5 ms·

I have a feeling these graphs do more to explain the problems that Berkeley professor wrote about (http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-students/

by pg 16y ago

I have a feeling these graphs do more to explain the problems that Berkeley professor wrote about (http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-students/ http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-students...) than the explanations he proposed.

tomsaffell 16y ago
He being the Berkley professor, if I read right. (I had to read it a few times to parse..)
donaldc 16y ago
Since UCB gets state funding, this may make the professor and his pension a part of the very problem he (the professor) is complaining about.
- callmeed 16y ago
  And makes it more laughable that he framed his letter as "an apology"
  - timr 16y ago
    Remember, this is one side of the debate. There's a lot more to the story than you're reading here, so perhaps you should hold off on the laughter. I generally agree with the governor, but I also tend to believe that the state has to make good on past obligations -- especially when real people have planned their lives around those obligations. The 55-year-old retiree with fat benefits is a political straw man, but reality is much less clear.
shin_lao 16y ago
I was thinking exactly the same thing. In addition when you know an employee is going to cost you a lot of money in pension, the incentive to reduce the work force as much as possible is high. You end up in a situation where your budget is used to pay for the retired employees and you have nothing left for active employees. One of the reasons you are there is that it's pretty tempting for someone in command to offer a lot in pension. Under his command the budget remains clean and the employees are happy. That has got to ease elections! One way to avoid that would be to change the way the yearly budget is computed so that it includes "known future expenses" clearly.
- dantheman 16y ago
  Just don't allow future expenses.
  - _delirium 16y ago
    I could see some definite pros to that. I'm trying to think of problematic things that might also get banned as a result, and not thinking of a lot. One thing that'd get banned along with large pension promises, if that rule were applied consistently, would be golden parachutes.
- amalcon 16y ago
  So, in other words, the bottom line in the budget should be delta (assets - liabilities). This is how individuals are encouraged to do their own budgeting; how would it hurt to require the same of the state?
  - erikpukinskis 16y ago
    Isn't there a government office that calculates that stuff? The long-term fiscal impacts of each bill? I want to say it's the GAO, but I don't think it is.... it's driving me nuts!
    - gwern 16y ago
      There are, but it's very easy to fudge the numbers. For example, New York State is supposedly one of the best-funded state pension plans around, but if you change the predicted annual rate of return for the pension plan's investment from 8% to 5 or 6% IIRC, it's suddenly deep in the red. Small looking obscure change, big difference.
- jimbokun 16y ago
  "Under his command the budget remains clean and the employees are happy." Don't any of these places have accountants? Surely, there should be some requirement to recognize the future costs being taken on, properly discounted for net present value? Or am I just naive?
jerf 16y ago
This is the reason my replies on that topic focused so much on total outlay issues, rather than education spending directly, which seemed more directly on topic. I had a hard time expressing my logic, but it was pretty much the issue of the amount of spending on potentially useful things getting crowded out. It's easy to frame it in terms of people not wanting the government to have their money, and I felt the professor tried to establish that with some of his phrasing, but that's not the real problem that needs solving. The problem is allocation.
ericb 16y ago
I think this is a game theory problem. CEOs (looking at you, GM) and politicians up against tough unions have an easy out with no "cost" to themselves. They pass the buck by placating unions with pension concessions so all seems well during their tenure. Long after they've collected their bonuses or enjoyed reelection, someone else gets to deal with the unsustainable consequences.
- aswanson 16y ago
  One solution may be to have taxpayers directly vote on benefits for public servants...make the unions take on the people who will be paying for it rather than temporary placeholders with no real skin in the game.
  - dasil003 16y ago
    Assuming reasonably educated voters. But as we've seen in California, the ballot initiative process only helps the idea that can be distilled down to a compelling soundbyte and is championed by the deeper pockets. I'm afraid public employee compensation reform probably loses on both counts.
    - aswanson 16y ago
      Soundbyte. :)
      - natep 16y ago
        Soundbyte = 8 soundbits :)
  - houseabsolute 16y ago
    Or to require that the value of the benefits start being paid down in a sustainable way immediately. Only if those who are benefitting from the delayed benefits are required to fund them will this problem really be solved. In the private lending market we call this a downpayment.
MaysonL 16y ago
I have a feeling those graphs are more than a little fishy - the bottom one especially. Retirement costs went up ~5X from 2000 to 2010? And they'll go up by the same from 2010 to 2020? I call BS.
- spoiledtechie 16y ago
  Its not BS at all. Many states have problems with this. And if you even get close to state budgets at all which very rarely do citizens do, you will see this problem in more than just a few states and cities and even counties...
  - MaysonL 16y ago
    I agree that California and other state and local governments have a problem with pensions. What I'm saying is that the graph severely overstates the magnitude of the change in costs over the past and future decades.
    - farmerbuzz 16y ago
      Do you have some evidence to support this?
- CWuestefeld 16y ago
  It's a very reasonable number. Consider that there are three factors feeding this: 1. Increased promises to the public sector workforce. 2. The need to make up shortfall in the funding due to market declines. 3. The need to make up shortfall because the funding was insufficient to begin with, owing to accounting ... creativity.
  - MaysonL 16y ago
    And these three factors are going to continue for the next 10 years? I strongly doubt it.
  - recoil 16y ago
    You missed two other points: 4. The boomers are just now hitting retirement, so the number of people retiring in a given year is increasing (Actually, it'd be interesting if somebody could pull out some hard numbers on this - I've heard this spoken of anecdotally a lot lately). 5. Retirees are drawing on their pensions for longer because they have longer lives.
jbooth 16y ago
They do, and the biggest part of those projected costs is the healthcare for retirees. Many government insurance pools are self-insured, and old people consume a lot of healthcare. But the Berkeley professor is still right in a way. Every single dollar in future retirement pay or health benefits for a public employee was negotiated in good faith in exchange for lower pay right now, this year, so we can balance the budget. Throw in term limits and a little demagoguery and politicians have every incentive to cut a deal that balances the budget this year while kicking costs down the road. So when the Prof mentioned that for the last 30 years, our society has been taking out a loan for our kids to repay, he was still correct, especially when looking at these graphs.
vishaldpatel 16y ago
Found this in the comments to that prof's blog post: http://www.scribd.com/doc/36538677/1004-Bbg-Professors-and-Prison-Guards http://www.scribd.com/doc/36538677/1004-Bbg-Professors-and-P... Basically, yes - pensions are a problem. But the graph on the number of California gov't employees that lost their jobs vs. private sector employees may be misleading because we _need_ the public sector employees to service basic needs in the state, and California employs one of the lowest number of public sector employees per capita of any state.

