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California pension Death Star approaching
By Chriss Street When Moody’s Investors Services issued a “Request for Comment” last July about their plan to begin recalculating the effect of massive state and local unfunded pension liabilities on credit quality, I warned that this would eventually result in the across-the-board slashing of municipal bond credit ratings and numerous municipal bankruptcies in California. It now appears that I may have understated the risk for California. The California Public Policy Center released a report analyzing of the impact of the new Moody’s policy on six Northern California counties: Alameda, Contra Costa, Marin, Mendocino, San Mateo and Sonoma. Their conclusion is that, when the new rules are applied, the annual cost of pensions will increase from the equivalent of about 50 percent to 100 percent of these counties’ net property tax income. With the state is running new deficits after already raising state income taxes to the highest level in the nation, California homeowners should be prepared for their politicians to try to overturn Proposition 13, which for 35 years has limited California property tax rate increases to 2 percent per year of the assessed value, and reappraisals occurring only with the sale of the property. Given that California has only 11 percent of the U.S. population, but issues 20 percent of all of the nationwide municipal bond volume, Moody’s warned it would be re-assessing the financial condition of all California counties and cities “to reflect the new fiscal realities and the governmental practices.” More bankruptciesMoody’s said that a greater share of municipal bankruptcies are expected to come from California. California Treasurer Bill Lockyer’s office tried to reassure the public by calling the Moody’s warning “a little hyperbolic” and stating, “No city’s going to blithely skip into bankruptcy court to avoid its obligations.” But today, more than 50 of 482 California cities have declared a “Financial Crisis” and have considered filing for Chapter 9 municipal bankruptcy. CPPC’s analysis used data from the most recent county Actuarial Valuations to produce four core restatements of solvency: total pension debt, unfunded pension debt, government normal yearly contributions and amortization payments of unfunded pension. CPPC determined that, for the four adjustments Moody’s is expected to make, two would have very significant impact on county solvency: * “First, pension debt would be adjusted using a high-grade long term corporate bond rate (5.5% for 2010-2011) instead of a Pension Fund’s target rate of return (7.75% more or less). * “Second, government payments to Pension Funds would be adjusted to reflect the lower discount rate, the need to fully fund pensions by the time employees retire, and a 17 year level-dollar amortization of unfunded pensions.” In their Actuarial Valuations, the counties claim they have conservatively banked 78 percent of their pension liabilities in cash and securities, leaving only $4 billion in under-funding. But the Moody’s adjustments will increase the unfunded pension obligations by $6 billion, balloon the unfunded liability to $10.2 billion and the cash and securities funding down to a speculative level of 58 percent. At a 78 percent funding level, the six counties are only required to contribute 29 percent of their payroll, or about $640 million, to fund their pension plans each year. But under the new Moody’s formula that will drive down their funding level to 58 percent, the counties’ required annual pension cost will skyrocket to 63 percent of payroll, or $1.4 billion per year! DeficitsCalifornia has run huge budget deficits for the last decade. Recently voters passed Proposition 30 as a $6 billion state income tax increase on top earners in hopes of rescuing schools by balancing the state budget. But, according to the California State Controller’s just released December financial statement, state spending is $900 million over budget and state tax revenue is at least $360 million under budget. For the last 35 years, California politicians have been forbidden from jacking up property taxes by the because of Prop. 13. The initiative has been so popular with homeowners that it has been referred to as the third rail of California politics. But as the CPPC study demonstrates, the annual cost of pensions will soon increase from the equivalent of about 50 percent to 100 percent of these counties’ net property tax income. With the state already running new deficits on top of the highest income taxes in the nation, it is my belief that California politicians will soon try to overturn Prop 13. CHRISS STREET & PAUL PRESTON
Tags: Chriss Street, Death Star, Moody's Investors Services, pensions, Prop. 13 Comments(43) |
May 21, 2013
All 6 counties are cash flow BK. Game over.
The pensions have t bve cut, ad they can start with THE SAN RAMON VALLEY FIRE DISRICT.
All Taxpayer Funded Pensions should and need to be Abolished, They are Not Special, they can survive on Social Security, Just like EVERYBODY ELSE. All Public Employee and Public Servant Pay should NEVER EXCEED the Median Income level of the Citizens of that State.
LOL— They are reviewing 32 bonds– I think only 9 are pensions the balance general obligation bonds. 2 (LA and Frisco are being reviewed for possible upgrade.) If San Bernardino has taught you gloomers anything it should show you that there are many more reasons for bad finance planning then pension obligations to the help! But I doubt you’re paying attention.
Oh Noooooooooooooooooooooo!
Oh– you gloomers will hate this–
Cal Pers posted 13.3 % gain in the last calendar year………sorry little buddies.
Sorry, Ted, that’s not enough to make up for past losses. For all state pension funds, Californians now pay an additional $6 billion a year. If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?
– John Seiler
CalWatchdog says:
January 18, 2013 at 7:39 am
Sorry, Ted, that’s not enough to make up for past losses. For all state pension funds, Californians now pay an additional $6 billion a year. If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?
– John Seiler
How Dare you suggest we Outlaw SLAVERY.
Well of course it’s not John— But over 20-30 years the fund has beat the goals—-looking minute to minute is pointless….
Calpers posted 13.3 % gain in the last calendar year………sorry little buddies.
==
Do you know the difference between a calendar year and fiscal year, which ends June 30 for the state??????????????????????????
Didn’t think so.
If these funds are doing so great, how about removing the requirement for taxpayers to make up the difference?
– John Seiler
==
Teddys ponzi jig would be up if that happened John
Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.
Sorry lads….
of course I know what a FY is Poodle and we all heard the bad FY year news— this CY year news is as Paul Harvy would say….”the rest of the story”!
Can you say subsequent?
