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In a previous paper (Beneath the Palo Alto Business Tax), the minimum salary and retirement payouts were demonstrated for a hypothetical Palo Alto Police Officer, hired in 2008 at a nominal $100,000 per annum, receiving a 5.5% raise per year for thirty years, and a retirement benefit paid for thirty years, adjusted for a 3% CPI. That paper (www.geocities.com/wmartin46/msw_pa_business_tax_2.pdf) showed that the officer’s salary will double every 12 years or so, and will double again during the years of his retirement. The paper shows that at age 81, this former city employee would be drawing over $800,000 a year in retirement payouts. The costs of paying for all of California CalPERS payouts will be estimated in this paper. Such an estimation is not an easy thing to do with any hope of accuracy, but not hard to do for an “order-of-magnitude” solution. In 2008, CalPERS is supposed to have paid $11B to government retirees. That comes to about $22,000 per retiree (on average). Assuming that there will be additional retires in the future, and that the retirement salaries begin to grow at the non-linear rates that were demonstrated in the previous paper, then the total payouts for CalPERS will begin to look like those in this table: Estimated CalPERS Future Retirement Payouts
Number of Retirees
Year 2008 Average Payouts $22,000 $40,000 $60,000 $80,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 500,000 $11,000,000,000 $20,000,000,000 $30,000,000,000 $40,000,000,000 $50,000,000,000 $75,000,000,000 $100,000,000,000 $125,000,000,000 $150,000,000,000 $175,000,000,000 $200,000,000,000 600,000 $24,000,000,000 $36,000,000,000 $48,000,000,000 $60,000,000,000 $90,000,000,000 $120,000,000,000 $150,000,000,000 $180,000,000,000 $210,000,000,000 $240,000,000,000
Total Pension Spending CalPERS is not the only source of pension payouts in California. The Schools have a similar agency for their retirement needs, CalSTRS; there are independent pension funds for Los Angeles and San Diego, as well as many smaller funds throughout the state. The following chart tracks California spending on Pensions over the past decade: http://www.usgovernmentspending.com/downchart_gs.php?chart=00total&view=1&year=1999_2019&state=CA
Notice that California pension payouts have more than tripled over the last thirteen years. With the wave of over California government employees (city/county/state/special district/schools) that will be retiring during the next decade, the pension payout rate of increase will doubles increase beyond a tripping that has occurred over the last decade.
Healthcare Payouts CalPERS will provide over $5.7 billion in health benefits "nearly 1.3 million active and retired state and local government public employees and their family members" as of 2009. Therefore, it was the nation’s second largest public purchaser of health benefits, behind the FEHBP which covered "about 8 million federal employees, retirees, and their dependents". Of the enrollees, 61% are state employees and 39% are local government and school employees; 74% are working and 26% are retired. http://www.usgovernmentspending.com/downchart_gs.php?chart=10total&view=1&year=1999_2019&state=CA
As can be seen from the pensions payout chart, and the healthcare payout chart, the combined payout for these two programs is about $100B—or about 75% of the amount spent on the State budget.
State Costs For Retirement Programs http://www.lao.ca.gov/analysis_2009/general_govt/gen_anl09004003.aspx#zzee_link_1_ 1233252482
The chart above demonstrates the dramatic increase in post-employee retirement program spending. Note, that this is a “to date” representation, and does not make any projections into the future.
Total California Government Spending The chart following tracks the increase in California Government spending over the last thirteen years: http://www.usgovernmentspending.com/downchart_gs.php?chart=F0total&view=1&year=1999_2019&state=CA
According to the California Department of Finance, California's gross state product is $1.543 trillion. From this chart showing California Government Total spending, about 30% of the California GDP is consumed by government. Conclusion Government spending now accounts for an alarming percentage of the California's Gross Domestic Product. Much of this growth has come from pensions and health care for state employees. Continued increases in these costs are simply not justifiable or sustainable in the context of the fundamental economic changes we now face. Taxpayers can no longer shoulder the costs of pensions and healthcare benefits for California's retired state workers. Retiree cost sharing and benefit reduction -- on the order of recent UAW concessions -- must be the key to responsible retiree financial planning that doesn't bankrupt the state of California. Wayne Martin Palo Alto, CA Email: email@example.com Youtube: www.youtube.com/wmartin46 Twitter: www.twitter.com/wmartin46
On-line Source: www.geocities.com/wmartin46/msw_pa_business_tax_2.pdf www.geocities.com/wmartin46/msw_ca_future_pension_payouts.pdf
http://www.usgovernmentspending.com http://en.wikipedia.org/wiki/Economy_of_California On-the-NET: Pension Tsunami WEB-site: http://www.PensionTsunami.com How California Became France:
CalPERS: http://en.wikipedia.org/wiki/CalPERS LAO:State Retirement Costs May Skyrocket in Future Years http://www.lao.ca.gov/analysis_2009/general_govt/gen_anl09004003.aspx#zzee_link_1_ 1233252482 Gilt-edged Pensions:
When City Hall Goes Bust: http://www.forbes.com/forbes/2009/0216/078a.html CalPERS 2008: Down $60 Billion. http://sacrealstats.blogspot.com/2009/01/calpers-2008-down-60-billion.html CalPERS warns of rate hike http://calpensions.com/2009/01/12/calpers-warns-of-rate-hike/