State Spending Cap Initiative: Is It for Real?

Related to the prior post is a second initiative - also one that was submitted in connection with GOP legislative negotiations with the governor - that would cap state expenditures based on a formula linked to inflation and population growth. As with the pension initiative, it is unclear whether there is funding to obtain the needed signatures.

This initiative in effect proposes to return to the Gann limit that was approved by voters in 1979 as the "son of Prop 13" that had been approved the year before. The Gann limit on state spending was largely gutted by Prop 98 of 1988, which provides funding to K-14 education, and a related later initiative. Under the new proposed initiative, the Gann limit would be lowered so that it would likely pinch as the economy recovered. From the UC perspective, therefore, the likelihood that economic recovery would provide aid to the UC budget would be reduced.

The text of the initiative is at http://ag.ca.gov/cms_attachments/initiatives/pdfs/i937_initiative_11-0006.pdf

The Legislative Analyst's analysis of the new initiative is at http://www.lao.ca.gov/ballot/2011/110297.pdf

Below is an excerpt from that analysis:

Summary of Fiscal Effects

This measure would result in the following major fiscal effects:

* Revised spending limit likely would constrain state spending below levels that otherwise would have occurred. Also, over time the percentage of the state budget devoted to education expenses likely would increase, and the percentage devoted to most other areas likely would decrease. The measure would also likely increase the level of state resources going to the state reserves, payment of certain debts, infrastructure spending, and tax rebates.

* Possible reduction in the amount of new bond debt that could be sold to fund infrastructure projects, particularly in the short-term.

Pension Initiative Advances Toward Petition Stage But Is It For Real?

When initiatives are filed, the Legislative Analyst’s Office (LAO) provides an analysis, primarily of budgetary implications. Readers of this blog will know that an initiative was filed – apparently as part of the negotiations strategy of Republican legislators with the governor – which would put certain limits on public pensions.

The LAO has now provided an analysis. The initiative would affect both new hires and current employees with regard to an increase in the minimum age of retirement. It is pointed out in the LAO’s analysis that this provision might well be illegal.

The initiative also sets a 60% cap on pensions for new hires. While not illegal, that cap, if applied to UC, would substantially curtail pensions for new hires relative to what the Regents approved last December.

Whether this particular initiative has the funding behind it to gather the needed signatures, typically at a cost of $1-$2 million for commercial signature-gathering firms, is unknown. Many initiatives are filed (it only costs $200 to do so) but never make it to the ballot. Nonetheless, as repeatedly stated on this blog, UCOP and the Regents need to involve themselves in the evolving political process. It goes without saying that the pension system imposed by the initiative would not work for UC.

The initiative text is at http://ag.ca.gov/cms_attachments/initiatives/pdfs/i938_initiative_11-0007_amdt_1ns.pdf

The LAO analysis is at http://www.lao.ca.gov/ballot/2011/110298.pdf

Below are excerpts from the LAO analysis on the legal issue:

Background. Article I, Section 10 of the U.S. Constitution prohibits any state from passing a "law impairing the obligation of contracts." As with the constitutions of some other states, the California Constitution also prohibits the legislative branch of California's government from passing any law impairing the obligation of contracts. These clauses are known as the "Contract Clauses" of the U.S. and State Constitutions, respectively.

Provides Certain Protections Concerning Public Employee Retirement Benefits. In various instances over the past century, California governments have made attempts to alter or reduce pension benefits for current and past employees and to reduce payments to pension systems. In a number of cases, California courts have held that such actions violated the Contract Clauses of the U.S. and/or State Constitutions. In a number of cases, California courts have held that a public employee's pension constitutes "an element of compensation," that a "vested contractual right to pension benefits accrues upon acceptance of employment," and that such a pension right "may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity." California courts have ruled that allowable modifications to pension systems for current and past employees, when they result in a "disadvantage to employees," generally must be accompanied by "comparable new advantages." For example, a reduction of one part of the benefit must be accompanied by some other "advantage" to the employee or retiree. The contractual protections apply to various aspects of the pension benefit and also have applied to certain commitments of governments to contribute to pension systems each year. In general, this means that California courts have declared that it is difficult to modify or alter public employee pension benefits to reduce governmental costs unless that change is accompanied by comparable new advantages for affected public employees and retirees…

Likely to Be Challenged in the Courts. This measure does not appear to provide a comparable new advantage for existing employees to offset the possible changes to the retirement age described above. Accordingly, it is likely that this part of this measure—reducing retirement benefits for existing public employees—would be challenged in the courts. This measure states that its various provisions are "severable," meaning that if one part of the measure is held invalid by the courts, this would not affect the other parts of the measure that can still be put into effect.

