The daily newsletter Pension Tsunami sent out by Jack Dean from the Fullerton Association of Concerned Taxpayers pointed me to a Thursday article in the North County Times I had missed.
Writer Edward Sifuentes saw County Supervisor Dianne Jacob’s jaw drop as well and followed up. He quotes Jacob:
Jacob said the current problem has nothing to do with the 2002 decision to increase the benefits. She blamed the $2.5 million (sic) loss entirely on Wall Street.
“The pension enhancements that the Board of Supervisors put in place in 2002 is not the reason for the projected increase in the county’s contribution,” Jacob said. “It is strictly the losses in the market. If we had not experienced the losses in the market, we would not be facing this situation that we’re facing today.”
Ms. Jacob, with all due respect, you do not want to go there. Raising employee retirement benefits and then blaming the market when you find yourself needing to pay hundreds of millions more into a retirement fund is a political strategy that has been tried in San Diego. That’s the Dick Murphy expressway. Murphy ended up resigning as mayor of San Diego when he got to the end of that road.
She’ll hate that I just compared her to Murphy.
But let’s review a couple of things.
First off, a question: In her speech, and in the above article, Jacob blames “Wall Street” for the fund’s losses. But is it really Wall Street’s fault? I mean, if I invest in a stock, and that stock goes down in value, is my loss the stock’s fault? If I go into a casino and lose some money, is that the casino’s fault or mine?
She says: “If we had not experienced the losses in the market, we would not be facing this situation.”
If I had won at the casino, I would not have lost at the casino. If the stocks’ value would have gone up, my stocks would have made money. What she’s saying is they decided that they’d make enough money in the stock market to pay off their mortgage, but they lost the money instead and now its Wall Street’s fault they can’t pay the mortgage.
If we didn’t have a mortgage, it’d be a much different situation.
Jacob’s a Republican. Aren’t Republicans all about personal responsibility? Do things happen to you or are you at all responsible for them?
And before you say that the stock market has better odds than a casino, remember that the county’s pension fund has more than $1 billion invested in the riskiest of hedge funds. They’re not exactly a grandmother getting ripped off by some magazine salesman. They wanted to play poker with the big boys, they put their chips down and they lost.
OK, let’s get back to the question. Did the investment losses put the county in the situation it’s in as opposed to the very generous pension enhancement Jacob and her colleagues gave their workers in 2002?
Where to start?
First: Jacob herself said that drastic action might need to be taken, we might have to lower pension benefits — make it so that from now on, employees accrue a different benefit. This is kind of weird: If benefit enhancements didn’t cause the problem, I wonder why benefit rollbacks would help solve it.
Just a minor contradiction — what’s next?
After the County 5 gave away the house in 2002, they saw the pension system falter. So they borrowed $1.4 billion from investors over a period of a couple of years. They then invested that money in their pension system. The county and its taxpayers last year made a payment of $66 million to pay this debt off. Next year, the payment will jump to $82 million. This, again, is separate from the money we’re sending to the pension system. This is to pay off debt we took on to give money to the pension system.
It is on top of this that we’ll have to move more than $300 million into the retirement fund.
And it is how that contribution will grow that caused Jacob’s and all of our jaws to drop.
Jacob and the county are warning us that unless something changes, and assuming they earn what they expect from the market from now on (and why would it be weird to expect an 8.25 percent return from now on?), taxpayers will be expected to triple their already massive annual investment in the county’s pension fund.
This means fewer services offered by the county or some kind of new tax.
Why would taxpayers be asked for more? Because taxpayers are expected to fill the gap between the benefits the county promised its employees and the money it has. When that gap grows, the taxpayers are asked for more.
But remember, this is a measurement of two parts: How much the county owes its current and future retirees compared to how many assets it has. Jacob is hoping we focus only on the latter: We lost a bunch of those assets and therefore need to put more in.
The facts are simple, had she and her colleagues not engineered a retroactive giveaway worth billions for its employees the measurement of how much the county owes its current and future retirees would be vastly lower. Any decline in the stock market would be that much easier to swallow because what we wouldn’t be so dependent on unrealistic expectations from investments. I’m sorry, but it’s pretty absurd to keep assuming you are going to make 8.25 percent from any mix of investments and then whine when you don’t earn it.
Pension officials admit now they (excuse me “Wall Street”) lost 30 percent — $2.5 billion — over the past six months. Yet still, at the end of September, they claimed to have made 9.9 percent over the last five years. This five-year calculation will undoubtedly change as they incorporate subsequent losses (I doubt we’ll get a press release like we do when the calculation is good, however). But even if the county made only 5 percent over the last five years total, they’d have to be happy about that.
So what’s the verdict? Undoubtedly, just like city officials a few years ago, the county would love for us to think that damn Wall Street messed up their game. That they, and therefore we, are victims of greedy New Yorkers.
This is unimpressive and makes us look weak and naive. They decided to increase their employees’ pension benefits by 50 percent in 2002 effective for all the years they had worked. The amount of money they owed current and future retirees exploded. They borrowed money and proceeded to invest it and then lost it in the market. Now we’re stuck with the tab.
It’s that simple.