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Racial Transfers of Wealth and Income Via Under-Funded Legacy Municipal Pension Systems

Racial Transfers of Wealth and Income Via Under-Funded Legacy Municipal Pension Systems

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Published by darwinbondgraham
Oakland, California's Police and Fire Retirement System (PFRS) provides retirement benefits to police and fire officers hired before 1976. Because of racist hiring policies and discrimination within the city's
various departments, especially the police, except for a few late hires in the 1970s, vested members of the PFRS pension are virtually all elderly white men. Most members retired decades ago and decamped to suburban cities and distant rural towns. Between 1976 and the present the PFRS pension became severely under-funded, requiring extra contributions from the city. Oakland simultaneously lost thousands of middle class residents, major employers closed factories, retail was shuttered, and poverty and unemployment rates increased for the city's new non-white majority. Fiscally weakened, Oakland struggled make contributions to the PFRS. To finance contributions the city issued risky pension
obligation bonds in a securities arbitrage strategy. The pension bonds successfully prevented extremely harmful cuts to services funded from the city's general fund, but this risky plan of creative finance failed to reduce the unfunded accrued actuarial liability of the PFRS. A stock market bubble, weak
performance by investment managers, and the financial crisis of 2008, wiped out gains from the bond proceeds leaving the system further under-funded. In 2012 Oakland doubled down with a new issuance
of pension bonds. Only five years from today will investment returns and losses net of interest payments be calculable. Even so, the PFRS saga of Oakland demonstrates the structurally racist fiscal architecture of US cities due to complex historic, demographic, market, and political factors that benefit certain privileged past workers over current residents and employees.
Oakland, California's Police and Fire Retirement System (PFRS) provides retirement benefits to police and fire officers hired before 1976. Because of racist hiring policies and discrimination within the city's
various departments, especially the police, except for a few late hires in the 1970s, vested members of the PFRS pension are virtually all elderly white men. Most members retired decades ago and decamped to suburban cities and distant rural towns. Between 1976 and the present the PFRS pension became severely under-funded, requiring extra contributions from the city. Oakland simultaneously lost thousands of middle class residents, major employers closed factories, retail was shuttered, and poverty and unemployment rates increased for the city's new non-white majority. Fiscally weakened, Oakland struggled make contributions to the PFRS. To finance contributions the city issued risky pension
obligation bonds in a securities arbitrage strategy. The pension bonds successfully prevented extremely harmful cuts to services funded from the city's general fund, but this risky plan of creative finance failed to reduce the unfunded accrued actuarial liability of the PFRS. A stock market bubble, weak
performance by investment managers, and the financial crisis of 2008, wiped out gains from the bond proceeds leaving the system further under-funded. In 2012 Oakland doubled down with a new issuance
of pension bonds. Only five years from today will investment returns and losses net of interest payments be calculable. Even so, the PFRS saga of Oakland demonstrates the structurally racist fiscal architecture of US cities due to complex historic, demographic, market, and political factors that benefit certain privileged past workers over current residents and employees.

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Published by: darwinbondgraham on Apr 18, 2013
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Racial transfers of wealth and income via under-funded legacy municipal pension systems
Darwin BondGraham
1
Abstract:Oakland, California's Police and Fire Retirement System (PFRS) provides retirement benefits to policeand fire officers hired before 1976. Because of racist hiring policies and discrimination within the city'svarious departments, especially the police, except for a few late hires in the 1970s, vested members of the PFRS pension are virtually all elderly white men. Most members retired decades ago and decampedto suburban cities and distant rural towns. Between 1976 and the present the PFRS pension becameseverely under-funded, requiring extra contributions from the city. Oakland simultaneously lostthousands of middle class residents, major employers closed factories, retail was shuttered, and povertyand unemployment rates increased for the city's new non-white majority. Fiscally weakened, Oaklandstruggled make contributions to the PFRS. To finance contributions the city issued risky pensionobligation bonds in a securities arbitrage strategy. The pension bonds successfully prevented extremelyharmful cuts to services funded from the city's general fund, but this risky plan of creative financefailed to reduce the unfunded accrued actuarial liability of the PFRS. A stock market bubble, weak  performance by investment managers, and the financial crisis of 2008, wiped out gains from the bond proceeds leaving the system further under-funded. In 2012 Oakland doubled down with a new issuanceof pension bonds. Only five years from today will investment returns and losses net of interest payments be calculable. Even so, the PFRS saga of Oakland demonstrates the structurally racist fiscalarchitecture of US cities due to complex historic, demographic, market, and political factors that benefit certain privileged past workers over current residents and employees.
1Contact the author  darwinbondgraham(at)gmail.com
 