Chancellor Block Radio Interview on the UCLA Budget

On May 4, Chancellor Gene Block was interviewed on "Which Way LA?" concerning the UCLA and higher ed budget. He had written an op ed in the LA Times with the charge that folks in the legislature who had benefited personally from subsidized California educations were not adequately providing funding now. In his radio interview, he took a softer line.

You can hear the program at the link below. The Block portion runs from minute 7 to minute 14:17:

UC Pension Swept In (and away?)

As noted in a prior post, an organization known as the “California Foundation for Fiscal Responsibility” issued a study yesterday on public pensions. UCRP is included in the study but is not discussed. As often noted on this blog, that has been a general problem of discussions of the pension issue in California.

UC is swept in but, at the same time, its special features are neglected and the focus is instead on CalPERS and other plans. In the frenzy over public pensions – with possible ballot initiatives (or possibly some deal on the state budget that would involve pensions – the December Regents’ modification of UCRS could be overridden.

Most of the discussion in the study focuses on other state and local pension plans. The general theme is that public employees in California are somewhat overpaid, mainly because retirement benefits are substantially higher than in the private sector.

Thestudy then looks at two alternatives. One involves a pension cap based on Social Security which would currently be around $80,000, along with restrictions on retiree health care. The other involves conversion to a defined contribution plan. Both would apply to current employees as well as new hires. A slide show based on the study can be read at:

Open publication - Free publishing

Chapter 1 of the study can be read at http://issuu.com/danieljbmitchell/docs/fritz-pension-chapter_1?viewMode=magazine

Chapter 2 can be read at http://issuu.com/danieljbmitchell/docs/fritz-pension-chapter_2?viewMode=magazine

Bios of the study authors are at http://issuu.com/danieljbmitchell/docs/fritz-pension-bios-genest-williams-peters?viewMode=magazine

Yours truly has uploaded these documents because items put on the web sometimes disappear or are modified. The original source is http://www.fixpensionsfirst.com/comparing-public-and-private-employee-compensation-and-retirement-benefits-in-california/

(Also at that source is the press release accompanying the report that was reproduced in the blog yesterday.)

Sweeping generalizations about public pensions do not focus on the specific needs of UC. Sweeping can be dangerous:

Texas A&M Alumni Complain About Political Interference

Inside Higher Ed pointed to the development reported below in the Houston Chronicle on the attempt by Texas Gov. Perry (right) and a management consultant to impose a faculty evaluation system at the U of Texas and Texas A&M. Prior posts on this blog have pointed to the issue:

Signaling the spread of a roiling controversy, 22 "distinguished alumni" at Texas A&M University on Tuesday criticized higher education reforms advocated by Gov. Rick Perry and an influential campaign contributor as "naïve … proposals from inexperienced individuals."

The "Open Letter to the Texas A&M University Community" criticized the proposals of Jeff Sandefer, an Austin businessman and architect of the "Seven Breakthrough Solutions," which have been championed by Perry as a means of making higher education more cost-effective. Sandefer, who has contributed nearly $450,000 to Perry's campaigns, sent his own mass email this week defending his ideas as a pathway to "a superior education at a far lower cost." ...

"It is our opinion that several of these proposals will do significant damage," the alumni wrote. "We encourage you to ask the Board of Regents to end their well-known support for the seven proposals. We call on you to ask the board of Regents to resist inappropriate political intervention …"

In response to one of the "seven solutions" promoted by Perry and Sandefer, Texas A&M published an online ranking of professors on their "productivity" based on the number of students they taught. The ranking earned the university a rebuke from the prestigious Association of American Universities, an organization of the nation's top research institutions...

Full article at http://www.chron.com/disp/story.mpl/metropolitan/7549024.html

UC Pension Plan May Be Targeted Today

A group whose funding sources are cloudy - the California Foundation for Fiscal Responsibility - plans a grand unveiling today of a study on pension funding in California. The report below indicates it covers California's 5 biggest pension funds. After CalPERS and CalSTRS, UCRP is the 3rd largest at the state level.

As numerous posts on this blog have indicated, ballot initiatives aimed at capping pensions could affect UC and override the Regents' action on the UC pension taken last December. UC could be swept into some statewide initiative even if it is not a central target of the study.

