Taxable Talk

Last week, the California Public Employees’ Retirement System (CALPERS) released its rate of return for the past year. CALPERS budgets based on a 7.5% return per year. In a “Missed it by that much” moment, they came in at 0.61%. Oops.

But for California taxpayers it’s a real issue: California taxpayers will have to make up the shortfall. California State Senator John Moorlach (R-Costa Mesa) has the right idea: “Now we’re in Peter Pan territory. ‘You’ve just got to believe’… the stock market will rise more than 7.5 percent per year. You’ve just got to believe that interest rates will stay at zero indefinitely. You’ve just got to believe that real estate prices will continue to rise.”

Here’s the reality: Taxes must massively increase or state payrolls must massively decrease. Let’s add more taxes to the most heavily taxed state in the country; I’m sure that will go over well…especially just to pay pensions. Might even more of the middle class do what I did? (Hint: The answer is yes.)

Actually, the idea of cutting California government by 30% is wonderful. It also has a 0% chance of happening in California. A repeal of Proposition 13 would require approval by California voters; there’s a chance (albeit small) that could pass; if it did, it would guarantee more middle class departures from the state. On this year’s California ballot is an initiative to extend the “temporary” California tax hikes.

I hope no one wonders why I call California the Bronze State.

That line was used by the Orange County Register to describe the California Center for Public Policy’s report on Pensions and Employee Compensation. That’s scary.

Here’s a quote from the Register:

The report says that the state’s tax-paid pensions have made defacto millionaires out of most of California’s employees by the time they reach their late 50s. Meanwhile, public safety and other employees frequently pay less than half or none of their retirement benefits, says the report, “Reforming Public Employee Pensions and Compensation.”

Here’s the conclusion from the Report.

California faces three choices in the coming years to right its government fiscal imbalance at state, school district, county, and city levels–though usually only the first two are considered:
1) reduce services;
2) raise taxes, fees, and charges; or
3) pay public employees fair salaries, benefits, and pensions
The third choice is the preferred alternative to avoid either further and continually diminishing government services, or further and continually increasing taxes, or both. California’s budgetary crises would be resolved with more more public services and lower taxes if public employees were paid fair salaries, benefits, and pensions.

The full report is well worth your time as it succinctly describes the reality not just in California but in most states and locales in the country.