You simply can't get good data for these. If a public company were to cook their books like the states do, someone would actually go to jail. This is a remarkable bar to reach, but the states are that wacky
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You simply can't get good data for these. If a public company were to cook their books like the states do, someone would actually go to jail. This is a remarkable bar to reach, but the states are that wacky.
They don't cook their books; it's just that there is a large difference between public sector accounting and private sector accounting, and further, cash method and accrual method. Any accountant will tell you this. Most often, people are trying to make the financial data for a state government operate in accordance with private sector accrual method, when they should actually be using public sector cash method. Accrual method should really only be used with corporations and LLCs.
I'm not talking about the method that is used to calculate revenue, I'm talking about the way they calculate the costs of their pension obligations. Specifically the discount rate that is used to determine how much money must be set aside to account for the future income guarenteed by the pensions. Currently California is using rates between 7.75 and 8 as their discount rate.
The real number they should be using is pretty easy to figue out, they are legally obligated to pay for the pensions, therefore they should use the same risk free rate that is used by the federal government, 4%.
For some reason, California applies a higher discount for pensions, that carries a legal obligation, than their bonds, which is not as protected. I don't setting a rate of return higher than it should be is anything other than cooking your books. This has allowed California to increase the amount paid to employees for smaller contributions. Unfortunately the tax-payers will have to cover the difference.
For some reason, California applies a higher discount for pensions, that carries a legal obligation, than their bonds, which is not as protected. I don't setting a rate of return higher than it should be is anything other than cooking your books. This has allowed California to increase the amount paid to employees for smaller contributions. Unfortunately the tax-payers will have to cover the difference.
I can bet money that the reason is in the CA constitution. CA has the peculiar practice of requiring funding in the form of constitutional amendments. I would bet that somewhere in the past, a proposition was put to the vote and approved that requires the CA state government to use a rate out of sync with everyone else.
Now having said that, I go to check my hypothesis. According to the CA state constitution, California is obligated by amendment to not have the option of defaulting on existing pension liabilities. So they have to pay up no matter what.
Neither my broker or the taxpayers are required to make up any difference between the expected high risk rate of return and what I actually earn, this is the big difference.
Using the rates provided, the states need to set aside about half as much to cover a pension as a private company would. It should throw up a red flag that it would be illegal for a private company to use rates such as these. This has allowed higher benefits for lower contributions. This, along with the obligation to cover pensions represents a transfer of about $3 trillion from taxpayers to public employees. The bail out of Wall Street was tiny compared to this, and almost all of that money was paid back.
Neither my broker or the taxpayers are required to make up any difference between the expected high risk rate of return and what I actually earn, this is the big difference.
I would say so. Unfortunately, being in the state constitution by voter-approved amendment (like Prop 8 and others), there's not much to be done about it. It's The Law.
It should throw up a red flag that it would be illegal for a private company to use rates such as these.
It wouldn't be illegal, just risky. As long as they advertise the risk properly there's no impediment to using such rates.
This, along with the obligation to cover pensions represents a transfer of about $3 trillion from taxpayers to public employees.
The highest estimate I've seen for the state of CA is $500 billion, which falls far short of that. Exactly where are you getting $3 trillion from?
I'm not blaming Prop 8, in most states, public employee pensions get priority by law. If this were just California, then you might blame Prop 8.
I also don't agree that there isn't much that can be done, this law was made, largely at behest of the public employee unions whose members benefited from it, it can be unmade.
Three trillion is the total for all states, not just California.
Also, I never said this was illegal, but then most of what Wall Street did was legal as well. This is the kind of stuff that will make the next crisis, we should use this crisis to make some changes.
Walker's actions have nothing to do with budgets, and everything to do with destroying the last big contributor to the Democrats. You're only deluding yourself if you believe otherwise.
so you agree that teachers should not be forced to donate close to $1,000 a year to a union that donates to democratic candidates virtually every election?
I agree that money should be completely taken out of the equation. I agree that this whole thing is nothing but a power grab, the GOP going for the throat and eliminating the last major contributor for their opposition.
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They don't cook their books; it's just that there is a large difference between public sector accounting and private sector accounting, and further, cash method and accrual method. Any accountant will tell you this. Most often, people are trying to make the financial data for a state government operate in accordance with private sector accrual method, when they should actually be using public sector cash method. Accrual method should really only be used with corporations and LLCs.
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The real number they should be using is pretty easy to figue out, they are legally obligated to pay for the pensions, therefore they should use the same risk free rate that is used by the federal government, 4%.
For some reason, California applies a higher discount for pensions, that carries a legal obligation, than their bonds, which is not as protected. I don't setting a rate of return higher than it should be is anything other than cooking your books. This has allowed California to increase the amount paid to employees for smaller contributions. Unfortunately the tax-payers will have to cover the difference.
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I can bet money that the reason is in the CA constitution. CA has the peculiar practice of requiring funding in the form of constitutional amendments. I would bet that somewhere in the past, a proposition was put to the vote and approved that requires the CA state government to use a rate out of sync with everyone else.
Now having said that, I go to check my hypothesis. According to the CA state constitution, California is obligated by amendment to not have the option of defaulting on existing pension liabilities. So they have to pay up no matter what.
And in this document, it appears the discrepancies are explained:
The source of ( ... )
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Using the rates provided, the states need to set aside about half as much to cover a pension as a private company would. It should throw up a red flag that it would be illegal for a private company to use rates such as these. This has allowed higher benefits for lower contributions. This, along with the obligation to cover pensions represents a transfer of about $3 trillion from taxpayers to public employees. The bail out of Wall Street was tiny compared to this, and almost all of that money was paid back.
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I would say so. Unfortunately, being in the state constitution by voter-approved amendment (like Prop 8 and others), there's not much to be done about it. It's The Law.
It should throw up a red flag that it would be illegal for a private company to use rates such as these.
It wouldn't be illegal, just risky. As long as they advertise the risk properly there's no impediment to using such rates.
This, along with the obligation to cover pensions represents a transfer of about $3 trillion from taxpayers to public employees.
The highest estimate I've seen for the state of CA is $500 billion, which falls far short of that. Exactly where are you getting $3 trillion from?
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I also don't agree that there isn't much that can be done, this law was made, largely at behest of the public employee unions whose members benefited from it, it can be unmade.
Three trillion is the total for all states, not just California.
Also, I never said this was illegal, but then most of what Wall Street did was legal as well. This is the kind of stuff that will make the next crisis, we should use this crisis to make some changes.
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Long live plutocracy.
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