When Penguins Attack
Despite my general affection for penguins, especially those from the South Sandwich Islands, I cannot help but feel their kind has treated my unfairly after reading a post at The Faithful Penguin blog charmingly titled, “Conor Friedersdorf is a Liar or a Hack…“ Of course, it is possible that the ellipses are meant to stand in for the phrase, “or my criticism of his post doesn’t make any sense at all.” I’d be cool with that, my penguin friend!
Here is the paragraph I wrote that chilled relations:
As the Matt Welch piece (on California) mentions, “the state’s annual pension fund contribution vaulted from $321 million in 2000-01 to $7.3 billion last year.” That is a rather alarming rate of growth, and an astonishing figure, don’t you think? Given that the state is bankrupt and issuing IOUs to its creditors, it doesn’t seem unreasonable to complain that public employee unions have extracted benefits that are both obviously unaffordable and far in excess of what is enjoyed by the taxpayers who finance them.
The Faithful Penguin responds by explaining that California’s public employee pensions are “defined benefit” plans. Exactly right! “An employer commits to paying its employee a specific benefit for life beginning at his or her retirement,” he writes. “The amount of the benefit is known in advance and is usually based on factors such as age, earnings, and years of service.” I’d add that in the Golden State, most government employees max out at a pension that allows them to collect 90 percent of their salary for life after having worked 30 years [UPDATE: this is definitely true of public safety employees, broadly construed, but an e-mailer at Andrew Sullivan’s place calls into question whether it is true of “most” employees, so disregard that narrow part of the argument while I double-check] —and that covers 100 percent of their retirement health care costs, and 90 percent of health care costs for spouses and dependents.These extraordinary, unaffordable benefits were negotiated by public employee unions during Gov. Gray Davis’ tenure (actually, that’s definitely true of the 90 percent formula—I’m not sure when the health care portion went into effect).
Using boldface and red font, the cantankerous penguin goes on to note that “The employer is responsible for making the decisions about how much money to contribute to the plan and how to invest the contributions to fulfill the plan obligations. Employer contributions to the defined benefit plan are based on a benefit formula that calculates the investments needed to meet the defined benefit. These contributions are actuarially determined.” Yup. This is part of the problem. When Gray Davis agreed to the 90 percent formula, it seemed affordable because the stock market bubble was producing unsustainable returns in the retirement fund investment portfolio.
Says the 3 foot, 7 inch tall blogger:
So, in 2001, the market just came off a long bull-run where the (simplified) annual return was 43% for a twenty-one-year run. That is, the market went from about 1,000 (1980) to about 10,500 (2001). That was great. But since 2001 the market has, at best, been flat and has fallen to, basically, it’s 1996 levels, wiping out over a decade worth of returns. Now the ROI has fallen to just under 19% for the 1980-through-2009 (06/30/09) period. Even worse, is the current negative 4.5% ROI we suffered during, and because of, the Republican laissez-faire/Libertarian Bush-years where the market was allowed to run wild without supervision.
All of which California has to make up.
This was not the fault of the union. It was not the fault of the State. It was the fault of the system that Friedersdorf, and the rest of the “Lords of Capitalism” tout at every instance.
That’s where I lose the flightless Spheniscidae’s line of reasoning. I am a Lord of Capitalism, of course — this very instant I am smoking a cigarette emblazoned with a dollar sign while trafficking in black market kidneys — so perhaps it’s understandable that I dissent from the view that it’s the “fault” of capitalism that stock market ceased producing a 43 percent annual return (to rely on the flippered krill feeder’s numbers).
I’d lay blame on Gray Davis and the Democratic legislature that committed the state to a public pension system that could only be sustained if unrealistically high stock market returns persisted into the indefinite future. Is it the union’s fault that they got this unsustainable deal? Well, no, their job is to extract as much money as possible for their members. That doesn’t change the fact that their undue influence in California’s political process resulted in an outcome that is bad for the state, its citizens, and basically everyone except for the state workers cashing in on one of the more irresponsible public policy decisions in memory.
My vestigially winged interlocutor concludes:
If Friedersdorf doesn’t understand the why California has to make the payment, he’s not qualified to opine. If Friedersdorf DOES understand, then he’s a liar. In either case, he’s just flat, stupidly wrong.
Well, I do understand why California has to make the payment, and I don’t see how that makes me a liar. As I said in the supposedly offending excerpt, “it doesn’t seem unreasonable to complain that public employee unions have extracted benefits that are both obviously unaffordable and far in excess of what is enjoyed by the taxpayers who finance them.” Upon consideration, I stand by that assessment.
Public employees often work for salaries which are generally lower than those offered for comparable positions in the private sector. One of the traditional means of compensating for this deficiency was offering above-market retirement packages.
The wisdom of this idea could be disputed, but at some point you have to create a competitive compensation package, or else you’ll get as employees only those who either A. are altruistically willing to accept much less money to work for the government or B. are unable to find a job in the private sector because they’re less competent.