0 for 14 ™ ! I love it!!!
Ted Steele, Navigator says:
January 18, 2013 at 9:06 am
Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.
Sorry lads….
————-
When did CA follow start following it’s laws for budgetary allocations? Oh yah when it passed prop 30 and promised to keep tuition down and no cuts to funding for schools and now that the prop has passed we have our “Pelosi version of pass it then find out” what’s in the bill and part of it’s going to the union trough.
Sorry kids.
http://www.utsandiego.com/news/2013/jan/12/state-workers-to-get-boost-from-budget/
LOL— You guys would complain if they hung ya with a new rope–
State gov has not been leaner in a loooong time with the last 2 years of cuts, tuition isn’t going up, state workers comp is getting leaner, pension reform passed, the budget may well be balanced– or close to it…..drone on…
Hey Ted,
Keep up the good work schooling these “chicken little” trolls!! LOL,THE SKY IS FALLING!!!!!!!! Funny they can’t stop talking about the 4 cities out of 245 plus in California that have filed for BK!! Hahahahahaha……..13.3% gain and only 3% of state funded for pensions….OHHHHHHHH MYYYYYYYYYY…
Forty-one percent of the State general fund budget is earmarked for public education, 12 percent for higher education, and 10 percent for corrections. The cost of pensions is about 3 percent of total State spending.
==
The pension costs for Education is in the K-12 budget Baby Einstein, that 41% you failed to count.
Thanks intheoc– I do what I can but there are a few slow learners ™ out here.
Ted Steele, Navigator says:
LOL— You guys would complain if they hung ya with a new rope–
State gov has not been leaner in a loooong time with the last 2 years of cuts, tuition isn’t going up,
==
UC likely to hike tuition for some grad programs
Tuition for law, nursing and other professional studies could go higher
http://www.latimes.com/news/local/la-me-0118-uc-budget-20130118,0,6004995.story
OMG this is so easy….like taking candy ffrom a teddy…errr…baby
I can clearly see the flamer here.
Tuition HAS gone up in the past 2 years, or were those kids all protesting because they didn’t? Jerry LIED about the use of the funds for prop 30 just to get it to pass, now some of those “school funds” are going for property acquisition for the non-high speed “bull s__t train.
How about the chancellors give up their $500,000 school supplied housing and take a 25% pay cut.
Too bad the Poodle didn’t read the whole article! LOL Oh My
0 for 14 ™!
Will it be 15 when the SB BK thing is over?????
http://taxdollars.ocregister.com/2013/01/16/calpers-investments-gain-in-calendar-year/165241/
Oh My !!! 0 for 14 (TM)!
To all you liberals. Stanford, a liberal institution, has said that Kali’s pensions are unfunded to the amount of 500 billion. Another study has it at closer to 800 billion. None of these budgets reflect or take into account this huge wall of debt.
Hondo….
Teddy, I own you (and your pea sized brain) lil buddy
LOL u certainly spend alot of time thinking about me!
lol 0 for 14 ™ !!
Own lil Teddy
LOL
I owe you rent for camping in your head this weekend!!!!!!!!!!
Hurry!!! Type RIGHT NOW little troll!!!! Quick!
0 for 14 ™!
More bankruptcies:
In Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. Article I. Section 1 All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. Section 2 The House of Representatives shall be composed of Members chosen every second Year by the People of the several States, and the Electors in each State shall have the Qualifications requisite for Electors of the most numerous Branch of the State Legislature.
Yes Martin. And your point? The Article 1 and bk connection?
And….Please leave out Article 3. Since CJ Roberts ruled on Obamacare (he does care!) The CWD posters and psuedo journos hate it!
thanks amigo!
Teddy, you wouldn’t the difference between Article 3 and an article in Mad Magazine
zzzzzzzzzzzz………..quick——-go Google Art 3 little buddy!
LOL…… you have no idea what ARTICLE 3 is you mental midget
Did you Google it yet little fella?
LOL (it’s so easy to put the Poodle in his place!)
Oh——– I forgot—–any comments yet on your pension roll back lawsuit or props 30 or 32 prediction failures yet??
I would love to read that while I eat breakfast and enjoy my man’s 2nd inaug,,,,,,,,,,,lol
0 for 14 ™ !
Did you copy n paste it??
So easy to put the trougher in his place- I have him spun up so tight he is making multiple posts about me. Within minutes of each other
Still no comment on your prediction failures? How could you have missed so badly on, for instance–
prop 30?
prop 32?
Cops pension rollback cases?
mmmmmmm 0 for 14 ™! You have to agree that’s a poor record……
Teddy, the sky fall in San Bernardino, didnt it???
LOL— That reminds me— I think that when the San Bdo bk case is over and the pensions are still intact, like they are now of course, you’ll be 0 for 15 ™! Sorry little buddy!!!!
Hurry!!! Type!!!!!
So there’s a good comment on your predictions! Good doggie!
Now—- how about a comment on how you could’ve been so wrong on the OC cops cases????
and prop 30
and prop 32!
I’m sure Calpers will return to high revenue levels once they “invest” $800 million of their fund in “infrastructure” projects.
I would guess the politicians are going to grab the rest of the dough in Calpers and give it to all the New Solyndras and the Van Jones’s of the state.
What could go wrong?
Teddy, when the SB BK case is over the GED cops will be taking 50% pension haircuts.
lol—- yet another famous Poodle prediction! 0 for 14 ™! so far for those out here on CWD tracking the little guy’s predictions!
Mark another date in the archives! It’s this easy!!
post now !!!
I do like that your making more predictions! It keeps me in business!
But still no comment on your last three losses?
Prop 30, 32, pension rollback lawsuits????
Cal Pers investments bounce back!
http://www.sacbee.com/2013/01/15/5114822/calpers-investments-bounce-back.html