Black Migration and Exclusion from the City's Wealth
World War II brought approximately 80,000 new residents to Oakland, California to work inwartime manufacturing plants scattered from Richmond to Fremont. The largest influx of workers wereBlack and white migrants leaving southern states where where changes in the plantation systemdisplaced the tenant labor force.
i
 Wartime jobs in West Coast industrial boom cities also promisedupward socioeconomic mobility for these groups. New residents were catalysts of rapid economic growth in California. Oakland quickly becamethe second largest city in the Bay Area metropolitan region, and solidified its role as the hub of industryaround which tens of thousands of new homes, and hundreds of schools and commercial centers wereconstructed. Thousands of new small businesses as well as major retail department stores opened indowntown, east, and north Oakland.California's reputation as a "Golden State," initially conceived in popular culture as a story of  private riches to be eked out of mines and frontier markets via bootstrap entrepreneurship was replaced by a new "dream." During and after World War II California's "golden" opportunities were conceived of as a social project available through the robust public sector, centered on a few large municipalities,and growing collective investments in education, infrastructure, health, and welfare, and underwritten by the labor of a rising middle class. New migrants to Oakland sought out these social riches, indeedfought with employers and conservative politicians to strengthen a progressive social contract.For Black newcomers social progress was much more difficult to earn. Racist barriers wereestablished in law and customs by the white majority. Like nearly all other "northern" cities, Oakland'swartime leaders chose to foster an apartheid system of housing, education, and city services as a"solution" to Black migration, which many local white businessmen and politicians presumed was"temporary." The city's rapidly growing Black population was ghettoized into the flatland regionsinitially in West Oakland where a small Black community had existed almost since the city's founding.
 During and after the war Black families increasingly took up housing in portions of East Oakland aswhite middle class families left for the growing suburbs. In 1940 Blacks made up about 3 percent of Oakland's total population. By 1950 they were more than 12 percent, 22 percent by 1960, and 34 percent by 1970. In 1980 Blacks became the largest racial group in Oakland, making up 47 percent of the city's population.
 Figure 1 charts Oakland's racial shift from a white industrial city to Black post-industrial metropolis, and finally to a Black, white, Latino, and Asian prismatic metropolis over sevendecades.
 
Black migrants quickly made Oakland their home. Post-war organizing for human rights led toslow but steady progress in de-segregating the public and private spheres of life and labor. Even thoughhousing segregation remained a serious inequity (indeed to this day), the advent of masshomeownership, and small business entrepreneurship, among Oakland's Black population marked progress over previous eras of racist disaccumulation.One of the institutions most difficult to de-segregate was the city of Oakland's public safetyapparatus, however. During World War II, and the immediate postwar decades, the city's police and fireemployees were virtually all white.
v
 A de-facto policy which banned Blacks from working for government in any but the most menial roles existed well into the 1960s. Of the OPD's 617 officers in1966, only 16 were Black, and these very junior officers were mostly consigned to duty in WestOakland.
According to a survey of Oakland police officers conducted in 1980, only six percent of theforce was Black. The overwhelming majority, 83 percent of officers, were white, and while almost athird of officers had been with the department for ten years or more, black officers had a less lengthyaverage tenure.
One of the many inequitable results of this racist exclusion from municipal employment wasthat the vested membership of the city's pension systems, principally PFRS, became a homogenous population of white men. Non-white workers, and by extension their families and communities, wouldnever receive proportionate benefits of this unique social insurance available to Oakland employees.This inequitable arrangement was made all the more damaging to Black city employees due to the factthat in post-WWII America, police and fire jobs have been among the highest paying public jobs, and
 Figure 1: Oakland's racial composition between 1940 and 2010. Approximately 200,000 whitesleft the city between 1950 and 1980 while over 100,000 Blacks arrived. *In the 1980s Latinoimmigration from Mexico and Central America increased alongside the existing and significantlylarge Chinese, Korean, Cambodian, and Vietnamese communties..

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