LOOMING PENSION PAIN--The Jerry Brown administration last week released its revised May budget and, lo and behold, it has finally decided to (kind of, sort of) tackle the state’s massive and growing level of unfunded liabilities – i.e., the hundreds of billions of dollars in taxpayer-backed debt to fund retirement promises made to the state’s government employees. 

It’s best to curb our enthusiasm, however. The governor didn’t have much of a choice. This was the first state budget that is compliant with new accounting standards established by the Governmental Accounting Standards Board that requires states to more properly account for retiree medical and benefits beyond pensions. 

Because of those new standards and low investment returns, the state’s unfunded liabilities (including the University of California retirement system) soared by an astounding 22 percent since last year. But even this new estimate of $279 billion in liabilities is on the optimistic side. Some credible estimates pin California state and local governments’ pension liabilities at nearly $1 trillion, based on more realistic rate-of-return predictions. 

The pension system invites eyes-glazing-over debates about the size of the liability. That’s because debts are calculated on guesswork about future investment earnings. The California Public Employees’ Retirement System (CalPERS) recently voted to lower its predicted rates from 7.5 percent a year to 7 percent. The lower the predicted rate, the higher the liabilities, which is why CalPERS and the state’s unions are so bullish on Wall Street. 

CalPERS’ latest investment returns were below 1 percent, but the agency insists there’s nothing to worry about and no need to do the unthinkable (reduce future benefit accruals for current employees.) That’s the same CalPERS, of course, that in 1999 assured the Legislature that a 50-percent retroactive pension increase wouldn’t cost taxpayers a dime.  I suppose CalPERS was right. It didn’t cost a dime, although it did cost many billions of dollars. Their returns were then yielding 13.5 percent a year, and CalPERS figured the heyday would go on forever. 

The other reason to be skeptical of the Brown administration’s commitment to solving the problem can be found in the May revise itself. The budget “includes a one‑time $6 billion supplemental payment” to CalPERS, according to the Finance Department. “This action effectively doubles the state’s annual payment and will mitigate the impact of increasing pension contributions due to the state’s large unfunded liabilities.” 

Where is the extra $6 billion coming from in a budget that supposedly is so pinched that the governor recently signed a law raising annual transportation taxes by $5.2 billion? 

Simple. The state is borrowing the money to pre-pay some of its debt. “The additional $6 billion pension payment will be funded through a loan from the Surplus Money Investment Fund,” according to the budget summary. “Although the loan will incur interest costs (approximately $1 billion over the life of the loan,) actuarial calculations indicate that the additional pension payment will yield net savings of $11 billion over the next 20 years.” 

In other words, the state will be borrowing the money at fairly low interest rates and then investing the money and earning, it hopes, higher rates. The difference will help pay down some of those retirement debts. Even the well-known pension reformer, Sen. John Moorlach, R-Costa Mesa, lauded the administration for embracing that idea. 

But it’s something of a shell game. It should work out well, provided the markets do as well as the state expects. In doing this, however, the state is taking out new debt that will need to be repaid. There’s no free money here. A number of localities have embraced a similar strategy with pension-obligation bonds, which are a form of arbitrage, in which the government is borrowing money and betting on future market returns. 

This gimmick is similar to the one people will embrace in their personal lives. Are those credit-card debts crushing the family budget? Then borrow money from the home-equity line of credit at 5 percent and use it to pay down the 10-percent credit card loans. It makes sense, but it doesn’t deal with the real problem of excessive consumer spending. 

“This is the Band-Aid,” said Dan Pellissier, a former aide to Gov. Arnold Schwarzenegger and well-known state pension reformer. “The surgery everyone is trying to avoid is on the California Rule – changing the benefits public employees receive in the future.” 

When it comes to pensions, everything comes back to that “rule,” which isn’t a rule but a series of court precedents going back to the 1950s. In the private sector, companies may reduce pension benefits for their employees in the future. An employee can be told that, starting tomorrow, she will accrue pension benefits at a lower rate. The California Rule mandates that public employees, by contrast, can never have their benefit levels reduced. 

That limits options for reform. In 2012, Gov. Brown signed into a law the Public Employees’ Pension Reform Act (PEPRA), which promised to address the pension-debt problem by primarily reducing benefits for newly hired employees. A reform that affects new hires will reduce contribution rates but won’t make an enormous difference until they start retiring. 