— Travis Mason-Bushman · Jul 10, 10:44 PM · #
Travis: That’s fascinating. Did you know that California is broke?
— Lasorda · Jul 10, 10:49 PM · #
A good example of this, it should be pointed out, is the military.
Military salaries are quite low, particularly for the amount of education and experience the career positions demand. However, this is compensated for by living and housing benefits and a high-quality retirement package for those who spend their life defending our nation.
— Travis Mason-Bushman · Jul 10, 10:51 PM · #
Your condescension is duly noted, Lasorda.
What you failed to supply was any sort of reasonable solution.
Military retirement benefits top out at 75% of base pay after 30 years – I think it’s reasonable to suggest that California’s pension plan be capped there as well.
— Travis Mason-Bushman · Jul 10, 10:57 PM · #
I’d lay blame on Gray Davis and the Democratic legislature that committed the state to a public pension system that could only be sustained if unrealistically high stock market returns persisted into the indefinite future.
Oh really? You mean you wouldn’t blame Arnold Schwarzenegger, who ran on a platform of huge tax cuts despite the fact that it was well-documented public knowledge at the time that the state couldn’t possible afford those tax cuts?
From an emailer to Andrew Sullivan:
As a California state employee, I have to qualify Conor’s article. Only public safety employees (police, firefighters) get that retirement deal. If I retire at 50 (I started with the state at age 30), I would get 20% retirement. The deal for the overwhelming majority of California state workers is: 1% per service year if you retire at 50 2% per service year if you retire at 55 2.5% per service year if you retire 60 or later. While that is a good retirement plan, if I die young, my family gets much less than they would from a 401k with similar contributions.
And.
That’s fascinating. Did you know that California is broke?
Pensions are not a gift. They are not an attaboy. They are a part of employee compensation, already earned for past service. There is no difference, none, between taking from a previously earned pension and stealing from his bank account. So hey, Lasorda— if you caught your boss going through your wallet, would you let him off the hook if he said “we’re broke”?
— Freddie · Jul 10, 11:10 PM · #
That makes a lot more sense, Freddie. Thanks for pointing that Sullivan e-mailer out. I always paid attention more to the education retirement system (as a student journalist covering a California public college) than the general retirement system.
And your second graf is dead-on. This is a matter of the state keeping its promise to its employees.
— Travis Mason-Bushman · Jul 10, 11:15 PM · #
I’d missed that e-mail on Sullivan’s site — I’ll double-check that figure. Beyond that, I am not suggesting that these pensions be retroactively revoked, only that the system change going forward.
— Conor Friedersdorf · Jul 10, 11:23 PM · #
As to the wisdom of defined benefit vs defined contribution, many county employees in California and, I believe, many state and school district employees also do not pay into Soc.Sec. Defined benefit is critically important for retirement security.
Also, underfunding pension obligations is a long-standing bi-partisan tradition. A pox on both your houses, please.
Also, states cannot declare bankruptcy; no recourse to federal court to get a judge to invalidate duly signed contracts.
— Francis · Jul 11, 01:49 AM · #
Here’s a thought for a way forward: fire 2/3rds of the current employees, and only re-expand current payrolls as existing pension obligations taper off due to deaths. Either that, or raise taxes.
And get kicked out of office either way, thanks to the recall system.
— Ethan C. · Jul 11, 03:08 AM · #
It’s a hoot listening to these people claim that defined-benefits are guaranteed to California’s govt workers, and that they cannot be revoked by unilateral act of the state govt. They must have been asleep when Obama was rewriting mortgage agreements and GM loan agreements.
— The Reticulator · Jul 11, 05:35 AM · #
No, Reticulator, your analogy is epic fail. No company was forced to take TARP money. They might have gone bankrupt if they didn’t, but such are the risks of business.
They voluntarily accepted government assistance and with that assistance came requirements to help the average American. You takes the taxpayer’s dollar, you accept the strings.
— Travis Mason-Bushman · Jul 11, 06:00 AM · #
You have voluntarily accepted the protection and authority of the USA and Caulifarnia and her laws. No one forced you to stay and put so many unrealistic hopes in bad investments. You might have had no where to go, but such are the breaks of birth and life.
And with that acceptance is the caveat all good citizens know: your entitlements are at our discretion. No contract or agreement is immune if it is only valid because it is allowed and tolerated by the people in the first place.
— IOU speculator · Jul 11, 06:28 AM · #
Conor already made the point, but why are people using the fact that California is committed to paying its pensions to argue that the pensions were a good deal for California? Or if they are not arguing that, why do they seem to think they disagree with Conor?
— Blar · Jul 11, 12:43 PM · #
Conor already made the point, but why are people using the fact that California is committed to paying its pensions to argue that the pensions were a good deal for California? Or if they are not arguing that, why do they seem to think they disagree with Conor?