by pg 16y ago

tomsaffell 16y ago

He being the Berkley professor, if I read right. (I had to read it a few times to parse..)

donaldc 16y ago

Since UCB gets state funding, this may make the professor and his pension a part of the very problem he (the professor) is complaining about.

callmeed 16y ago
And makes it more laughable that he framed his letter as "an apology"
- timr 16y ago
  Remember, this is one side of the debate. There's a lot more to the story than you're reading here, so perhaps you should hold off on the laughter. I generally agree with the governor, but I also tend to believe that the state has to make good on past obligations -- especially when real people have planned their lives around those obligations. The 55-year-old retiree with fat benefits is a political straw man, but reality is much less clear.

shin_lao 16y ago

I was thinking exactly the same thing. In addition when you know an employee is going to cost you a lot of money in pension, the incentive to reduce the work force as much as possible is high. You end up in a situation where your budget is used to pay for the retired employees and you have nothing left for active employees. One of the reasons you are there is that it's pretty tempting for someone in command to offer a lot in pension. Under his command the budget remains clean and the employees are happy. That has got to ease elections! One way to avoid that would be to change the way the yearly budget is computed so that it includes "known future expenses" clearly.

dantheman 16y ago
Just don't allow future expenses.
- _delirium 16y ago
  I could see some definite pros to that. I'm trying to think of problematic things that might also get banned as a result, and not thinking of a lot. One thing that'd get banned along with large pension promises, if that rule were applied consistently, would be golden parachutes.
amalcon 16y ago
So, in other words, the bottom line in the budget should be delta (assets - liabilities). This is how individuals are encouraged to do their own budgeting; how would it hurt to require the same of the state?
- erikpukinskis 16y ago
  Isn't there a government office that calculates that stuff? The long-term fiscal impacts of each bill? I want to say it's the GAO, but I don't think it is.... it's driving me nuts!
  - gwern 16y ago
    There are, but it's very easy to fudge the numbers. For example, New York State is supposedly one of the best-funded state pension plans around, but if you change the predicted annual rate of return for the pension plan's investment from 8% to 5 or 6% IIRC, it's suddenly deep in the red. Small looking obscure change, big difference.
jimbokun 16y ago
"Under his command the budget remains clean and the employees are happy." Don't any of these places have accountants? Surely, there should be some requirement to recognize the future costs being taken on, properly discounted for net present value? Or am I just naive?