“Gov. Jerry Brown’s attempt at pension reform has failed,” opined Dan Borenstein, in a recent East Bay Times column. The reason: the rapidly growing pension debt. “The shortfall for California’s three statewide retirement systems has increased about 36 percent. Add in local pension systems and the total debt has reached at least $374 billion. That works out to about $29,000 per household.” 

CalPERS rebutted Borenstein by arguing that he “greatly oversimplifies and needlessly discounts the real impact that Governor Brown’s pension reform has had since it took effect in January 2013.” The pension fund insists, “PEPRA already is bending the pension cost curve – and will keep doing so with greater impact every year going forward.” 

Yet the growing liabilities and the administration’s latest budget plan suggest that whatever minimal cost savings PEPRA is achieving aren’t nearly enough. Of course, union-controlled CalPERS’ goal isn’t protecting taxpayers or the state general fund – it is to enhance the benefits of the state workers whose pensions it manages. 

As Calpensions explained, that $6 billion of borrowed money doubles the amount of general-fund dollars that the state is paying to deal with pension obligations. Meanwhile, as the state borrows money to pay that tab, it raises taxes to fund transportation. If Brown and the Legislature had trimmed pension costs, it would not have needed to raise gas taxes and the vehicle license fee. And the problem reverberates for local governments, too. 

The May revise also showcased the same old issue with the administration’s priorities. Los Angeles Times columnist George Skelton noted that “Brown’s entertaining rhetoric itself made him sound, as usual, like a skinflint, a penny-pinching scold. But the introductory document could have been written by Bernie Sanders, if not Depression-era Socialist Upton Sinclair, the losing 1934 Democratic candidate for governor who ran on the slogan ‘End Poverty in California.’” 

The budget championed myriad big-spending programs, including higher pay for public employees. So the state has been spending like crazy, but can’t manage to deal with its pension problem – at least not without borrowing money to temporarily paper over its growing debt. 

All these games are about avoiding dealing with the obvious fact that California’s public-employee pensions are absurdly generous, filled with costly and anger-inducing features (spiking, double-dipping, liberal disability retirements, etc.) and unsustainable. 

In 2011, the state’s official watchdog agency, the Little Hoover Commission, argued to the governor that “Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.” Six years later, the governor is still just chipping away at the edges by embracing gimmicks.

(Steven Greenhut is a contributing editor to the California Policy Center, on whose website this piece originally appeared. He is Western region director for the R Street Institute. Write to him at [email protected].) Prepped for CityWatch by Linda Abrams.

NEIGHBORHOOD POLITICS--In the four plus decades I have lived in Los Angeles, I’ve seen the huge impacts on our community -- both positive and negative – of liquor stores, markets, and other retail alcohol establishments. We have many responsible and conscientious business owners that sell alcohol. But not all sellers are in that group. 

Being able to manage how these businesses sell and serve alcohol is crucial, particularly considering the endless influx of more alcohol-related businesses into our crowded neighborhoods. 

There are currently over 900 applications for new alcohol licenses in the City of Los Angeles. The challenge here is that the city and the state rarely if ever deny alcohol license applications. The state cannot provide any real monitoring of problems stemming from these establishments and the city has recently shut the door on public input concerning the acceptable practices of these licensees.

Most of us in LA have felt alcohol’s impact in one way or another. 

No one enjoys having to step over someone who is passed-out on the sidewalk while en route to their morning coffee or their children’s afternoon theater performance. Nor do people like having their late night sleep ruined by loud music with folks screaming outside their window or seeing bunches of after-party red cups strewn throughout the neighborhood on a morning walk. 

For years, committed community members, including LAPD and neighborhood councils, have worked with new business operators, sometimes for months, to reach mutually agreed upon operating standards for alcohol sales, known as “alcohol-specific conditions.” This created a platform for dialogue between alcohol retailers and the community and a means of insuring a neighborhood’s quality of life. 

These conditions -- which for decades, through a public hearing process, were placed on alcohol permits to curtail problems such as late night nuisances and noise, loitering, or the sale of youth-attractive alcohol products -- are routine in cities throughout the state. 

Unfortunately, the City of Los Angeles has recently taken the position that alcohol-specific conditions are no longer permissible, which ultimately silences community input into how alcohol is sold and served locally. In addition to refusing these standards for new businesses, alcohol-related conditions already in place for established businesses are deemed “unenforceable” -- the city is essentially stripping them out.

This is nothing short of outrageous and completely unacceptable. It flies in the face of our democratic process and our rights as residents, business owners, and property owners. 