Actually, Blar, they are arguing with some of your fellow commenters, who are arguing precisely that point, that the state is free to take pensions from workers who have already earned them.
— Freddie · Jul 11, 02:53 PM · #
@Freddie, that’s what Travis was doing in the very first post of this thread? How prescient!
And why were you quoting Conor, if not in opposition to his argument?
— Blar · Jul 11, 03:25 PM · #
Actually, on rereading your first post, Freddie, I take back my second point (though not the first!).
— Blar · Jul 11, 03:28 PM · #
I quoted Conor because I think it’s absurd to blame Gray Davis and Californian Democrats when the individual most responsible for the budgetary crisis is Arnold Schwarzenegger. I quoted Lasorda because he implied that the fact that California is broke is a reason to steal from public employee’s pensions.
— Freddie · Jul 11, 03:59 PM · #
“I think it’s absurd to blame Gray Davis and Californian Democrats when the individual most responsible for the budgetary crisis is Arnold Schwarzenegger.”
!!!!!!!!!!
Arnold has been a poor governor, but every structural impediment to a balanced budget existed prior to his tenure. Meanwhile a lion’s share of the overspending in California and the costs born by the state are due either to the Democratic legislature or the Democratic electorate, and were opposed by the ineffectual Republican minority.
How exactly is Arnold Schwarzenegger the guy most responsible for all this?
— Conor Friedersdorf · Jul 11, 08:43 PM · #
I would agree that Arnold Schwarzenegger is not the guy most responsible for all this.
That title goes to Howard Jarvis.
Proposition 13 fundamentally broke the state’s revenue system. Property is ridiculously under-taxed in California, forcing state government to rely on volatile (and high) income and sales taxes to fund its operations.
— Travis Mason-Bushman · Jul 11, 10:49 PM · #
Take heart, friends: Slurpees are free today at 7-11!
— Joules · Jul 11, 11:00 PM · #
Calling Conor a liar and a hack betrays a certain lack of historical perspective. Consider that just two months ago, Conor was claiming that Republicans would be willing to pay teachers substantially more if they would de-unionize and that California’s generous teacher’s salaries were the result of taxpayer generosity (that implicitly precluded the need for unions). Given that, it’s a marked increase in Conor’s candidness to admit that he really hates California’s public unions for negotiating higher compensation for their members, and that he wants to outlaw them so that California can compensate their workers less.
— Bo · Jul 12, 02:37 AM · #
Bo: I don’t read Connor as saying that he “hates” California public sector unions, still less that he’d like to see them banned.
I consider it more than a little unfair to blame Governor Davis alone for the unrealistic assumptions made about pensions in the heyday of the boom years. Yes, a prudent and foresighted person would not have committed the state to a defined-benefit pension based on past stock market returns, but that ignores the peculiar boom-year psychology. The Wall Street Journal ran ads celebrating IPOs with “a record first-day pop”. People with computer companies had to fend off would-be investors with a stick. Respected investment advisers recommended investors buy companies that had never produced a net profit. Advocates of capitalism exulted that all the rules had changed. With all the people who made it their business to know better falling before the .com mania, how far can we blame one politician for looking at the market and not seeing the crashes of 2002 and 2008 coming?
— John Spragge · Jul 12, 07:59 AM · #
John: He suggested outlawing them here
— Bo · Jul 12, 12:27 PM · #
This is my substantive contribution to this argument: You are in a blog fight. With a penguin. Can I repeat that? You are in a blog fight. With a penguin.
— Liz · Jul 12, 02:39 PM · #
The penguin is a big step up from that Levin guy.
— J Mann · Jul 13, 05:11 PM · #
“…and were opposed by the ineffectual Republican minority.”
In what way is the Republican minority ineffectual? No budget matter can pass without at least two Republicans in the state Senate joining the vote. The greatest difficulty throughout this whole process — despite the utter lack of leadership from the governor — has been the Republicans’ refusal to offer any definitive proposals beyond “no tax or fee increases.”
Those of us who participate in CalPERS — my non-profit, being wholly funded by the state and instituted by legislation, allows me to participate — do not do so on all the same terms. I assure you, my pension benefits, should I last to retirement age to collect them, will not allow me to collect such numbers. In fact, other than public safety employees, such pensions are not the norm. One might also point out that public safety employees are allowed to collect their pension while serving in other publicly-funded positions (for example, the city of San Jose’s new public safety adviser collects his $90,000+ CalPERS funded pension through the Santa Clara County Sheriff’s Office in addition to his $100,000+ mayor’s office job. On the other hand, our executive director, a former state-level department secretary, has to forgo his salary here in order to retain his CalPERS pension.
All bargaining agreements are not created equal, and the worst culprits in this state are the corrections, law enforcement, and fire fighters’ unions.
— Erik Vanderhoff · Jul 13, 08:49 PM · #