From the LA Times 5-5-11:

Pension benefits for hundreds of thousands of state workers would be reduced 25% to 40% under two proposals that have become the focal points for what could become a costly and bruising ballot fight over retirement funding.

In a new financial analysis estimating the cutbacks, the nonprofit California Foundation for Fiscal Responsibility warned that rising costs of public employee pensions and retiree healthcare could overwhelm the ability of taxpayers to fund many basic health, welfare and public safety services.

"Public employees are getting far more benefits than those in the private sector," said Marcia Fritz, the foundation's president, adding that voters are "fed up." "The upshot," she said, "is going to be a huge fight" — an initiative contest that will be followed closely nationwide.

According to the study, to be released Thursday, California's five biggest pension funds are in precarious financial conditions. Last year, they had only enough money to cover 61% to 74% of their obligations to current employees...

Full article at http://www.latimes.com/business/la-fi-pension-overhaul-20110505,0,7054972.story

On the funding of the group producing the study:

An unknown out-of-state foundation has become a substantial backer of an ambitious nonprofit group that is positioning itself at the center of the state's debate over public pensions.

Democratic consultant Marcia Fritz, who runs the nonprofit Californians for Fiscal Responsibility, first mentioned at a San Francisco forum last month that the group had received a substantial contribution from an out-of-state foundation. She said the money will be used to research several competing pension plans that are being proposed this year...

Fritz confirmed to California Watch that she does not intend to reveal the identity of the anonymous donor but said the funding came from a foundation, not an individual, and that her group won it in open competition. The group plans to use the funding to present research reports and create Web-based tools evaluating the competing reform plans...

Full article at http://californiawatch.org/dailyreport/secret-out-state-donor-powering-pension-reform-group-9534

Update: Public sector unions have mounted a reverse campaign on pensions, e.g., http://dontscapegoatus.com/ and http://www.sacbee.com/2011/05/05/3602892/state-worker-with-pensions-under.html

UC's special needs can easily get lost in the cross-fire. UCOP and the Regents need to get involve sooner rather than later on this issue.

Further Update: calpensions.com reports the following on the soon-to-be-released study:

The study was done by Capital Matrix Consulting (Mike Genest, Brad Williams and Jay Peters) for the California Foundation for Fiscal Responsibility (Marcia Fritz) under a $150,000 grant from an undisclosed out-of-state source.

[Editor's note: Genest was Finance Director under Gov. Schwarzenegger. Williams was with the Legislative Analyst's Office.]

Full article at http://calpensions.com/2011/05/05/public-vs-private-pension-study-the-gap-widens/

Still Further Update: The official press release for the study oddly suggests interested to get in touch with the LAO. Below is the release text. Scroll down for the relevant text in bold:

Study Compares Public, Private Employee Compensation and Retirement Costs
May 5, 2011

FOR RELEASE: May 5, 2011

CONTACT: Marcia Fritz
916.966.9366 begin_of_the_skype_highlighting 916.966.9366 end_of_the_skype_highlighting
Marcia@FixPensionsFirst.com

Retirement Costs Inflate State, Local Budgets
CHP, Prison Guard Benefits Often Worth $2 Million per Officer
Teachers pay more for pensions, collect less than most public employee

SACRAMENTO – State and local government employees in California earn similar salaries as their counterparts in the private sector, but generous retirement benefits push total compensation costs significantly higher than what California’s largest companies spend, according to a study released today.

California’s largest employers typically spend less than one-third what state taxpayers spend on employee pensions and retiree health benefits. A state employee earning $60,000 annually will accumulate pension and retiree health benefits valued at $19,000 a year. A comparably paid employee of a large California company will receive retirement benefits worth less than $6,000.

California’s 2011-12 state budget includes $6 billion for the major state retirement plans. The study compares only the employers’ cost of benefits; it does not include the value of contributions employees make to their retirement plans.

“If taxpayers spent what California’s top companies spend on employee retirement benefits, the state would have $3 billion more this year for schools, public safety and other essential services,” said Marcia Fritz, CPA, president of California Foundation for Fiscal Responsibility, which sponsored the study. “The rationale for generous public pensions used to be that public employees accept lower salaries, but that doesn’t withstand scrutiny any longer.”

“Governments can’t manage their budgets when they can’t adjust wages and benefits to changing economic conditions,” said Michael Genest, former state finance director and principal of Capitol Matrix, which authored the study. “This is a fundamental public policy question that California must resolve to regain control of its financial future.”