South Los Angeles residents have long protested the proliferation of liquor stores as well as the absence of healthful food and quality markets.

Downtown and Hollywood have some of the highest concentrations of bars, clubs, and other on-premise alcohol establishments along with the noise, nuisances, fighting, and crime that accompany it. The sale of single-serve containers to serial inebriates helps fuel the homelessness challenges in many parts of the city. 

Westside communities suffer from high concentrations of crowded bars and restaurants that send noisy, drunk patrons out to litter, urinate, and worse in the yards of nearby residents. 

Twelve of 15 Los Angeles City Council districts -- 1, 2, 4, 6, 7, 8, 9, 10, 12, 13, 14 and 15 -- rank in the top tier for their incidence of three or more different alcohol-related harms -- violent crimes, vehicle crashes, deaths, emergency department visits, and hospitalizations, according to a recent County study. 

And alcohol-related problems pose hardships across LA. In fact, each year alcohol-related problems take approximately 2,800 lives in the county, accounting for approximately 80,000 years of potential life lost, and costing the county an estimated $10.3 billion a year. That’s $1,000 every year for every child and adult in the county! 

LA is one of the only cities in California that prohibits local conditions and this is extremely disempowering for our communities.

These conditions are in many cases our only protection from alcohol-related problems since we absolutely cannot rely on the state to manage those problems for us. 

To rectify the situation and restore our community voice in these important decisions, a “conditions motion” is circulating and gaining momentum across the city. The motion asks City Council to return to its former practice of allowing alcohol-specific conditions, and to cease stripping existing conditions. 

Conditions are good for businesses. Allowing the community to come to a consensus with a new business operator around key practices helps speed the “path to yes.” Getting critical community buy-in facilitates the successful establishment of new alcohol businesses. And when businesses negotiate conditions at the local level, they don’t have to renegotiate at the state level, which saves them time and money, and ultimately encourages more growth and development.

Recently the South Los Angeles Alliance of Neighborhood Councils (SLAANC) voted in favor of this motion. It also has the support of the Zapata-King Neighborhood Council, along with 15 other neighborhood and area councils, including the Westside Regional Alliance of Councils (WRAC), and nearly 20 public health agencies including Children’s Hospital of Los Angeles, and alcohol industry watchdog, Alcohol Justice. This motion is critical to ensure that our community’s longstanding efforts to address alcohol problems are not dissolved. 

The Valley Alliance of Neighborhood Councils and other alliances will soon have an opportunity to support this motion. This way we can get the city to again start honoring these standards.  

I urge the VANC board and others to join with SLAANC and WRAC and all the other neighborhoods in standing up for our communities and businesses by supporting this motion. 

We deserve to have our voices heard again.

(Jean Frost is a long time resident of West Adams and chair of the Policy Committee for NANDC, the West Adams neighborhood council organization.) Edited for CityWatch by Linda Abrams.

PERSPECTIVE--In a recent news release, State Treasurer John Chiang said:  “…the Governor and I are partnering on a fiscally prudent plan to buy down our pension debt using what Albert Einstein once called ‘the eighth wonder of the world,’ compound interest. ” 

It’s not Albert Einstein he should be crediting, but Bernie Madoff.

HIGHJACKING DEMOCRACY IN LA-Once Nick Melvoin joins the Los Angeles Unified School District board, he’s going to require all high school civics teachers to add a new lesson plan to their curriculum: “How To Buy An Election.” 

That’s what happened on Tuesday. Melvoin and his billionaire backers dramatically outspent school board president Steve Zimmer’s campaign, making the District 4 race the most expensive in LAUSD history. 

Political pundits will spend the next few days and weeks analyzing the Los Angeles school board election, examining exit polls, spilling lots of ink over how different demographic groups -- income, race, religious, union membership, gender, party affiliation, and others -- voted on Tuesday. 

But the real winner in the race was not Nick Melvoin, but Big Money. And the real loser was not Steve Zimmer, but democracy – and LA’s children. 

Melvoin’s backers -- particularly billionaires and multi-millionaires who donated directly to his campaign and to several front groups, especially the California Charter School Association (CCSA) -- outspent Zimmer’s campaign by $6.6 million to $2.7 million. Melvoin got 30,696 votes to Zimmer’s 22,766. In other words, Melvoin spent 71% of the money to get 57% of the vote. 

Here’s another way of looking at the election results: Melvoin spent $215 for each vote he received, while Zimmer spent only $121 per vote. 