jerf 16y ago

This is the reason my replies on that topic focused so much on total outlay issues, rather than education spending directly, which seemed more directly on topic. I had a hard time expressing my logic, but it was pretty much the issue of the amount of spending on potentially useful things getting crowded out. It's easy to frame it in terms of people not wanting the government to have their money, and I felt the professor tried to establish that with some of his phrasing, but that's not the real problem that needs solving. The problem is allocation.

ericb 16y ago

I think this is a game theory problem. CEOs (looking at you, GM) and politicians up against tough unions have an easy out with no "cost" to themselves. They pass the buck by placating unions with pension concessions so all seems well during their tenure. Long after they've collected their bonuses or enjoyed reelection, someone else gets to deal with the unsustainable consequences.

aswanson 16y ago
One solution may be to have taxpayers directly vote on benefits for public servants...make the unions take on the people who will be paying for it rather than temporary placeholders with no real skin in the game.
- dasil003 16y ago
  Assuming reasonably educated voters. But as we've seen in California, the ballot initiative process only helps the idea that can be distilled down to a compelling soundbyte and is championed by the deeper pockets. I'm afraid public employee compensation reform probably loses on both counts.
  - aswanson 16y ago
    Soundbyte. :)
    - natep 16y ago
      Soundbyte = 8 soundbits :)
- houseabsolute 16y ago
  Or to require that the value of the benefits start being paid down in a sustainable way immediately. Only if those who are benefitting from the delayed benefits are required to fund them will this problem really be solved. In the private lending market we call this a downpayment.

MaysonL 16y ago

I have a feeling those graphs are more than a little fishy - the bottom one especially. Retirement costs went up ~5X from 2000 to 2010? And they'll go up by the same from 2010 to 2020? I call BS.

spoiledtechie 16y ago
Its not BS at all. Many states have problems with this. And if you even get close to state budgets at all which very rarely do citizens do, you will see this problem in more than just a few states and cities and even counties...
- MaysonL 16y ago
  I agree that California and other state and local governments have a problem with pensions. What I'm saying is that the graph severely overstates the magnitude of the change in costs over the past and future decades.
  - farmerbuzz 16y ago
    Do you have some evidence to support this?
CWuestefeld 16y ago
It's a very reasonable number. Consider that there are three factors feeding this: 1. Increased promises to the public sector workforce. 2. The need to make up shortfall in the funding due to market declines. 3. The need to make up shortfall because the funding was insufficient to begin with, owing to accounting ... creativity.
- MaysonL 16y ago
  And these three factors are going to continue for the next 10 years? I strongly doubt it.
- recoil 16y ago
  You missed two other points: 4. The boomers are just now hitting retirement, so the number of people retiring in a given year is increasing (Actually, it'd be interesting if somebody could pull out some hard numbers on this - I've heard this spoken of anecdotally a lot lately). 5. Retirees are drawing on their pensions for longer because they have longer lives.

jbooth 16y ago

They do, and the biggest part of those projected costs is the healthcare for retirees. Many government insurance pools are self-insured, and old people consume a lot of healthcare. But the Berkeley professor is still right in a way. Every single dollar in future retirement pay or health benefits for a public employee was negotiated in good faith in exchange for lower pay right now, this year, so we can balance the budget. Throw in term limits and a little demagoguery and politicians have every incentive to cut a deal that balances the budget this year while kicking costs down the road. So when the Prof mentioned that for the last 30 years, our society has been taking out a loan for our kids to repay, he was still correct, especially when looking at these graphs.

vishaldpatel 16y ago

Found this in the comments to that prof's blog post: http://www.scribd.com/doc/36538677/1004-Bbg-Professors-and-Prison-Guards http://www.scribd.com/doc/36538677/1004-Bbg-Professors-and-P... Basically, yes - pensions are a problem. But the graph on the number of California gov't employees that lost their jobs vs. private sector employees may be misleading because we _need_ the public sector employees to service basic needs in the state, and California employs one of the lowest number of public sector employees per capita of any state.