it is also consistent with the civil service in the UK.

They were pretty common until recently, in both the private and public sectors; it's not a particularly unusual arrangement only for these employees. My father was a non-unionized employee at a Fortune 500 firm and retired on a variant of a final-salary pension in the 2000s (variant because "final salary" was defined as an average of the final 3 years). Presumably his company is not going to decide to retroactively decide they don't feel like paying it, either, since it was the agreed remuneration.

edit: As one concrete example, it looks like IBM had a final-salary plan until 2009, when it was (non-retroactively) phased out, http://www.theregister.co.uk/2009/07/07/ibm_final_salary_pen...

Yes, the issue is that when they were introduced you had government bond yields of well over 10%. Equities were expected to return even more. Pension promises seemed like a cheap benefit to offer, and one that was mutually beneficial.

Couple this with mortality rates falling (expected lifetime increasing) and you have a bunc of completely unaffordable promises. There is a very very good reason that final (and even career average) salary schemes are being phased out.

Companies have finally discovered just how expensive their promises are, and they are closing schemes as fast as they can get away with it. The government, meanwhile, buries it's head in the sand because the taxpayer cannot go insolvent. And even small changes to pension terms result in strikes.

The mathematics is pretty trivial for this rough estimate, but 30% of salary is low ballpark of the contributions required to meet obligations with a 95% probability over 40 years. Admittedly I'm using an internal asset model which is relatively prudent, with long term derisking, and merely using todays retirement age, and mortality tables. It's probably a lot worse than that (but could be better, I mean this recession malarky can't go on forever right?).

> To the extent that school districts pick up the cost, kids in school today will be hurt because more dollars will go to pension costs and fewer dollars will go to classrooms. To the extent that the state picks up the cost, residents will receive fewer services. Either way, voters will get little for the tax increase they approved in November.

The only real problem here is how this was presented. As worded, it sounds like Crane is arguing that the tax shouldn't have gone through. But the pensions were guaranteed, and taxes are how the voters pay for things. What the voters will get for their tax increase is fulfillment of obligations they've already promised. What they're "getting" is teachers in classrooms rather than rioting in the streets. The article comes across as whining about having to pay for things already bought.

The article comes across as whining about having to pay for things already bought.

I'm all about funding public education but it's a fact that there's a lot of shitty, shitty deals in pension systems across CA - mostly of higher-level administrators rather than rank-and-file employees, but there you go. There's an opportunity cost to such deals. In my county (Alameda) the county administrator makes about $425k/year - more than the President - and is guaranteed her full salary in retirement, for life. It's nauseating.

I understand the arguments for and against pensions and I still think it's a ridiculous concept.

Yeah, so why not just go after those extreme cases rather than broadly and generally defunding public education and ruining teachers' old age?

I mention it because legally, most of these pension contracts stand on a similar footing in California. I'm not arguing for broad or general defunding of education, but I do think that sector needs root-and-branch reform from the federal level down. I'd need several pages to go into how though.

We have a similar problem in the UK - some public sector administrators seem to make vast amounts of money for jobs that seem secure and rather undemanding to me.

What I find particularly annoying is that people at the "sharp end" of the state (rather than administrators) often seem poorely paid for the responsibilities they have. A recent Royal Navy recruitment advert pointed out that you can make up to £95K serving on a submarine - to which my reaction was "that's all the commander of a UK Trident submarine makes?".

NB In the case of UK Trident submarine commanders this seems particularly bad as they (and their crews) have far more freedom than people in equivalent positions in other navies. As far as I know, only the UK Trident submarines have the power to launch without any authorization from the PM or anyone else [there were good reasons for this, at least during the Cold War]. So we really trust these men and women.

Voters have little meaningful check on the ability of the California teachers unions (and, more brazenly, public safety unions, and also state employees generally) to unilaterally award themselves extraordinarily expensive compensation schemes. This is particularly true with regards to pensions, since $X0 billion dollar future outlays are routinely described as "minor adjustments to administrative procedures" and often not subject to the discipline of the ballot at all.

For example, consider a one-line alteration to a statewide contract for teachers, changing the calculation for defined-benefit pensions from being based off of "the average of the highest 3 years of salary in a career" to "the average of the highest 3 years of salary in a career for careers of less than 25 years, or the highest single year of salary for careers of 25 or more years." That doesn't look like "The teachers just asked for $50 billion in extra pensions", does it? But that's exactly what happened.

(If you're unsure of why there's a difference between the two contracts, read up on "pension spiking", which is theft under the cover of law that is an institutional reality for California public employees since "everybody is doing it.")

We need either a smarter mix of politicians (not likely), or some bureaucrats that have to review the financial effects and report their findings on all changes to compensation. Then we would need a smarter press corps. That is more do-able.

Sure, but that's a different article about the real problem, while this one complains about how tax money was spent paying taxpayer obligations.

Why do state employees enjoy the privilege of pensions and free healthcare? Why can't we force them into the real world of shitty insurance plans, financial responsibility for their own retirement supplemented by social security checks, you know, the life style that private sector employees are "enjoying"?

By "private sector" I don't mean the tiny group of high-tech workers and other 6-figure professionals, but regular people who represent the median $61K/household income, just to be clear.

Isn't this just utterly fucked up: to pay for state employees entitlements while not being eligible to receive any ourselves?

