The Big Lie at the Little Hoover

How far do you have to get into the Little Hoover Commission report on pension reform to start questioning its results?

How about the graph on page ii that shows the percentage of funding of major pension funds in California.

It looks pretty bad, but then when you look closely, the numbers just don’t look right.

CalPERS, the last time I looked, had around 230 billion dollar invested in a broad portfolio of assets, but the handy chart that shows that CALPers is only 61% funded has a value on the graph that looks like it’s around 180 billion.

A quick check of the footnotes shows that the chart was based on numbers from the end of the fiscal year 2008-2009, not the most recent fiscal year.

How important is that?

Well, the value of CALPers investments as of June 30th, 2009 was $178.9 billion. By the date that the Little Hoover report was released, that number had increased by 50 billion dollars. Even using numbers from the end of FY 09-10 would have been much more honest, but the rebound from market bottoms is only mentioned in passing in the body of the report.

This is not a trivial difference, and CALPers is not unique in posting large gains since the market bottom. CALStrs is the second largest pension fund in the state and covers teachers and community college professors. Since March 2009, when markets bottomed after a global financial Great Recession, the CalSTRS investment portfolio has rebounded by more than $34.8 billion to $146.4 billion.

Little Hoover = Big Lie.

More on this later.

16 thoughts on “The Big Lie at the Little Hoover”

  1. Never before has the Little Hoover Commission deserved its name so much — though even Herbert Hoover would be embarrassed to put his name on this mess of a report.  In the midst of the biggest downturn since the Depression, the LHC would push people down further and harder, thereby extending and deepening the economic crisis.  The LHC recommends violating the law, breaking binding contracts, and destabilizing confidence in the trustworthiness of the state.  What nonsense.  Did the Commission consider the fact that persons making $50,000 pay the same state income tax rate as persons making up to $1 million?  Do you think this don’t-burden-the-rich tax regime may have something to do with the state’s lack of revenue?  Don’t bother the LHC with such thoughts — their only solution is to break faith with working people and smash their careers and retirements — people who have a fraction of the wealth of the billionaires whose share of national income, in both absolute and relative terms, has skyrocketed in the last 20 years.  How sad that the LHC has chosen to become yet another warrior for the rich.  

  2. From CalPERS Winter 2011 newsletter:

    “Investments Gain 13.3 Percent

    Beating market bencvhmarks, CalPERS earned 13.3 percent on investments in the fiscal year that ended June 30, 2011.

    Audits showed a gain of $500 million over preliminary estimates last July…

    Overall, the Fund’s market value of $200.5 billion for the fiscal year was $40 billion more than the CalPERS turn-around from the lowest point of the Great Recession in March, 2009.  Returns beat the benchmark of 12.95 percent and eclipsed the performance targets for every asset class except real estate.

    The overall return was almost 6 percentage points higher than the assumed rate of return of 7.75 percent for adequate funding of retirements.  It brought the 20-year return average throught June 30, 2010 to 7.65 percent.”

    The article goes on, but to paraphrase Mark Twain, “The rumors of CalPERS demise are greatly exaggerated.

  3. CalPERS has assets with a market value of $228.8 billion as of 2/24/11.  The assets have grown nicely in the past year.  However, CalPERS future liabilities are almost $300 billion.  So currently CalPERS is in a $70 billion hole.  The assets will not cover the future pension and disability payouts.

    What proposal should we get behind?  A $70 billion hole is h-u-g-e and this is just CalPERS.  Rather than complain- something we do very well- can someone with some knowledge in these matters come up with a different (and hopefully better) solution?  I prefer to be part of the solution, rather than the problem.

    I should also point out that there are 6 Democrats on the Little Hoover Commission, including the Chairman, Daniel Hancock; Assemblymenber Alyson Huber D- El Dorado Hills; and State Senator Michael Rubio D- East Bakersfield.  They each approved of this report.  Shouldn’t these folks be coming under some fire for this report?

  4. “However, CalPERS future liabilities are almost $300 billion.”

    Projected liabilities are very sensitive to the discount rate used.  My guess is that the LHC used today’s low rates in calculating the liabilities.  If and when interest rates rise, future liabilities will decrease.

    As an aside, this is why the whole hue and cry over pensions is a little overwrought.  LHC, etc. have chosen to look at pension funding at a time when asset values were low (because the stock market had crashed) and interest rates were also very low.  My guess is, if long-term interest rates were to go back to 7%, the underfunding would mostly disappear.

  5. several very obvious solutions come to mind, 1)raise the top marginal tax rates on California’s billionaires and mega-millionaires, 2) impose a state tax on estates valued at over $5 million to compensate for the failure of the federal government to do this, 3) impose an oil excise tax.

    In a decent civilized society works, nobody gets as rich as today’s plutocrats while others go without.  If you don’t get this, then there is truly something wrong with you.

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