State retirement benefits are generous, but they are far more generous for some employees. Prison guards and California Highway Patrol officers can retire seven years earlier than teachers with benefits that are 77 percent higher. Prison guards and CHP officers also collect larger benefits than FBI agents and other federal law enforcement officers. A 53 year-old California public safety employee with 26 years service and an annual salary of $140,000 will be entitled to retirement benefits valued at $2.2 million, according to the financial analysis. A federal agent’s benefits would be worth $1.6 million.

“Teachers’ retirement plans were designed for teachers who retire after 30 years in the classroom,” Fritz said. “Today’s teachers are more likely to work ten years and leave to start a family or a new career. Some enter the teaching profession in the middle or later stages of their careers. A teacher who spends eight years in the classroom at a young age leaves with retirement benefits that are worth less than the teachers’ own contributions to his/her own plan. In the same period, a comparably paid local government employee has accumulated benefits worth $58,000.”

Brad Williams, former chief economist for the Legislative Analysts’ Office and principal author of the report said, “Salaries and benefits paid to local government employees are generally higher than the salaries and benefits paid to state government and private sector employees. There is also a striking difference in the value of retirement benefits provided to career employees. A local government employee who begins a career at age 27 with a $45,000 starting salary and receives normal wage increases can retire at age 57 with retirement benefits totaling almost $1.2 million. A similarly situated teacher will receive $500,000 and an employee of a large corporation less than $400,000.”

“Pension reform doesn’t mean retirees must lose benefits. Public employees will always keep what they’ve earned,” Fritz said. “But reform is desperately needed to reverse the course that has produced pension debt our grandchildren’s grandchildren will be paying for. A state constitutional amendment aligning public and private retirement benefits will save billions of dollars now and into the foreseeable future.”

###

Reporters are invited to contact Jason Sisney, director of state finance at the Legislative Analysts’ Office, who was provided with an advance copy of the report. Call him at 916.319.8361 or email Jason.Sisney@lao.ca.gov

Please visit www.FixPensionsFirst.org for:
Capital Matrix Study
Slide presentation
Research team bios
Government, academic and private studies
Public opinion polls, local election results
Recent news
$100,000 Pension Club
Latest reform proposals

Source: http://www.fixpensionsfirst.com/2011/05/study-compares-public-private-employee-compensation-and-retirement-costs/

More Update: A clarification regarding the LAO was subsequently sent out:

*** MEDIA ADVISORY ***
May 5, 2011 at Noon

Clarification: Questions from reporters suggest there may be confusion about CFFR’s recommendation to contact the LAO for a reaction to the report. CFFR did not mean to imply that the LAO played any role whatsoever in the development of the report. The LAO was provided with an advance copy in anticipation of media inquiries, and CFFR did not mean to imply any endorsement by the LAO of the report, its methodology
or its findings.

More Information: Visit www.FixPensionsFirst.org to find:

· Capitol Matrix financial analysis
. Today’s slide presentation
· Today’s news release
· Bios on the research team
· Government, academic, foundation studies on public pensions
· Latest news
· $100,000 Pension Club
· Latest pension reform proposals

Contact: Sarah@FixPensionsFirst.com
916.410.7506

Reality (TV) at UC-Riverside

Some time back, before “reality” TV became popular, BBC had a program in which the CEO of a firm or organization would visit worksites and perform regular jobs to see what was really happening. For an example, see http://www.youtube.com/watch?v=EfdW6mgBEG0. (In that excerpt, the CEO of a fast food chain in the UK visits a local restaurant.) Canadian broadcasting later made a similar series.

Now that reality TV is much in vogue, CBS has “Undercover Boss” which is based on the same premise. However, in the CBS version, the CEO fixes the various problems discovered, hands out money and benefits to employees, and the episodes often end tearfully.

The chancellor of UC-Riverside, Timothy White, was featured on the program on May 1 (although the West Coast version may have been pre-empted by the Osama Bin Laden presidential media announcement). The chancellor visits a chemistry professor, a student library assistant, a track coach, and a student tour guide. Typically, in the show, the CEOs are somewhat bumbling in trying to do ordinary jobs and so it was in this episode.

You can see the episode (with commercials) at http://www.cbs.com/primetime/undercover_boss/video/?pid=d7kArzbx9jnyYNiHkEA8_EhGo2Akeg9E

The tour guide at the end receives a scholarship and both cry – the guide because her father in is a coma after a car accident and the chancellor because his father died in a car accident.

Update: UC-Riverside's PR guy comments on the above at:
http://www.insidehighered.com/views/2011/05/05/grant_on_the_chancellor_who_became_an_undercover_boss