I think my friend HD Palmer may protest too much. I am traveling and typing on a mobile device so with apologies in advance for typos, please note the following:

- HD’s reference to current employees in the context of a discussion about paying for unfunded liabilities is irrelevant and misleading. If tomorrow the state magically went from 260,000 to zero employees the state would still be paying for unfunded liabilities, which are debts relating to past employee services.

- I believe HD is saying that, because special funds will have to pay more pension costs in the future, the state could save money by getting a jump on those payments now. If so, he would be confirming my “skim” argument since, with an amendment, those profits could boost special fund balances. Instead, they propose to use them to finance unfunded pension liabilities, which are debts relating to past services and caused chiefly by manipulation of Normal Costs in favor of employees and to the detriment of citizens.

- Re the fig leaf: if (say) one has a $100 reserve fund that has been set aside to accelerate payments on $1000 of debts and then one decides to borrow another $50 and designate the same fund as the source of repayment for that new loan such that the $100 fund is now facing $1050 of obligations, what would you call that designation? If nothing else the designation of that fund to pay off new debt reduces the fund’s ability to pay off other debts.

- As for reliance upon the “projections” to which HD refers in his essay, I would remind observers of the state’s record in making projections and that citizens always get left holding the bag when those projections don’t pan out.

There’s more (eg, HD doesn’t address the governor’s promise of savings even though savings are not certain, the governor’s choice not to seek an actual pay down of pension obligations that, like a pay down of credit card balances, would terminate high rate interest expense, incomplete and deceptive disclosure of risks, the odds against CalPERS being able to compound $300 billion at 7 percent per annum for years to come, the relationship between interest rates and asset prices, the unfairness of using citizen-paid fees to cover up Normal Costs set artificially low for the benefit of pension beneficiaries, and the incentives of future governors and legislatures to defer repayment) but my thumb-typing has met its limit.

Written by

Lecturer at Stanford University and president of Govern For California

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