I was hoping that California will simply go bankrupt and we'll be given a chance to start from scratch, but apparently a State cannot be bankrupted, so how are we supposed to get rid of Sacramento without resorting to violence? "Voting them out" is clearly not working because they're simply lying on the ballots now.

I'd far rather move (even just within the US) than resort to violence. WA, TX, NV, etc. all seem comparatively well governed. The natural environment in CA is a plus, and it still has the best overall nexus of capital, startups, and people, but that advantage is rapidly declining vs. other states.

WA put in the same bucket as TX, that's a bit wrong. Washington has decent public schools, Texas is notorious for how bad it's schools are...

I just meant "has tech jobs, isn't insolvent".

I didn't know anything about TX schools (UT-Austin is great, as is UW, but I assume the discussion is mainly about K-12).

UTA is ok, not as good as UW. Washington K12 is in a different league from Texas, which suffers from a completely dysfunctional non government.

California has much better weather than Texas. There is a reason housing prices continue to rise in CA while they are basically stagnant in TX. Don't brush off Cali because of a few gov problems, they will still continue to kick every other state's ass in the long run. Anyways, I'm happy as long as Californians move to Texas and not Washington.

It is almost as if you have a weird ulterior motive of trying to keep unproductive yet meddlesome California voters out of Washington, while at the same time reinforcing that Washington is one of the best states in the US, particularly for tech entrepreneurs. I wonder why? :)

As a PNW native, I have lots of in common with our west coast brothers and sisters, but Californians drive our housing prices up and aren't as friendly in traffic.

So if you are from California and looking for some place new, please remember Seattle has LOTS OF RAIN. Texas has lots of sun in comparison, you'll be happier there instead of Seattle where it rains 49 weeks out of the year.

Why not broadly improve compensation packages in the private sector to keep up with productivity, which would increase the tax base and allow each individual's tax burden to take a smaller share of their income?

We have. But most productivity gains (together with comp gains) are driven by the top, not the median or bottom.

A burger flipper produces as much now as ever before. Productivity went up because of the computerized jit inventory infrastructure bringing mass produced frozen burgers to him, the highly optimized recipes he mindlessly follows, etc. The guys who built all that stuff are paid well.

Actually, thanks to modern logistics and restaurant management software, I'd posit that an average burger-flipper today is substantially more productive than the average burger-flipper was 50 years ago.

The total output of a McD's with 5 burger flippers certainly did go up, but not due to anything the burger flippers are doing. There is no reason why the burger flippers wages should go up as a result.

It is unfair, but it would be better to focus on how to lift more people up to the level of teacher retirements than to bring teachers down. Trying to lift all boats strengthens and enlarges the middle class.

Actually during the advertising blitz this was pointed out that all of this wasn't funding education but instead the teacher pension system. Not that most voters listened.

Indeed, I have at least one friend who voted for Prop 30 who had no idea (and was rudely surprised when he later learned) that it would retroactively increase his 2012 taxes. Ah, Democracy!

Typical 1% rant designed to flumox the 99%.

Overlooks that teacher pensions is a legitimate expense if you just happen to be running schools, like CA is.

Just goes to show, when you want to lie, lie big.

Take away teachers' pensions, and you might as well say goodbye to attracting any new teachers or retaining the good ones.

As Dr. Martin Luther King worked so hard for, everyone, which includes teachers, has a right to a decent living which includes a decent retirement.

The attracting teachers bit is crap. We have a huge surplus of fresh college graduates in this country with no jobs. You could get rid of pensions entirely and still have bright people lining up to fill positions.

Also, I imagine that most potential new teachers would be skeptical at best about receiving their full pension benefits.

It's very economically difficult to move either into teaching or out of teaching. There's nothing fundamental about this; it's just the systems we've set up.

Teaching really should be one of the things that it's as easy as possible to switch into or out of.

I'm a CA Dem, but wish that the CA GOP would get its act together so there would be a credible threat to this voodoo economics.

Right now, the CA GOP is in such a sorry state that many people seeking office switch to Dem to even have a shot. My party is crawling with GOP defectors.

The Republican Party has become the Tea Party, Anti Immigrant, Anti Abortion, Anti Tax, Anti Gay party. There's no room for compromise.

A big part of the pension problem in California comes from Firefighters and Police. They don't contribute to the pension system, yet used to be able to cash out at age 50 with a full pension. Also, since their pension was based on their highest attained salary, they would work one year with a bunch of overtime, often spiking their salaries to six figures.

Check out cacs.org where the author is a board member for more information on ca govt.

Please, whine more about what we're paying schoolteachers.

Your words are doing so much good in the world.

SO. MUCH. GOOD.

Why not try engaging your brain before spewing another "think of the children" post onto the internets?

Calpers has argued that California is legally obligated to pay all pensions in full due to the California constitution. If the pension fund falls short, who do you think will suffer cuts? Hey, that's right. The kids of today, who will have to deal with fewer teachers, bigger classes, and so forth.

David Crane is arguing that we should actually fund the pension fund properly rather than using Enron-style accounting tricks and ridiculous assumptions to kick the can down the road. For saying this, he lost his seat on the board.

People deserve to know where their money is really going. If we need to pass an emergency tax to fund pensions, let's call it that, rather than dishonestly pretending it's to expand education.

Teachers get paid OK and have a lot of job security compared to the average workers. I think they deserve it, for the most part, but let's not fool ourselves into thinking they are paupers or working class. It's a solid middle class job with a great retirement package.

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