There’s no doubt that if the Zimmer campaign had the same war-chest that Melvoin had, he would have been able to mount an even more formidable grassroots get-out-the-vote campaign and put more money into the TV and radio air war. Under those circumstances, it is likely that Zimmer would have prevailed. 

Billionaires, many of whom live far from Los Angeles, bought this election for Melvoin. Their money paid for non-stop TV and radio ads, as well as phone calls, mailers and newspaper ads (including a huge wrap-around ad on the front of Sunday’s LA Times.) Melvoin’s billionaire backers paid for 44 mailers and at least $1 million on negative TV ads against Zimmer.  

The so-called “Independent” campaign for Melvoin was funded by big oil, big tobacco, Walmart, Enron, and other out-of-town corporations and billionaires. They paid for Melvoin’s ugly, deceptive, and false attack ads against Zimmer, a former teacher and current school board president. Melvoin is so devoted to the corporate agenda for our schools that during the campaign he said that the school district needed a “hostile takeover.” 

Among the big donors behind Melvoin and the CCSA were members of the Walton family (Alice Walton, Jim Walton, and Carrie Walton Penner) ― heirs to the Wal-Mart fortune from Arkansas. Alice Walton (net worth: $36.9 billion), who lives in Texas, was one of the biggest funders behind Melvoin’s campaign. Other Melvoin and CCSA backers included Michael Bloomberg (net worth: $48.5 billion), the former New York City mayor; Reed Hastings, CEO of Netflix (net worth: $1.9 billion), who lives in Santa Cruz;  Doris Fisher (net worth: $2.7 billion), co-founder of The Gap, who lives in San Francisco; Texas resident John Arnold (net worth: $2.9 billion), who made a fortune at Enron before the company collapsed, leaving its employees and stockholders in the lurch, then made another fortune as a hedge fund manager; Jeff Yass, who lives in the Philadelphia suburbs, and runs the Susquehanna group, a hedge fund; and Frank Baxter, former CEO of the global investment bank Jefferies and Company that specialized in “junk” bonds. 

What do the corporate moguls and billionaires want? And what did Steve Zimmer do to make them so upset? 

They want is to turn public schools into educational Wal-Marts run on the same corporate model. They want to expand charter schools that compete with each other and with public schools in an educational “market place.” (LA already has more charter schools than any other district in the country.) 

They want to evaluate teachers and students like they evaluate new products -- in this case, using the bottom-line of standardized test scores. Most teachers will tell you that over-emphasis on standardized testing turns the classroom into an assembly line, where teachers are pressured to “teach to the test,” and students are taught, robot-like, to define success as answering multiple-choice questions on tests. 

Not surprisingly, the billionaires want school employees -- teachers -- to do what they’re told, without having much of a voice in how their workplace functions or what is taught in the classroom. Rather than treat teachers like professionals, they view them as the out-sourced hired help. 

The corporate big-wigs are part of an effort that they and the media misleadingly call “school reform.” What they’re really after is not “reform” (improving our schools for the sake of students) but “privatization” (business control of public education.) They think public schools should be run like corporations, with teachers as compliant workers, students as products, and the school budget as a source of profitable contracts and subsidies for textbook companies, consultants, and others engaged in the big business of education. 

Like most reasonable educators and education analysts, Zimmer has questioned the efficacy of charter schools as a panacea. When the billionaires unveiled their secret plan to put half of LAUSD students into charter schools within eight years, Zimmer led the opposition. In contrast, Melvoin is a big backer of charter schools and a big critic of the teachers union.  

Now the billionaires and their charter school operators will have a majority on the school board. LA will become the epicenter of a major experiment in expanding charter schools – with the school children as the guinea pigs. 

Pundits will have a field day pontificating about the LAUSD election, but in the end it’s about how Big Money hijacked democracy in LA.

(Peter Dreier is professor of politics and chair of the Urban & Environmental Policy Department at Occidental College and an occasional contributor to CityWatch.) Prepped for CityWatch by Linda Abrams.

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PERSPECTIVE--Governor Brown is making an appeal to the Trump administration to transfer oversight of environmental reviews of the high-speed rail project from the federal government to the state. 

If this strategy sounds familiar, it is.  The City of Los Angeles allows developers to arrange their own EIRs.

Brown has a vested personal interest in pushing HSR.  It’s his vanity project.  It will probably put the state in a position where it will have to subsidize the system, in direct violation of Proposition 1A, as approved by the voters in 2008.

He and his colleagues, along with other politically connected interest groups who stand to benefit from the most expensive folly in history, are hell-bent to complete the project, regardless of the cost and the diversion of funds from far more critical needs.  Do not think for one moment that the state will take an unbiased approach in evaluating the results of an EIR under its control.

There is no private investor interest in the project.  That is unlikely to change even if an initial segment, constructed over the easiest terrain and serving markets with the least possible need, were to be completed. The risks of tunneling through faults in the San Gabriel Mountains, essential for fulfilling the promise of service between San Francisco and Los Angeles, will be too risky to attract sensible investors unless the state were to offer substantial guarantees and establish reserve funds.  Such a move would put California on the hook for losses. Like a subsidy, that would contradict taxpayer protections in 1A.

CAHSR will collapse under its own weight and from voter frustration with pouring more money in what will be a system which grossly underdelivers for the costs.

There is no scenario where it can be built and operated within the limits of Prop 1A.  The sooner the governor and legislature put aside their personal ambition and admit it will be a fiscal failure, the more likely the state will be able to afford far more pressing capital improvements.

There is much work to do; we do not have endless sources of affordable debt and tax revenue. Choices have to be made, and HSR is near the bottom.

(Paul Hatfield is a CPA and serves as President of the Valley Village Homeowners Association. He blogs at Village to Village and contributes to CityWatch. The views presented are those of Mr. Hatfield and his alone and do not represent the opinions of Valley Village Homeowners Association or CityWatch. He can be reached at: [email protected].)

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EDUCATION P0LITICS-- A runoff election Tuesday in Los Angeles will determine the fate of public education in one of the nation's largest school districts, in a first major test of the influence of the Trump-era charter school industry.

Voters will head to the polls on May 16 to choose between charter school ally Nick Melvoin and current LA school board president Steve Zimmer in a race for District 4, and between charter school teacher Kelly Fitzpatrick-Gonez against public school advocate Imelda Padilla for a seat in District 6.

If the industry-supported candidates win, they will be able to "squash democratic control of public schools," wrote education historian Diane Ravitch on Sunday. That includes diverting public funds to corporate charter chains and entrepreneurs, widening the reach and power of an industry that has no system of public accountability and has been plagued by theft and fraud scandals.

The Los Angeles Times explained Saturday: 

If the charter-backed candidates prevail, charter advocates will win their first governing majority on the seven-member body. If the election goes entirely the other way, unions will strengthen their influence on a board that leans pro-labor. In that scenario, the board would be more likely to limit the growth of charters in the nation's second-largest school system, which has more charters and more charter students than any other school district.

"Think of this as the great Charter War of 2017," said Dan Schnur, former director of the Unruh Institute of Politics at USC. "The stakes are unusually high, substantively but even more symbolically. The outcome of these races will determine control of the largest school district in the western United States."

The election will also serve as a microcosm of the Trump administration's vision for public schools nationwide, with Education Secretary Betsy DeVos having expressed her support for privatization throughout her confirmation hearings and previously compared the controversial issue of school choice to ride-sharing apps. Secretary of State Rex Tillerson has also referred to public schools as a "product." 

"Unregulated charter schools and vouchers allow private groups to control taxpayer dollars and—in the worst cases—profit from them," Donald Cohen of the watchdog group In the Public Interest wrote at the Huffington Post last week. "But they also help fulfill a vision of society in which government is run like a business and people—and corporations—are customers."

Billionaire Eli Broad and other wealthy supporters—including Walmart heiress Alice Walton, former New York Mayor Michael Bloomberg, and Netflix co-founder Reed Hastings—have poured millions into Melvoin's campaign. Zimmer has been endorsed by Los Angeles Mayor Eric Garcetti, teacher and labor unions in LA, Sen. Bernie Sanders (I-Vt), and other city officials. But although he received 47.5 of the vote in the primary to Melvoin's 31.2 percent, Zimmer faces a well-funded opposition, and Melvoin has picked up endorsements from major players in the corporate education industry, including former Education Secretary Arne Duncan.

"Why do they want to control it? None of them has a child in the system. They despise public schools and they want to turn Los Angeles into a charter school demonstration district. It is all about power and money," Ravitch, who also endorsed Zimmer, wrote in another recent blog post. "No matter how many scandals [there] are in charter schools in Los Angeles or in California, or how many charter leaders are arrested, or how much money is stolen or misappropriated, the charter school advocates won't give up. They refuse to devote their energy and money to rebuilding the Los Angeles public school system."

(Nadia Prupis writes for Common Dreams … where this report originated.)

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